Liquidity in the banking sector surged by 62.4 per cent week-on-week to N1.2tn, driven by inflows from the Standing Lending Facility, which amounted to N2.8tn, and T-bills maturities totalling N402.2bn, according to Afrinvest.
Afrinvest in its weekly report noted that those inflows outpaced outflows via the Standing Deposit Facility, which recorded N566bn.
System liquidity refers to the overall availability of cash and liquid assets in the banking sector, indicating how much money is circulating in the financial system and affecting banks’ ability to lend and invest.
A standing lending facility is a provision by the central bank allowing commercial banks to borrow money short-term to manage liquidity.
Also, banks deposit excess reserves with the central bank and earn interest through the Standing Deposit Facility.
Consequently, the overnight policy rate and overnight negotiated rates declined, closing the week at 29.70 per cent and 29.97 per cent, respectively, down from 31.20 per cent and 31.73 per cent in the previous week.
More so, the bond market experienced a bullish sentiment as domestic bonds and corporate Eurobonds performed well.
Buying interest was strong across three of four trading sessions, leading to a 16 basis point drop in average yields across tenors to 18.4 per cent.
Short-dated bonds saw the most interest, with average yields decreasing by 33 basis points, while mid- and long-dated bonds also showed gains, with yields dropping by 24 and 2 basis points, respectively.
The improved liquidity and positive market sentiment point to a favourable environment for investors in both money and bond markets, as highlighted by Afrinvest Research’s report.
The PUNCH reports that banks and discount houses borrowed N3tn from the CBN through the Standing Lending Facility in the previous week, according to a report by Afrinvest Research.
The lenders and discount houses, however, deposited N493.6bn through the Standing Deposit Facility within the same period, as the spike in borrowing resulted in a 4.7 per cent increase in system liquidity.