Banks borrowings increase as CBN FX settlement gulps liquidity

The Central Bank of Nigeria (CBN) FX debit gulped the financial system liquidity, with banks borrowing intensity driving the short-term benchmark interest to double digits high in the money market. Interbank rates inched higher, according to market data obtained from the FMDQ platform in the absence of inflows to upturn liquidity squeezed in the banking system. The financial system dipped to negative territory as the CBN removed naira value of US dollar sold to deposit money banks in an already tight liquidity conditions. Specifically, the financial system was debited with N153 billion for $166 million FX interventions sold to banks during the week, alongside increased uptakes at Standing Lending Facility (SLF) window.
Deposit money banks average weekly borrowing increased to N294.80 billion from N34.13 billion in the prior week, market analysts at Investment firm Cordros Capital Limited said in a note. Consequently, average system liquidity deteriorated, closing the week at a net long position of N62.94 billion compared to a net long position of N566.91 billion in the previous week, the investment firm said. In the absence of significant inflow, the short term benchmark interest rates were above 32%, reflecting tight liquidity flows in the money market last week. The interbank market started opened a positive note last week with a surplus of ₦750.3 billion, by mid-week, the system faced persistent liquidity tightness till end of the week, deepening into a deficit position.
The twist in funding profile resulted from the rise in deposit money banks; reliance on the Central Bank of Nigeria (CBN) standing lending facility (SLF) window as no inflow was recorded during the week. The Nigerian Interbank Offered Rate (NIBOR) advanced across all tenors, Cowry Asset Limited said, with the overnight, 1-month, 3- month, and 6-month rates closing at 32.54%, 30.64%, 31.21%, and 31.66%, respectively. The broad-based increase reflected heightened pressure on short-term funding. Similarly, money market rates climbed, as the Open Buy Back (OBR) rate rose by 560 basis points to 32.10%. 
Also, the Overnight (O/N) rate inched up by 540 basis points to close the week at 32.40%, underscoring the prevailing tight liquidity conditions. Market analysts at AIICO Capital Limited stated that interbank rates will remain elevated at 32.5% until financial system is credited with ₦1.05 trillion inflows from Nigerian Treasury bills and OMO bills. “These funds are anticipated to ease liquidity tightness and push rates down toward 26.5%”, the investment firm said in its market note. The Nigerian Interbank Treasury Bills True Yield curve posted a mixed performance, analysts reported in an update. The 3-month and 6-month tenors rose by 18bps and 9bps to close at 17.12% and 18.41%, respectively, while the 1-month and 12-month tenors declined by 2bps and 47bps to 16.08% and 19.38%, respectively.