About N179 billion in matured OMO bills was injected into the system last Thursday, adding to the banking sector liquidity, according to traders.
Banks’ credit balance with the Central Bank of Nigeria (CBN) opened at N622 billion on Friday, compared with a surplus of about N514 billion the preceding week, Reuters said.
The Nigerian Inter-bank Offered Rate (NIBOR), an average of what banks charge to lend to each other in the short term, stayed at 1% for the overnight tenor, as at the end of last week. The secured open buy-back (OBB) – the rate at which banks can borrow from the interbank market using treasury bills as collateral – inched higher to close at 0.7% as at the end of last week.
Traders said that although about N70 billion for bond purchases and N18 billion debited for cash reserve requirements left the system last Friday, the market remained substantially liquid.
“The market is highly liquid and we are not seeing any change in the lending rate at the interbank market in the near term unless the central bank resumes the issuance of OMO bills as is being speculated in the market,” one dealer said.
The suspension of OMO auction by the CBN has also buoyed the liquidity level of banks which has doused the effects of foreign investors exiting the market.
“Given the high liquidity levels in the market and no official communication yet on the resumption of OMO auctions, our short term outlook for the bond market remains bullish,” Afrinvest said.
Bank’s demand for FGN Bonds drive rates lower
Meanwhile, at the bond auction last week, demand was strong, driven by the banks, who are favouring government securities over increasing their lending. The auction was notable for the strength of the total bid (N155 billion) and for the decline of 300 basis points (bps) in the marginal rates since the previous sale.
Analysts at FBN Capital attributed the high bid to the CBN’s boost to liquidity as a result of not holding open market operations on the maturity of NTBs since 29 September.
FPI participation was however weak, attributable to the JP Morgan Emerging bond index exclusion, and the capital control measures by the CBN.
The liquidity flush in the banking system is proving to be an advantage to the government, as its borrowing costs and debt service payment will fall on the back of the lower bond interest rates.
The bond auction results from last week showed that the February 2020 re-issue was done at a rate of 10.24%, as against the original which was done at 15.54%.
The March 2024 bond, which was originally issued at 14.20% was re-issued at 10.01%.
![[DEMATERIALIZATION] CSCS Confirms Paper Share Certificates Will Soon Be A Thing Of The Past](https://nairametrics.com/wp-content/uploads/2015/10/cscs.png){kind=small}
