By Niyi Jacobs
Nigerian banks are facing a liquidity challenge, leading to a significant spike in interbank rates. The surge in rates comes ahead of the Nigerian Treasury bills auction, which has seen banks actively investing in government securities, further exacerbating the liquidity squeeze.
According to market data, the Open Repo Rate (OPR) increased by 499 basis points to 33.69%, while the overnight lending rate rose by 498 basis points to 34.36%. Analysts expect interbank rates to remain elevated, with the FGN bond auction settlement likely to further tighten liquidity in the market.
The Central Bank of Nigeria (CBN) is set to conduct a primary market auction, offering Treasury bills worth ₦409.98 billion to investors. This is expected to further reduce liquidity in the market, putting upward pressure on rates.
Banks have been borrowing heavily from the CBN’s standing lending facility (SLF) to augment their funding obligations. Last week, banks borrowed over N1.8 trillion from the CBN window, and the liquidity pressure has persisted into the new week.
Analysts say the liquidity challenge is due to the elevated yield in the fixed income securities market, which has made government securities an attractive investment option for banks. However, this has resulted in reduced liquidity in the system, leading to higher interbank rates.
