The banking system in Nigeria experienced a notable contraction in liquidity during the third quarter (Q3) of 2024, reflecting tighter monetary policy measures.
Central Bank of Nigeria’s (CBN) quarterly economic report attributes the decline to a range of factors, including monetary operations such as standing lending facility (SLF) repayments, cash reserve ratio (CRR) debits, open market operations (OMO) sales, Nigerian Treasury Bills (NTBs) sales, and FX-OMO swap settlements.
These interventions collectively drove a 40.63 percent reduction in the average net industry balance, which fell to N0.16 trillion from N0.27 trillion in the preceding quarter.
Activity at the CBN’s standing facility window mirrored the liquidity crunch, as total transactions at the SLF window rose to N27.95 trillion during Q3, compared to N26.44 trillion in the previous quarter. However, the daily average dipped slightly from N0.51 trillion to N0.43 trillion, indicating sustained yet fluctuating demand for emergency liquidity by banks. Similarly, transactions at the standing deposit facility (SDF) window surged to N15.07 trillion, with a daily average of N0.23 trillion, compared to N6.39 trillion and N0.11 trillion, respectively, in the preceding quarter.
The report highlights a significant decline in OMO activity, with the total amount offered, subscribed, and allotted dropping to N0.80 trillion, N2.96 trillion, and N2.34 trillion, respectively, compared to N3.20 trillion, N5.67 trillion, and N4.36 trillion in the previous quarter. Accompanying this decline, stop rates on OMO instruments increased to an average of 21.42 percent, up from 20.62 percent in Q2, signaling the CBN’s bid to manage inflationary pressures while sustaining investor interest.
Treasury instruments also saw lower participation. NTBs offered, subscribed, and allotted amounted to N1.69 trillion, N4.19 trillion, and N1.62 trillion, respectively, down from N1.47 trillion, N6.98 trillion, and N2.85 trillion in the preceding quarter. Stop rates on NTBs rose to an average of 19.20 percent from 18.47 percent, reflecting heightened investor expectations for returns amid prevailing economic uncertainties.
Similarly, FGN Bonds recorded reduced subscription levels, with N0.64 trillion offered, N1.15 trillion subscribed, and N0.86 trillion allotted, compared to N1.35 trillion, N1.78 trillion, and N1.30 trillion in Q2. The marginal and bid rates for these bonds also climbed to 20.49 percent and 22.00 percent, respectively, driven by inflation concerns that dampened demand for longer-tenured securities.
Credit utilisation across sectors, however, presented a more optimistic picture, growing by 5.13 percent to N58.57 trillion from N55.71 trillion in the preceding quarter. The services sector accounted for the largest share, utilising 53.08 percent of total credit, followed by industry at 42.98 percent and agriculture at 3.94 percent. This increase underscores continued economic activity and sectoral resilience in the face of liquidity challenges.
On the consumer front, the picture was less encouraging. Outstanding consumer credit declined by 10.15 percent to N4.25 trillion, down from N4.73 trillion in Q2. Personal loans, which constitute the majority of consumer credit at 74.14 percent, fell to N3.15 trillion, a 9.22 percent decline, while retail loans dropped by 12.70 percent to N1.10 trillion. These contractions reflect cautious lending practices amid heightened inflation and economic volatility, which have likely dampened consumer appetite for borrowing.
The CBN’s Q3 report paints a complex portrait of Nigeria’s financial landscape, balancing reduced liquidity with measured credit expansion in key economic sectors. As inflation expectations and monetary tightening persist, the banking system faces mounting pressures to navigate the challenges ahead while maintaining stability.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
