•As their deposit drops 31%
By Babajide Komolafe
The scarcity of funds (liquidity) in the interbank money market has compelled banks to rely more on the Central Bank of Nigeria (CBN) for short term liquidity needs.
Financial Vanguard findings show that banks borrowed N901 billion from the CBN last week, representing a 74 per cent increase when compared to N501 billion borrowed in the previous week.
The CBN has two short term lending windows for banks, namely the Standing Lending Facility (SLF) and Repo lending.
While the CBN lends money to banks through the SLF at interest rate of 100 basis points (bpts) above the Monetary Policy Rate (MPR), it also lends money to the banks through Repurchase (Repo) arrangement, which involves the purchase of banks’ securities with the agreement to sell back at a specific date and usually for a higher price. Data from the CBN showed that banks’ borrowing through Repo arrangement rose sharply last week by 84 per cent to N614.44 billion from N331.63 billion the previous week.
Similarly, banks’ borrowing through the SLF shot up by 60 per cent to N287.4 billion from N179.2 billion the previous week.
On the contrary, banks’ deposit of surplus funds with the apex bank through the Standing Deposit Facility (SDF) fell by 31 per cent to 24.53 billion last week from N35.75 billion the previous week.
Meanwhile, the scarcity of funds in the interbank money market moderated at the end of the week, following the inflow of N243 billion through matured treasury bills.
The inflow comprised N150 billion through matured Nigeria Treasury Bills (NTBs) and N93 billion matured secondary market (Open Market Operations, OMO) bills.
The inflow moderated the impact of N254 billion outflow through treasury bills sales conducted by the CBN during the week. This comprises N19 billion OMO bills auction and N235 billion NTBs sold during the week.
The above development prompted market liquidity (opening balance), which stood at N84 billion on Thursday, to rise to N168.6 billion on Friday last week from N56.3 billion Friday the previous week.
As a result, cost of funds fell slightly in the interbank money market, with interest rate on Collateralised (Open Buy Back, OBB) lending falling by 100 bpts to 18 per cent from 19 per cent the previous week, while interest rate on Overnight lending also fell by 75 bpts to 18.5 per cent last week from the 19.25 per cent the previous week.