Liquidity in Nigeria’s banking sector surged by 62.4% week-on-week to reach N1.2 trillion, largely fueled by inflows from the Standing Lending Facility, which amounted to N2.8 trillion, and maturities of Treasury bills totaling N402.2 billion, according to a report from Afrinvest.
The report noted that these inflows outpaced outflows via the Standing Deposit Facility, which recorded N566 billion. System liquidity reflects the overall availability of cash and liquid assets in the banking sector, impacting banks’ capacity to lend and invest.
The Standing Lending Facility allows commercial banks to borrow money from the central bank on a short-term basis to manage liquidity. In contrast, banks also deposit excess reserves with the central bank through the Standing Deposit Facility, earning interest on those deposits.
As a result of the increased liquidity, the overnight policy rate and overnight negotiated rates declined, closing the week at 29.70% and 29.97%, respectively, down from 31.20% and 31.73% in the previous week.
Additionally, the bond market exhibited bullish sentiment, with domestic bonds and corporate Eurobonds performing strongly. Buying interest was robust across three of four trading sessions, leading to a 16 basis point drop in average yields across tenors to 18.4%. Short-dated bonds attracted the most interest, with yields decreasing by 33 basis points, while mid- and long-dated bonds also saw gains, with yields dropping by 24 and 2 basis points, respectively.
Afrinvest’s report highlighted that the improved liquidity and positive market sentiment create a favorable environment for investors in both money and bond markets. The PUNCH further reported that banks and discount houses borrowed N3 trillion from the Central Bank of Nigeria (CBN) through the Standing Lending Facility in the previous week, while depositing N493.6 billion through the Standing Deposit Facility, contributing to a 4.7% increase in overall system liquidity.
