Liquidity pressure heightened in the banking industry, last week, forcing banks’ borrowings from Central Bank of Nigeria’s Standing Lending Facility, SLF, to rise 230.61 per cent to N929.52 billion.
Conversely, the Standing Deposit Facility, SDF, has equally declined 61.76 per cent to N227.44 billion during the week, indicating that banks are also withdrawing heavily from their deposits in CBN as the liquidity pressure bites harder. Banks use the CBN’s SLF to support their liquidity shortfalls and meet trading obligations on short term basis, while keeping excess cash with the apex bank in the SDF also on short term basis.
Banks treasurers said the current liquidity pressure was coming from the Naira back-up for foreign exchange demands under the new foreign exchange regime where banks had to provide Naira back-up of over N1.2 trillion last week.
The treasurers said Nigerian interbank money market experienced sustained liquidity strain which led to higher lending rates at the interbank market. At the backdrop of the liquidity pressure, CBN auctioned its Nigerian Treasury Bills, NTB, causing liquidity outflow of N285.4 billion, through a 91-day worth N18.12 billion; 182-day NTB worth N11.34 billion; and 364-day NTB worth N50 billion.
Though the outflows were partly offset by inflows in matured treasury bills worth N107.46 billion, there was also an additional N205.94 billion worth of NTB sold by the apex bank through open market operations.
Consequently, the net effect of the outflows and the liquidity squeeze was a further spike in interbank rates as marginal rates for the various tenors of NTB increased to 9.99% (from 8%); 12.3% (from 9.35%); and 14.99% (from 11.99%) respectively.
More significantly, the Nigerian Interbank Offered Rates, NIBOR, for overnight funds, 1 month, 3 months and 6 months closed astronomically higher at 24.46% (from 2.15%), 14.49% (from 8.06%), 16.07% (from 12.34%) and 17.22% (from 13.89%) respectively.
Meanwhile, yields on the Nigerian Interbank True Treasury Bills Yield mostly increased amid financial system liquidity strain. Yields on the 1 month, 3 months and 6 months maturities increased to 10.59% (from 2.93%), 11.53% (from 8.34%), 13.03% (from 9.82%) respectively.