N2.2trn liquidity mop-up cuts banks’ deposits with CBN by 31.6%

Banks’ deposits with the Central Bank of Nigeria (CBN) slumped by 31.6 per cent last week after the apex bank withdrew N2.2 trillion from the financial system through aggressive liquidity mop-up operations.

Data from the Standing Deposit Facility (SDF) window showed that lenders placed N4.227 trillion with the CBN during the week, down from N6.179 trillion the previous week, even as demand for the Standing Lending Facility (SLF) rose sharply.

Borrowing under the SLF climbed to N170.63 billion, up from N21.09 billion a week earlier, pushing average system liquidity down to a net long position of N566.91 billion compared with N1.19 trillion previously.

The CBN drained N2.12 trillion via its Open Market Operation (OMO) auction and an additional N173.25 billion through Treasury Bills (T-Bills) sales in the primary market. This drove mixed trading sentiment in the secondary T-Bills market as investors sold positions to participate in the CBN’s OMO and NTB offers.

At Wednesday’s NTB auction, the CBN offered N220 billion split into N60 billion for 91-day, N20 billion for 182-day, and N140 billion for 364-day papers. Subscription levels reached N366.55 billion, significantly lower than the N675.66 billion recorded at the previous auction, with a bid-to-offer ratio of 1.7x versus 2.3x earlier.

The CBN allotted a total of N46 billion, N15.33 billion for 91-day, N18.32 billion for 182-day, and N139.59 billion for 364-day bills, at stop rates of 15.00 per cent, 15.50 per cent, and 16.50 per cent respectively.

In its OMO auction last Tuesday, the CBN offered N600 billion, evenly split between 105-day and 245-day maturities. Total subscriptions hit N2.28 trillion, representing a strong bid-to-offer ratio of 3.8x, with the CBN allotting N2.12 trillion exclusively to the 245-day instrument at a stop rate of 23.7 per cent.

In the secondary market, average yields across all instruments dipped by two basis points to 21.4 per cent. Segment-wise, NTB yields rose by 15bps to 17.9 per cent, while OMO yields fell by 17bps to 24.6 per cent.

The overnight (OVN) rate rose marginally by 10bps week-on-week to 27.0 per cent, with traders expecting liquidity to remain stable and rates subdued unless the CBN resumes aggressive mop-up operations.

Liquidity levels have been buoyed by capital injections from banks raising fresh funds to meet the new regulatory capital thresholds.

The CBN has confirmed that eight banks have already met the new capital base, collectively raising over N2 trillion in fresh equity.