Nigeria’s banking system is facing a potential ₦8.57tn liquidity position this week as maturing Open Market Operations (OMO) bills and bond coupon payments release additional funds into the financial system.
According to data reported from the Central Bank of Nigeria (CBN), system liquidity had already increased to ₦5.98tn in the week ended September 25, compared with ₦2.86tn in the previous week. The increase followed the repayment of about ₦2.3tn in OMO bills on September 22.
Another ₦2.43tn in OMO bills is expected to mature during the week, while bond coupon payments could inject an additional ₦164bn. Together, these inflows could add approximately ₦2.59tn to the banking system if banks retain most of the funds.
Banks already holding excess cash
The increase in liquidity is also reflected in banks’ use of the CBN’s Standing Deposit Facility (SDF). Nigerian banks placed more than ₦7tn with the apex bank during the previous week, indicating that substantial excess funds were already available within the banking system.
The additional inflows could therefore increase pressure on the CBN to mop up excess liquidity through its monetary-policy operations.
The development comes shortly after the CBN reduced its Monetary Policy Rate (MPR) from 26.5% to 23%, representing a 350-basis-point reduction announced after the Monetary Policy Committee meeting on September 22.
Following the rate cut, money-market rates also declined. The overnight rate fell to 20.77% from 22.24%, while the funding rate dropped to 20.40% from 22%.
The CBN also reduced the SDF rate to 20% and set the Standing Lending Facility at 23.5%.
Strong demand for government securities
The liquidity situation has also coincided with strong investor demand for Nigerian government securities.
At the latest Treasury Bills auction, the Debt Management Office offered ₦500bn worth of bills but received bids worth about ₦4.2tn. Stop rates fell to 15.50% for the 91-day bill, 15.80% for the 182-day bill and 15.89% for the 364-day bill.
The CBN also conducted an OMO auction on September 24, offering ₦1tn in bills. Investors submitted bids worth ₦6.1tn, while the CBN allotted approximately ₦2.3tn.
Nairametrics reported that across four OMO auctions in September, investors submitted a combined ₦20.58tn in bids against ₦3.9tn offered by the CBN, showing strong demand for the instruments despite declining interest rates.
What the liquidity surge means
The expected inflow presents another test for the CBN as it manages the balance between maintaining adequate liquidity in the banking system and preventing excess cash from creating inflationary or market pressures.
The apex bank could respond with additional OMO sales or other liquidity-management measures if excess funds remain in the system.
For commercial banks, the increased liquidity could provide greater availability of funds for lending and investment, although the effect on borrowing costs will depend on how banks and financial markets respond to the CBN’s recent rate reduction.
The development will therefore be closely monitored by investors, banks and businesses as Nigeria enters the final days of September.
