Nigerian banks have managed to offset the effects of significant daily outflows averaging N47.6 billion by effectively utilising the Central Bank of Nigeria’s (CBN) Standing Lending Facility (SLF).
The SLF, a short-term lending mechanism provided by the CBN, allows banks to meet their immediate liquidity needs, ensuring the stability of the financial system.
Recently, the daily average SLF injections reached N8930.7 billion, which played a crucial role in maintaining balance despite consistent withdrawals.
In the previous week, the system liquidity closed at N1.0 trillion, marking an 11.6 percent week-on-week increase. This was largely due to an inflow of N8930.7 billion from the SLF, which fully neutralised the impact of the N47.6 billion daily outflows through the Standing Deposit Facility (SDF) window.
Consequently, key interest rates such as the Open Purchase Rate (OPR) and Overnight (OVN) rates slightly decreased, with the OPR closing at 32.3 percent and the OVN at 32.6 percent, compared to 32.4 percent and 33.0 percent in the previous week.
Analysts at Afrinvest (West) Africa Limited noted that the T-bills market continued its bearish trend, with the average yield rising by 80 basis points to 24.0 percent week-on-week. This reflects the broader tightening of liquidity conditions in the financial markets.
In response to liquidity pressures, Nigerian banks borrowed N930.7 billion from the CBN, highlighting the increasing reliance on the central bank’s facilities. This surge in borrowing suggests that banks are facing heightened liquidity demands, potentially due to increased customer withdrawals or greater loan demand.
The previous week’s liquidity closed higher at N919.0 billion, up from N304.3 billion, reflecting significant injections through the SLF window, combined with Open Market Operation (OMO) repayments of N8452.3 billion and Nigeria Treasury Bills (NTB) repayments worth N81.9 billion.
Furthermore, the CBN’s data shows that bank borrowings from the SLF grew by 117.2 percent month-on-month in September 2024, rising to N7.82 trillion from N3.6 trillion in August 2024.
Simultaneously, deposits by banks in the SDF saw a dramatic increase, surging by 400 percent month-on-month to N3.97 trillion in September from N790.87 billion in the previous month.
These figures underscore the central role that the SLF plays in maintaining liquidity and stability in Nigeria’s banking system, especially in times of increased financial strain.
The consistent injection of liquidity through the SLF and the rise in banks’ reliance on CBN support reflect broader trends in the financial system, where managing liquidity remains critical to ensuring overall stability.
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