Nigeria’s Financial System Suffers Deficit As Banks Face Liquidity Pressure

Deposit Money Banks (DMBs) persistent borrowings from the Central Bank of Nigeria’s (CBN) standing lending facility (SLF) have driven the financial system into deficit.

This is according to investment banking firms, and analysts’ reports.

Some banks are currently facing liquidity pressures, a condition that continues to drive funding rates higher, according to analysts’ chats with MarketForces Africa, saying banks not having enough cash is a big issue, analysts added.

Last week, a large number of local lenders offloaded a portion of the investment securities in the fixed income market to increase their respective liquidity positions.

Nigerian deposit money banks are facing low deposits from their customers, an aftermath effect of the failed implementation of the Naira redesign policy which spooked economic activities.

In its note, TrustBanc Capital Limited said the financial system closed with a deficit balance of ₦262.28 billion – a net short position amidst weak inflows to support the liquidity level in the market.

As a result, interbank funding rates –report and overnight lending rates held firm at 18.63% and 19.00%, respectively, according to analysts. In the near term, TrustBanc Capital expressed a view that funding rates will remain elevated, while liquidity condition remains tight.

This week, analysts at TrustBanc Capital projected that a Bond auction settlement worth ₦360 billion will exert more pressure on available liquidity.

However, the anticipation of Bond coupon payments may provide a light cushion for deposit money banks, according to analysts. On Friday, the CBN debit for secondary market intervention sales (SMIS) auction settlement expanded the deficit in the system to ₦250 billion.

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Analysts said throughout last week, local banks battled with illiquidity as the system closed with a negative balance for the 7th consecutive business day. Liquidity level declined following debits for Nigerian Treasury bills and open market operation auctions by the monetary authority last week

To meet short-term funding needs, TrustBanc Capital said a number of Nigerian lenders made away with an aggregate sum of ₦888.19 billion through the CBN’s Standing Lending Financing (SLF) window.

As a result, interbank funding rates traded near market cap levels all week – 18.6% and 19%, reflecting liquidity tightness has not eased after weeks of staying at double digits highs.

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