Banks Park N8.31 Trillion At CBN As Liquidity Stays High

Nigerian banks still have plenty cash, even after the Central Bank tried to take some of it out of the system.

On Friday, November 6, banks placed N8.31 trillion at the Central Bank of Nigeria (CBN). That is money they parked at the CBN overnight instead of lending it out or using it for other business.

This happened on the same day the CBN raised N724.32 billion at its Open Market Operations (OMO) auction. 1e71

The Main Number And What It Means

• N8.31 trillion: The amount banks placed at the CBN's Standing Deposit Facility (SDF)
• N724.32 billion: The amount CBN raised at the OMO auction
• N1.887 trillion: The total amount investors wanted to buy at that auction

The Standing Deposit Facility (SDF) is where banks keep extra cash safely at the CBN overnight and earn interest on it.

Open Market Operations (OMO) is how the CBN sells special bills to banks to take cash out of the system. When CBN sells OMO bills, it is doing a mop-up — meaning it is removing excess cash to control inflation and interest rates.

The SDF balance rose from N6.97 trillion on Wednesday, to N7.96 trillion on Thursday, then to N8.31 trillion on Friday. That is a rise of N347.44 billion in just one day. 1e71

So even after the mop-up, banks still had more cash than before.

Why Banks May Prefer That Move

Banks may prefer to park cash at the CBN for three simple reasons:

• It is safe: The money is with the CBN, not at risk
• It still earns interest: Banks earn interest on SDF deposits
• It is flexible: They can take the money back quickly if they need it for lending or other business

At the OMO auction, the CBN offered N1 trillion split between 179-day and 270-day bills, but it only accepted 38.37% of the bids. 1e71

That means many banks that wanted to buy OMO bills did not get them, so they left their money at the SDF instead.

The 179-day bill cleared at 17.25%, while the 270-day bill cleared at 16.54%.

What It Could Mean For Lending And Rates

When banks park this much cash at the CBN, it can mean two things:

• Lending may stay slow: If banks are comfortable keeping cash at the CBN, they may not rush to give loans to businesses and individuals
• Rates may stay high: With so much cash still in the system, the CBN may need to do more OMO auctions next week to keep control

The CBN had allotted about N2.95 trillion at its OMO auction on November 3, so the N724.32 billion on November 6 was much smaller — roughly a quarter of that amount. 1e71

The Financial Markets Dealers Association (FMDA) projects about N13.79 trillion in inflows in November, driven largely by OMO maturities, FAAC allocations and Treasury Bills repayments. 1e71

That means more cash is still coming into the system, so expect fresh OMO auctions from Monday, November 9.