Banks besieged the Central Bank of Nigeria (CBN) for loans in response to the intense scarcity of funds, as the volume of idle cash (liquidity) in the interbank money market plunged by 2,183 percent last week.
Financial Vanguard analysis of data from the CBN shows that interbank money market liquidity opening level crashed to N12 billion on Friday from N349.6 billion on Friday the previous week.
Consequently, banks borrowing from the CBN jumped by 2,500 percent to N489 billion last week from N19.2 billion the previous week.
On the contrary, banks’ deposits with the apex bank fell sharply by 67 percent to N25.4 billion last week from N73.6 billion the previous week.
Further analysis showed that 86 percent or N420 billion of banks’ borrowing from the apex bank were repurchase agreement (repo) while the remaining 14 percent or N69 billion was through the Standing Lending Facility (SLF) of the apex bank.
A repurchase agreement (repo) is a short-term borrowing, where the banks sell their government securities (treasury bills) to the apex bank usually on an overnight basis and buy them back the following day at a slightly higher price.
Also reflecting the severity of the scarcity of funds, the cost of funds remained elevated throughout the week, with the interest rate on Overnight lending rising by 3.6 percentage points to 17.25 percent from 13.7 percent on Monday.
Confirming this development, analysts at Zedcrest Securities on Friday, said: “Money market rates remained at double-digit levels closing the week by 2 basis points higher on average from yesterday’s closing.
“System liquidity remained low at N11.98 billion as some participants stayed camped at the CBN Repo window while others continued to source for deposits from large businesses. Subsequently, Open Buy Back (OBB) and Overnight (OVN) rates closed the week at 16.75 percent and 17.25 percent respectively.”