Banks hold N4.39trn surplus cash as CBN debts mature

Despite the Central Bank of Nigeria’s (CBN) attempts to mop up cash through its open market operations, banks ended last week awash with about N4.39 trillion in extra funds, following the maturity of large OMO bills that pumped fresh funds into the system.

The liquidity surge kept overnight funding rates largely stable, underscoring the depth of cash in the system despite the CBN’s ongoing tightening stance.

This came after roughly N1.45 trillion in OMO maturities flowed back to investors during the week, delivering a sizeable injection of cash into the financial system. To manage the sudden influx, the CBN conducted an OMO auction that absorbed N273.60 billion, though the mop-up represented only a fraction of the liquidity released.

Hence, the limited scale of the intervention left a net liquidity addition exceeding N1 trillion, pushing the system’s net long position to N4.39 trillion, up from N3.37 trillion a week earlier, marking one of the largest weekly liquidity expansions recorded this quarter.

Despite the increase in system cash, the overnight (OVN) rate held steady at 24.9 per cent, suggesting the market had already priced in the inflows and maintained a comfortable liquidity cushion.

Money market analysts say the trend highlights the current challenge facing the central bank. According to them, large, lumpy maturities that inject cash into the system faster than the CBN can sterilize without aggressive or frequent OMO issuance.

A Lagos fixed-income trader at a Tier-1 bank told Daily Sun on anonymity that the apex bank is clearly tightening liquidity conditions, but the maturity calendar is working in the opposite direction. “Whenever these large OMO maturities hit, liquidity spikes, and if the CBN doesn’t issue aggressively, the market immediately feels flush with cash again”, he said.

Head, FSL Securities, Chiazor Victor, noted that the central bank appears to be striking a balance between draining liquidity and maintaining enough system cash to avoid straining banks’ settlement operations.

“The CBN could have taken out more than N273 billion, but doing so might have risked tightening too abruptly. So I think that they are signalling caution which is tightening, not choking”, Victor explained.

Still, some analysts believe more sterilization may be required in coming weeks if the central bank wants to maintain its hawkish stance and keep short-term rates elevated.

Cordros Research in their weekly report said that with liquidity now north of N4 trillion, the OVN staying below 25 per cent suggests the system is more liquid than the policy stance implies.

“Barring any liquidity tightening measures by the CBN in the coming week, system liquidity is expected to remain ample, keeping the OVN rate anchored around current levels”, the report said.

This could mean that no major outflows are scheduled in the early part of the coming week, leaving the OVN rate likely to trade around current levels unless the CBN intervenes again.

The coming weeks will offer clearer signals about the CBN’s liquidity management playbook, especially as policymakers seek to balance inflation control, naira stability, and orderly market functioning.

For now, banks remain heavily cashed up, reflecting a system that continues to swing between liquidity surges and selective tightening as the CBN navigates a complex policy environment.