Owing to liquidity challenge, Nigerian Deposit Money Banks (DMBs) have made the largest single withdrawal of N1.2 trillion from the Central Bank’s (CBN) Standing Lending Facility (SLF) to fund operations due to a liquidity shortfall in the money market, TrustBanc Financial Group Limited said in a note.
The banking system is facing a huge liquidity deficit, which at the last count was N266.55 billion on Thursday, as against N201 billion in excess funds reported midweek.
The financial system’s liquidity has been drained as a result of huge outflows relating to the Central Bank of Nigeria auctions. The market also reported an undisclosed FX swap settlement.
Analysts said it is normal market development for liquidity to swing left or right as banks appetite for government securities and subsequent debits for investment placed often drain liquidity balance in the financial market with immediate impacts on rate pricing.
Trading activities began with a strain on liquidity, as the banking system opened with a liquidity shortfall of ₦266.5 billion due to increased funding obligations, the investment firm said in a note.
As a result, the DMBs turned to the Standing Lending Facility (SLF) window of the CBN for succour, withdrawing a total of ₦1.2 trillion, the amount TrustBanc called the largest single-day withdrawal since the turn of the year.
Analysts noted that this liquidity squeeze pushed interbank funding rates (OPR & O/N) up by over 340 bps to close at 31.50 per cent and 32.00 per cent, respectively. Considering the current liquidity balance, analysts at TrustBanc expect funding rates to remain near prevailing levels.
The CBN had earlier this year confirmed that that liquidity challenges in the financial sector led the commercial and merchant banks to borrow N8.2 trillion from the apex bank in the first 17 days of business activities in January 2025.
Within the period banks and merchant banks’ deposits in CBN stood at N6.69 trillion, amid the banks’ efforts to lend to the real sector of the economy. Commercial banks and merchant banks access lending from the CBN using the Standing Lending Facility (SLF) window.
They also deposit excess liquidity with the apex bank using the Standing Deposit Facility window (SDF).The CBN provides the SLF, a short-term lending window for banks and merchant banks, to access liquidity to run their day-to-day business operations.(Guardian)
