Liquidity Tasty Banks Raise N4trn from CBN in April

Amidst liquidity pressures, some Nigerian deposit money banks raised N4 trillion from the Central Bank’s standing lending facility in April 2023, a condition that pushed funding rates higher for lenders.

Partly, weak liquidity in the money market space was attributed to serial debits on local lenders that failed to meet CBN 65% loans to deposit ratio targets. In addition, the cash crisis in the first quarter of the year has also been noted as a major contributor.

Nigerian banks require large cash holdings to support retail lending businesses and meet their respective daily liquidity demands. The sustained development by some liquidity stressed local lenders pushed short-term benchmark money market rates near 20%.

Nigeria raised the monetary policy rate to 18% in March, and the hawkish tone has forced local deposit money banks to raise lending rates to corporates and small, and medium scale entrepreneurs. Most active, strong retail banking players would obviously require a higher level of liquidity as Nigeria’s daily business transactions remain cash-powered.

The CBN’s failed efforts to drive a cashless economy failed following the apex bank’s inability to implement Nigeria’s naira redesign policy successfully in the first quarter of the.

Daily Global News reported that the liquidity level in the financial system closed for the month on a positive note. This happened despite the negative runs recorded in most parts of the month, according to TrustBanc Capital Limited.

The fall in daily system balance that commenced in February worsened in April as the average daily closing balance shrank by over 95%, from ₦167 billion in March to ₦9 billion in April, TrustBanc said in a note.

Riding on the back of CRR refund and FAAC disbursements received late in March, April saw liquidity improvement, however, this quickly dried up as the liquidity taste of Nigerian banks expanded.

In April, local lenders withdrew a total of ₦4 trillion via the standing lending facility window submerging the system into a deficit close for 12 consecutive days, TrustBanc Capital said.

At the tail end of the month, inflows from FAAC disbursement worth ₦438.5 billion; in addition to bond coupon payments totalling ₦472.3 billion, and bond maturity worth ₦735.9 billion.

These large inflows lifted the system into a buoyant position and repo and overnight lending rates adjusted downward. In April, interbank funding rates were mostly traded at market cap levels, according to TrustBanc Capital until the final days of the month when rates touched the market floor

“In May, we expect the buoyant closing balance recorded in April to dry up in the first week, afterwards, extended negative runs will dominate the system while funding rates and yields will jump up significantly”, the firm stated.

Supporting the projection, Coronation Merchant Bank said this week, the firm expects rates in the money market to tighten as the projected outflow from a potential CRR debit by the CBN would likely outweigh the expected inflow from an fx refund and OMO bills maturity.