Nigeria Banking Liquidity Rises to N8.84tn Ahead of N4.69tn OMO Settlement

Liquidity in Nigeria’s banking system has surged to N8.84 trillion ahead of the settlement of the Central Bank of Nigeria’s latest Open Market Operation bills, raising expectations of a major cash withdrawal from the financial system.

Market data from AIICO Capital Limited showed that the latest liquidity level represents a 37.01 per cent increase from N6.45 trillion previously recorded.

The buildup has pushed excess liquidity to more than twice the N3.82 trillion recorded at the beginning of the year, reflecting the combined impact of OMO maturities and other inflows into the money market.

The increase came despite renewed efforts by the CBN to mop up surplus cash through government securities. The apex bank offered N2.5 trillion in OMO bills across three maturities on Tuesday, with strong investor demand reportedly pushing the eventual amount raised to about N5 trillion.

The OMO settlement is expected to reverse part of the liquidity buildup as funds are debited from banks that purchased the securities. Market participants are closely watching the potential impact on short-term borrowing costs.

Despite the abundant liquidity, the overnight lending rate rose by 28 basis points to 20.86 per cent, while the overnight policy rate remained at 20.50 per cent.

The Nigerian Overnight Financing Rate (NIBOR) remained at 20 per cent, representing the lower boundary of the current interest-rate corridor following the CBN’s recent monetary policy easing. The average Treasury bill rate also remained unchanged at 17.84 per cent, according to AIICO Capital.

AIICO Capital expects money-market rates to remain close to the 20 per cent floor as long as banking-system liquidity stays above N8 trillion. However, the investment firm expects the latest OMO settlement to significantly reduce available cash.

About N4.69 trillion from the OMO sale is expected to be debited from the financial system when the transaction is settled. That would remove more than half of the current N8.84 trillion liquidity pool and could influence the direction of short-term money-market rates.

The sharp demand for OMO instruments also points to continued investor appetite for high-yielding naira assets as banks and other investors adjust to changing monetary-policy conditions and interest rates.