By Babajide Komolafe

Efforts by the Central Bank of Nigeria (CBN) to address the persistent excess liquidity in the banking industry appears to be loosing steam, as banks battle with excess liquidity of over N500 billion through last week.

According to the daily market liquidity report obtained by Vanguard, excess liquidity (or idle funds) in the interbank market opened the week at N563.85 billion, rose to N611 billion on Tuesday, before dropping to N566 billion on Thursday and N560.9 billion on Friday.

Reflecting the impact of the huge idle cash on the market, the treasury bills offered by the CBN for liquidity mop up, was over-subscribed by 41 percent.

Though the apex bank offered N230 billion worth of secondary market bills, subscription (demand) was N325.4 billion. However, the CBN could not allot more than N272.2 billion due to demand for higher interest rate by subscribers, who are mostly banks. Some subscribers to the bills had demanded for rates as high as 11.5 percent but the stop rates for allotment were between 10.5 and 10.8 per cent.

The situation was further aggravated by the injection of N308 billion through payments for matured treasury bills. According to   market sources, the injection of liquidity through payment of matured bills is one of the major factors for the persistence of excess liquidity in the market. These were bills issued previously by the CBN to mop-up excess liquidity. The maturity of these bills, it was gathered always undermines the efforts of the apex bank to mop-up excess liquidity from the market, they said.

It would be recalled that the Monetary Policy Committee (MPC) of the CBN at its meeting last month expressed concern over the incidence of high liquidity in the banking system. “The Committee further expressed concern about high banking system liquidity and its potential effects on inflation and the exchange rate”, the Committee noted in its Communiqué.