System liquidity slumps to negative N182.6bn as banks deposit N1.4tn with CBN

SYSTEM liquidity remained under pressure, closing at a negative ₦182.6 billion, as banks placed a significant ₦1.4 trillion in deposits with the Central Bank of Nigeria (CBN) via the Standing Deposit Facility (SDF). This move further tightened liquidity in the financial system, continuing the trend from the previous week.

The drain of ₦1.4 trillion through the SDF was the primary driver behind the liquidity shortfall. Simultaneously, the CBN’s foreign exchange market interventions pushed money market rates higher, with rates hovering around the 29 percent mark. The lack of supportive inflows and the prevailing tight liquidity conditions have caused short-term benchmark interest rates to spike, prompting banks with surplus funds to demand higher returns.

Additionally, there has been a noticeable increase in borrowings from the CBN’s Standing Lending Facility (SLF), indicating a return to constrained funding conditions in the money market. The current environment stands in contrast to the recent past, when excess liquidity prevailed.

Due to low funding needs, banks have continued to sterilize idle funds by placing them in the CBN’s deposit window, where returns are below the benchmark rate. However, this trend has been disrupted by several liquidity-draining transactions, including sizable outflows for Open Market Operations (OMO) and Nigerian Treasury Bills (NTB) auction settlements.

With no major inflows to offset these debits—alongside the latest round of foreign exchange settlements for authorized dealer banks—funding rates have risen sharply. Rates have climbed by at least 200 basis points from around 26 percent.

On Wednesday, the Nigerian Interbank Offered Rate (NIBOR) climbed across all tenors, underlining the persistent tightness in the banking system. Key money market indicators followed suit: the Open Repo Rate rose by 1.00 percentage point to 28.50 percent, while the Overnight Lending Rate increased by 0.82 percentage point to 29.42 percent.

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