- Interbank Lending Rate Jumps to Record High
The overnight interbank lending rate soared to a record high of 128 per cent on Monday on naira cash shortages after commercial banks funded their account with the Central Bank of Nigeria to participate in last Friday’s currency forward auction.
Overnight rates opened at 100 per cent on Monday, traders said, after the money market ended on Friday with no deals as commercial lenders held onto naira to be able to participate in the auction, Reuters reported.
Overnight money had traded at 14 per cent on Thursday.
The CBN had on Friday held a two-month dollar forward auction to clear a backlog of demand from airlines, manufacturers and other companies, as the naira crisis deepened.
However, it debited customers’ naira accounts on the day of the auction but would deliver the dollars in two months’ time, traders said, adding that the move had soaked up liquidity from the money markets.
The central bank intervened again on Monday with dollar sales to support the naira, which ended at 305.50 per dollar, traders said.
Meanwhile, the Debt Management Office has borrowed N95bn ($312.50m) at an auction of local currency bonds, according to the DMO data
The DMO said the 2021 maturing debt attracted higher yield, while the 2026 and 2036 papers fetched lower returns.
The debt office sold N10bn of the 2021 paper at 15.29 per cent, compared with 15.14 per cent at the previous auction last month.
The DMO had initially offered N35bn of the five-year bond.
It also sold N45bn of the 2026 debt at 15.47 per cent, lower than 15.53 per cent, and N40bn of the 2036 debt at 15.48 per cent, compared with 15.59 per cent.
The debt office sold more than the initially advertised amount of N35bn apiece for the 2026 and 2036 papers at the auction, Reuters reported
Investors had demanded yields ranging between 12 per cent and 17 per cent for all the debts on offer, but the debt office was not willing to pay more for the debts, one trader said.
The Federal Government has said it will borrow about N900bn locally to finance part of the N2.2tn deficit in the 2016 budget.
The DMO issues local bonds as part of measures to finance the government budget deficit and also to help manage liquidity in the banking system.
The Central Bank of Nigeria has said it is planning to borrow N1.77bn via Treasury bills in the last three months of the year.
In its fourth quarter Treasury bill issuance programme, the apex bank said it would raise about N815.37bn, comprising 91 days, 182 days and 364 days’ debt instruments.
In addition to the above, the central bank is also planning to borrow about N952.05bn as rollover in the three categories of the instruments.
The Federal Government distributes revenues from crude exports and taxes among the three tiers of government every month.
Nigerian Banks’ Borrowings from CBN Surge 835% in a Month, Raising Liquidity Concerns
The Nigerian banking sector has witnessed an unprecedented 835% surge in borrowings from the Central Bank of Nigeria (CBN) in the span of just one month, igniting concerns over the nation’s liquidity stability.
Data reveals that banks’ dependence on the CBN has reached new heights, with their borrowings skyrocketing from a relatively modest N323.97 billion in August to N3.03 trillion in September. This remarkable increase underscores a growing reliance on the CBN’s support in times of financial stress.
This surge in borrowing activity has primarily been attributed to the CBN’s stringent monetary policies aimed at curbing inflation and managing the demand for foreign exchange. These policies have, in turn, squeezed commercial banks, compelling them to tap into the CBN’s Standing Lending Facility (SLF) for immediate liquidity needs.
Despite the escalating dependence on CBN funds, the Monetary Policy Committee (MPC) of the apex bank insists that the Nigerian banking sector remains fundamentally robust. MPC member Adenikinju Festus highlighted key indicators, including Capital Adequacy Ratio (CAR) and Non-Performing Loan (NPL) ratios, which still align with prudential standards. Furthermore, liquidity ratios have improved, and returns on equity and assets have risen.
However, the banking industry’s persistently high operating costs are raising alarms. In comparison to international standards, Nigerian banks are grappling with substantially higher operating expenses, prompting concerns about their long-term sustainability.
In a parallel development, the CBN’s Development Finance Department has disbursed a total of N9.714 trillion to various sectors of the economy over the past three years, with manufacturing and industries receiving the largest share at 32.6%.
Other sectors, including energy, agriculture, services, micro, small, and medium enterprises (MSMEs), export, and health, have also benefited significantly from these disbursements.
While the CBN remains committed to fostering sustainable economic growth, the surging dependence of Nigerian banks on short-term borrowings from the central bank is casting shadows on the sector’s long-term stability.
As Nigeria grapples with these liquidity concerns, the financial industry and regulators face the challenging task of charting a course towards a more resilient and sustainable banking environment.
Central Bank of Nigeria Postpones 293rd Monetary Policy Committee Meeting
The Central Bank of Nigeria (CBN) has announced the postponement of its 293rd Monetary Policy Committee (MPC) meeting, originally scheduled for September 25th and 26th, 2023.
Dr. Isa AbdulMumin, the bank’s Director of Corporate Communications, released a statement on Thursday confirming the decision.
In the statement, Dr. AbdulMumin stated, “The Monetary Policy Committee of the Central Bank of Nigeria has deferred its 293rd meeting, which was initially planned for Monday and Tuesday, September 25th and 26th, 2023, respectively. A new date will be communicated in due course. We regret any inconvenience this change may cause our stakeholders and the general public.”
While the CBN did not provide an official reason for the postponement, some industry experts suggest it may be related to the pending approvals for the newly appointed governor and deputy governors of the bank.
President Bola Tinubu recently nominated Yemi Cardoso as the potential head of the CBN. Additionally, Tinubu has endorsed the nominations of four new deputy governors for the apex bank, who are expected to serve for an initial term of five years, pending confirmation by the Senate.
The nominated deputy governors are Emem Usoro, Muhammad Abdullahi-Dattijo, Philip Ikeazor, and Bala Bello. However, the appointment of the CBN governor is contingent upon Senate confirmation, which is currently on a yearly recess.
The CBN assures stakeholders and the public that the rescheduled MPC meeting date will be communicated promptly as soon as it is confirmed.
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