While striving to keep their cash balance demands strong, some Nigerian deposit money banks (DMBs) have continued to battle liquidity pressures amidst rising short-term interest rates in the money market.
In recent times, the local banks have been selling their respective position in the Nigerian treasury bills to raise funds to support daily regulatory liquidity requirements. However, short-term rates have adjusted upward in line with monetary policy rate hikes that happened twice in less than three months.
In the market for short-term securities, the sell pressures saw average yields on Treasury instruments jumping across short to long-tenored bills. The Nigerian fixed income market has seen yield repricing after the benchmark interest rate hike to 14%.
Analysts at Afrinvest reported that system liquidity level was subdued for most of the week following the mop up from the bond auction worth N123.8 billion. This was noted to offset the impact of inflows of N10.0 billion from OMO maturities.
Analysts said consequently the liquidity level deteriorated at the end of the week as it closed negative at N89.5 billion compared to the prior week’s close of N186.4 billion.
Data from FMDQ Exchange shows that short term rates was adjusted upward by 100 basis points due to a relatively weak financial system liquidity position – repo and overnight lending rates closed the week higher at 14.8% and 15.0%, respectively.
According to analysts, last week, the Nigerian treasury bills worth N10 billion matured via the Open Market Operation (OMO) amid the absence of refinancing from the Apex bank.
The financial system liquidity ease appears to have been induced by the rise in lending facility received by deposit money banks from the apex bank to shore up their short-term liquidity needs – given the pressure from Bond issuances, Cowry Asset Limited said in a market report.
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Analysts said they observed that banks went for Repo transactions totalling N287.51 billion to shore up financial liquidity. Seen that the sum was not enough to keep a tight end on the regulator’s liquidity ratio, local deposit money banks were noted to also queue at the Central Bank of Nigeria (CBN) standing lending facility (SLF) to borrow N13.93 billion.
Cowry Asset analysts noted that the amount taken was more than N779.6 million deposited in the apex bank standing deposit facility. Given the liquidity from borrowings and Repo, the Nigerian interbank offer rate (NIBOR) for most tenor buckets crashed, according to Cowry Asset note.
NIBOR for 1 month, 3 months and 6 months fell to 10.81% (from 12.72%), 11.82% (from 11.90%) and 11.11% (from 11.16%) respectively, analysts said. However, the overnight rate rose to 14.73% (from 14.07%).
In its market note, analysts at Cowry Asset Limited said this is an indication of worsening liquidity in the banking institutions.
Last week, the Nigerian Treasury Bills primary market closed on a quiet note as there were no offers via primary market auction from the apex bank. Despite the zero maturities, market analysts said they saw the Nigerian interbank true treasury yield rising for all maturities tracked.
Specifically, Nigerian true treasury yield advance for 1 month, 3 months, 6 months and 12 months maturities to 9.69% (from 9.37%), 10.02% (from 8.66%), 10.50% (from 8.06%) and 9.90% (from 6.85%) respectively.
T-bills market was quiet in the just concluded week as there was no maturing or refinancing T-Bills which led to liquidity strain. However, Cowry Asset analysts said they expect the pressure to ease as there will be inflow from maturing OMO bills worth N30.0 billion and Treasury bills worth N264.28 billion this week.
In the week ahead, Afrinvest said liquidity condition will improve due to inflows from coupon payments totalling N51.0 billion and OMO maturity worth N50.0 billion.
Though the firm maintain that Treasury bills and OMO sales would likely stifle liquidity. As a result, Afrinvest analysts said they expect funding rates to remain in the double-digit corridor.