Derivative, Contractors Inflows Ease Pressure on Interbank Rates

Interbank rates eased in the money market as derivatives, contractors, and other inflows lifted liquidity balance in the banking system. The short-term benchmark interest rates softened below 30% apiece at the close of trading sessions in financial markets on Friday, reversing the previous trend.

The money market was heated up with sustained demand for funding by local deposit money banks seeking to fund their respective operations despite lower inflows from matured debt instruments.

Hence, tight liquidity forced banks to pitch tents at the Apex Bank borrowing facility. Analysts noted that withdrawals from the Standing Lending Facility (SLF) of the Central Bank of Nigeria had increased significantly to N722.02 billion from N435.20 billion the previous day, resulting in the banking system moving from a surplus to a shortfall of N40.18 billion.

On Friday, the banking system closed the week with a healthy balance of approximately N403.83 billion, TrustBanc Financial Group Limited told investors in a note. Banking system liquidity fluctuated last week, initially bolstered by derivatives inflows, the signature bonus, and other disbursements from the CBN.

Analysts noted that liquidity tightened due to cash reserve ration debit activities despite FAAC disbursements, but rates continued to ease slightly. Pre-Christmas holiday, the financial system opened with a liquidity surplus of N123.71 billion.

But the balance was drained following cash reserves ratio debits by the Central Bank of Nigeria (CBN) early last week. The authority sterilised N596 billion from the banking system as cash reserve maintenance, which then pushed the system into a deficit on Tuesday.

As the week locked down, the banking system liquidity improved significantly, supported by inflows totalling N600 billion from contractor and coupon payments. Investment banking firms reported that as a result, the average daily liquidity balance surged to a surplus of N162.5 billion, in contrast deficit balance of N867.7 billion in the previous week.

TrustBanc Financial Group said this recovery softened interbank funding rates, with the OPR and O/N rates declining by over 500bps to close the week at 26.50% and 27.11%, respectively.

“Barring any unexpected significant outflows from the system, the current liquidity balance is expected to hold steady, with funding rates trading at current levels in the coming week”, analysts said.

AIICO Capital Limited expected interbank rates are expected to stay at current levels; however, following the late settlement of the Treasury bills auction, analysts said they anticipate that liquidity will open lower in the new week. #Derivative, Contractors Inflows Ease Pressure on Interbank Rates NGX Index Dips Intraday as Investors Book Profit in ARADEL, NB