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Cost of funds hit 23% as scarcity of funds intensifies

By Babajide Komolafe
The scarcity of funds   (liquidity squeeze) in  the interbank money market intensified last week prompting cost of funds to rise to 23 per cent

Naira sign
Naira sign

Meanwhile, to ameliorate the impact of the liquidity squeeze some banks have issued  special Bankers Acceptances aimed at staff upfront salary to bouy their liquidity position.

The special Bankers Acceptances (Bas) are called Staff Bankers Acceptances with a tenure of 90 days and minimum investment of N500,000. Vanguard investigation reveal that some banks offer 14 per cent interest rate which is paid upfront to the staff. Although, it could not be confirmed if the staff were compelled to invest in the BAs.  Investigation however reveal that in one particular bank a memo was circulated to staff by the treasury department encouraging staff to invest the upfront salary in the BAs.

Vanguard investigation reveals that interest rate on Overnight borrowing rose from 10.5 the previous week to 23 per cent on Friday.
A bank treasurer said that the liquidity squeeze is seasonal, that it is usual for the market to experience tight liquidity as the end of the month approaches. Notwithstanding, Investigation reveals that the situation was aggravated due to outflow of N145.2 billion from the market. During the week,  Nigeria National Petroleum Corporation (NNPC) withdraw N6.4 billion while N40.1 billion left the market through investment in treasury bills and federal govenment bonds. The highest outflow was N98.684billion.

Interbank interest rate fell sharply by 50 per cent  four weeks ago following the announcement of guaranty for interbank placement by the Central Bank of Nigeria (CBN), which reduced liquidity tension in the market. The relief occasioned by the guaranty however proved to be temporary as interest rate begins to rise two weeks ago indicating re-emergence of liquidity squeeze

The development was however largely due to  to naira outflow for funding of foreign exchange transactions at WDAS. Two  weeks ago N131.6 billion left the market through foreign exchange, indicating more that 100 per cent when compared to the outflow of N60.5 billion the previous week. Meanwhile foreign exchange demand fell by 22 per cent  at the WDAS last week to $746.55 million from $958.47 million. Total amount sold by the CBN dropped by24 per cent to $658 millionfrom $877 million.


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