Nigeria banking system liquidity tightens as CBN withdraws N3.7 trillion, intensifying pressure on money markets and interbank lending

Nigeria’s banking system sank further into a liquidity deficit last week after the Central Bank of Nigeria (CBN) withdrew an estimated N3.7 trillion through aggressive sales of treasury and open market operation (OMO) bills, heightening funding pressures across money markets.

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The apex bank reportedly sold N1.1 trillion in Nigerian Treasury Bills (NTBs) and an additional N2.6 trillion in OMO bills, debiting commercial banks and more than offsetting cash inflows from maturing securities.

Despite a N2.2 trillion repayment from the primary market, the system’s cash position worsened, with the liquidity shortfall widening to N2.5 trillion from N1.8 trillion recorded the previous Friday.

“The repayment inflows were quickly absorbed. Once banks subscribed to the NTBs and OMO bills, the funds were immediately debited, leaving the system more strained than before,” analysts noted.

OMO bills, primarily accessible to banks and foreign investors, remain one of the CBN’s most effective liquidity-management tools.

By offering attractive yields, the central bank channels excess funds back to its balance sheet, reducing cash available for lending, trading, and foreign-exchange demand.

The liquidity squeeze was further intensified by heavy placements at the Standing Deposit Facility (SDF), where banks parked N10.1 trillion last week.

With SDF rates remaining competitive, many institutions opted to secure guaranteed returns with the central bank rather than risk deploying funds elsewhere.

Reflecting the strain, interbank funding rates remained elevated. The open-buy-back rate closed at 22.5 per cent, while the overnight lending rate rose by 10 basis points to 22.8 per cent, hovering near the upper end of the policy corridor.

In the Treasury-bill primary auction, the CBN offered N1.2 trillion across 91-day, 182-day, and 364-day tenors but sold only N1.1 trillion, maintaining a cautious issuance approach.

Demand skewed towards long-term papers, with investors seeking one-year bills amid expectations that yields may peak later in the year.

Short-term yields edged higher while 364-day paper cleared lower, reflecting a preference for locking in longer-term returns.

Secondary-market trading mirrored the liquidity stress. Average Treasury-bill yields rose by 15 basis points during the week, largely due to selloffs at the short end, even as long-dated bills benefited from post-auction demand.

Analysts expect the CBN’s firm stance to persist. Afrinvest Research noted, “Investors appear to be locking into long-term papers at attractive yields, while tactical caution dominates the front of the curve.

Also read: CBN reports banking capital gains

Upcoming inflows from FAAC and FGN coupon payments may provide temporary relief, but the current dynamics suggest a mildly bearish outlook in the secondary market.”