Nigerian Banks Face Tighter Liquidity After CBN’s N3.7 Trillion Treasury, OMO Sales
- The CBN withdrew about N3.7 trillion from the banking system through NTB and OMO sales
- The system’s liquidity deficit widened to N2.5 trillion despite large repayment inflows
- Heavy SDF placements by banks further tightened money-market conditions
Oluwatobi Odeyinka is a business editor at Legit.ng, covering energy, the money market, technology and macroeconomic trends in Nigeria.
Nigeria’s banking system slipped further into a liquidity deficit last week after the Central Bank of Nigeria (CBN) withdrew an estimated N3.7 trillion from the financial system through large-scale sales of treasury and open market operation (OMO) bills.
According to data obtained and reported by The Sun, the apex bank sold about N1.1 trillion in Nigerian Treasury Bills (NTBs) and an additional N2.6 trillion in OMO bills, a move that outweighed cash inflows from maturing securities.
Source: Getty Images
The withdrawals came despite a N2.2 trillion repayment from the primary market, which would typically support liquidity. Instead, the banking system’s liquidity shortfall widened to N2.5 trillion, from N1.8 trillion recorded the previous Friday.
Market sources explained that repayment inflows were quickly absorbed once banks subscribed to new NTB and OMO issuances, leading to immediate debits and further tightening conditions.
CBN to manage liquidity through OMO bills
OMO bills, which are mainly accessible to banks and foreign investors, remain one of the CBN’s key tools for managing liquidity. By offering relatively attractive yields, the central bank encourages financial institutions to return excess funds, reducing cash available for lending, trading and foreign exchange demand.
Liquidity pressures were further intensified by significant placements at the Standing Deposit Facility (SDF), where banks deposited N10.1 trillion during the week.
With SDF rates remaining competitive, banks preferred to park funds with the CBN rather than lend in the interbank or secondary markets. As a result, liquidity conditions tightened even as overall inflows increased.
Interbank rates reflected the strain, with the open buy-back rate closing flat at 22.5%, while the overnight lending rate rose by 10 basis points to 22.8%, staying close to the upper limit of the policy corridor.
At the treasury-bill primary auction, the CBN offered N1.2 trillion across 91-day, 182-day and 364-day tenors but sold N1.1 trillion, signalling a cautious issuance approach. Investor demand was strongest for the 364-day bill, driven by expectations that yields may peak later in the year.
Stop rates were mixed, as yields on shorter tenors edged higher, while the one-year bill cleared lower, reflecting investor preference for locking in longer-term returns.
Secondary-market trading showed similar pressure, with average treasury-bill yields rising by 15 basis points during the week. Analysts attributed this to selloffs at the short end of the curve, while sustained demand for longer-dated bills helped limit yield increases.
Source: Getty Images
Investors focus on long-term instruments
Analysts say the continued scale of liquidity withdrawals suggests the CBN is unlikely to ease its tight stance in the near term.
In its weekly note, Afrinvest Research said investors remain focused on longer-term instruments offering attractive yields, while caution persists at the short end of the market.
The firm added that although inflows are expected from monthly FAAC allocations and an N63.1 billion federal government coupon payment, current market conditions are likely to continue with mild bearish sentiment in the secondary market.
CBN grants national licence to fintechs
Legit.ng reported that the CBN has granted national operating licences to several fintech companies and microfinance banks, including Opay and Moniepoint, allowing them to conduct business across all states of the federation.
The approvals will enable the firms to expand agent networks, open outlets nationwide and scale digital banking services.
While the move is expected to improve access and service delivery, the CBN stressed that all beneficiaries remain under strict regulatory oversight.
Source: Legit.ng
