Banks’ Borrowings Keep Financial System Liquidity In Deficit

Nigerian deposit money banks (DMBs) are battling liquidity pressures, and this has resulted in sustained borrowings from the apex bank to ensure they keep to daily requirements. Funding rates have spiked as liquidity tightening persists.

The majority of banks are faced with liquidity pressures – except for cash-rich lenders, mostly Tier-1 banks, that continue to maintain a positive position at the standing deposit window.

Retail lenders are more active in the borrowing spree and records indicate some tier-2 lenders are ramping up borrowings to stay afloat.

Apart from offloading their investment securities, especially, Treasury bill holdings, which pushed the yield curve higher in the secondary market, banks maintain access to funding from standing lending facilities.

In a brief, analysts said the financial system deficit expanded by about 33% to close at ₦81.08 billion on Wednesday, sustaining the previous pattern even after the Central Bank of Nigeria refunded lender’s cash reserve ratio debits.

Taking cognisance of liquidity tightening, analysts at TrustBanc Capital Limited hint that the surge in financial system deficit was driven by increased pressure by local banks at the Standing Lending Facility (SLF) window of the CBN.

As a result, Open Repo Rate closed at 18.63% on Wednesday, while Overnight Rate advanced by 25 basis points to close at a market cap level- 19.00%.

“Barring any significant inflows into the system, we expect liquidity conditions to remain tight, while rates are expected to trade in the banking system at elevated levels”, TrustBanc Capital Limited said in a note to clients.