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Banking system liquidity declines to N300.68bn in August

Banks insist no cash after CBN’s directive

The Nigerian banking industry’s average net liquidity decreased to N300.68 billion in August 2023, from N562.04 billion in the preceding month, according to a report published by the Central Bank of Nigeria (CBN).

The moderation in liquidity was due to the auctioning of CBN bills, FGN bonds, NTBs, and Cash Reserve Ratio (CRR) debits. The amount of CRR debited by the CBN from banks in Nigeria varies depending on the specific date and the bank’s individual circumstances.

The current CRR in Nigeria is 32.5 percent, effective May 26, 2023. This means banks must keep at least 32.5 percent of their total deposits in a non-interest-bearing account with the CBN.

The CBN doesn’t publicly disclose the exact amount of CRR debited from individual banks. However, there have been reports of significant CRR debits throughout 2023.

In February 2023, the CBN debited a total of N356 billion from banks. In May 2023, along with the increase to 32.5 percent, the CBN reportedly debited N1.4 trillion from banks, while in August 2023, reports indicated further CRR debits of N800 billion.

Inflows into the banking system were through the Federation Account Allocation Committee (FAAC) disbursements, NTBs and CBN bills maturities.

According to the CBN’s economic report for August 2023, the effects of the tight liquidity conditions in the review period influenced activities at the CBN Standing Facilities Window, with higher patronage at the Standing Lending Facility (SLF) over the Standing Deposit Facility (SDF).

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Total requests at the SLF window rose significantly to N1.54 trillion above N878.34 billion in the preceding month. Similarly, deposits at the SDF window increased to N804.52 billion compared with N747.23 billion in the preceding month. The applicable rates for the SDF and SLF remained at 15.8 and 19.8 per cent, respectively.

The CBN said there were interventions in the money market through the conduct of Open Market Operations (OMO) auctions in the review month. Total amount offered, subscribed to, and allotted was N150.00 billion, N307.93 billion, and N150.00 billion, respectively. The bid rate stood at 10.3 per cent (±4.3).

Matured CBN bills amounted to N40.00 billion, translating to a net withdrawal of N110.00 billion. In the preceding month, there was no conduct of OMO auctions by the Bank; however, matured bills amounting to N5.00 billion was redeemed resulting in a net withdrawal of N5.00 billion.

Activities in the NTBs segment increased, while subscription to FGN Bonds declined during the period. At the NTB auctions, bills of 91-, 182-, and 364-day tenors amounting to N457.20 billion, N2.37 trillion, and N457.20 billion were offered, subscribed to, and allotted, respectively, relative to N406.10 billion, N1.09 trillion, and N406.10 billion, in the preceding month. Stop rates increased across the various maturities to 9.5 per cent (±4.5) from 7.5 percent.

(±4.7) in July 2023, reflecting the rise in MPR to 18.85 per cent, amidst sustained appetite for risk-free assets, as investors exhibited preference for longer-term (364-day) securities, which accounted for 97.6 per cent of total subscriptions.

The FGN Bonds of 10-, 15-, and 30-year tranches were offered for sale during the review month. Total amount offered, subscribed to, and allotted were N360.00 billion, N312.56 billion, and N227.76 billion, respectively, compared with the N360.00 billion, N945.14 billion, and N656.74 billion in the preceding month. Marginal rates at the auction closed higher at 14.9 (±1.0) per cent, compared with 13.4 (±0.9) per cent in the preceding month, due to lower subscription induced by the relative squeeze in banking system liquidity.

The CBN on Monday said Nigerian banking industry remains resilient as key financial soundness indicators were within the regulatory thresholds as captured in its most recent Economic Report of 2023.

This was disclosed in a statement signed by Sidi Ali, Hakama, acting director, corporate communications, following reports in some media outlets suggesting that some licensed commercial banks in the country had failed the CBN’s Capital Adequacy Ratio (CAR) for international authorisation.

“We wish to clarify that the Nigerian banking industry remains resilient as key financial soundness indicators were within the regulatory thresholds as captured in the CBN’s most recent Economic Report of 2023. Furthermore, the CBN is engaging with various critical stakeholders to sustain the level of confidence in the Nigerian financial sector.

We, therefore, appeal to Nigerians to disregard the media reports listing banks as failing the Capital Adequacy Ratio stress test for international authorisation as the report did not emanate from the CBN.