Banking sector sees surge of N1.2trn in liquidity
By Esther Agbo
The banking sector witnessed a notable 62.4 percent increase in liquidity, rising to N1.2 trillion, driven by inflows from the Standing Lending Facility, as revealed in a report by Afrinvest.
The surge in liquidity was largely fueled by inflows from the CBN’s Standing Lending Facility (SLF), which amounted to N2.8 trillion, and an additional N402.2 billion from T-bill maturities. These inflows overshadowed the N566 billion deposited by banks through the Standing Deposit Facility (SDF).
According to experts, system liquidity means the cash and liquid assets available in the banking sector is critical in determining the banks’ capacity to lend and invest.
The CBN’s SLF allows commercial banks to manage their liquidity by borrowing on a short-term basis, while the SDF provides a mechanism for banks to deposit excess reserves and earn interest.
The report further highlighted a decline in both the overnight policy rate and the overnight negotiated rate as they dropped to 29.70 per cent and 29.97 per cent, respectively, marking a decrease from the previous week’s rates of 31.20 per cent and 31.73 per cent.
In addition, the bond market benefited from the favourable liquidity conditions. The bond market experienced a bullish sentiment as domestic bonds and corporate Eurobonds performed well. Buying interest was strong across three of four trading sessions, leading to a 16 basis point drop in average yields across tenors to 18.4 per cent.
Afrinvest noted strong buying interest across short- and mid-dated bonds, resulting in a decline in average yields. Short-dated bonds saw a significant drop in yields by 33 basis points, while mid- and long-dated bonds experienced yield decreases of 24 and 2 basis points, respectively.
Overall, the improved liquidity and bullish bond market signal a positive outlook for investors, with higher cash availability driving market confidence. Afrinvest’s report underscored the favourable conditions in the financial markets, pointing to a stronger environment for both money and bond market activities.
This development comes as banks and discount houses borrowed N3 trillion from CBN, through the SLF in the previous week while the lenders and discount houses deposited N493.6 billion through the SDF. The borrowing trend contributed to a 4.7 per cent rise in overall system liquidity.
