SDF Outflows Depressed Banking System Liquidity by 39% in March 50 10 35 34 55

Nume Ekeghe

A report by Afrinvest has revealed that banking system liquidity experienced a significant decline of 38.9 per cent month-on-month (M-o-M), settling at N352.0 billion in March.

The decline, the report added, was attributed to substantial outflows from the Standing Deposit Facility (SDF) totaling N196.4 billion, coupled with primary market sales amounting to N3.3 trillion.

“In contrast, average inflows from the Standing Lending Facility (SLF) reached N1.1 trillion, while primary market repayments stood at N1.9 trillion. Consequently, both the Overnight Policy Rate (OPR) and Overnight Variable Rate (OVN) surged by 4.3 percentage points each, reaching 27.3 per cent and 28.2 per cent, respectively, “the report stated.

It added, “The Central Bank of Nigeria (CBN) primary market operations included three rounds of Treasury Bills (T-Bills) auctions, offering a total of N660.7 billion across various tenors. Despite the decline in liquidity, investor appetite remained moderate, with the overall bid-to-offer ratio standing at 8.7 times, significantly higher than the previous month’s 3.3 times. Notably, the 182-day instrument attracted the most interest, achieving a bid-to-offer ratio of 12.2 times.

“Additionally, the CBN conducted an Open Market Operations (OMO) auction, offering N500 billion across three tenors. The demand was robust, with a bid-to-offer ratio of 2.3 times, resulting in an allotment of N1.1 trillion across all tenors. In the secondary T-Bills market, the average yield rose by 23 basis points month-on-month to 18.6 per cent. This increase was driven by selloffs on various bill tenors, including the 91-day, 182-day, and 364-day bills.”

Despite the anticipation of N148.4 billion and N80.0 billion worth of maturities from T-Bills and OMOs in April, analysts foresee a sustained bearish performance.

They attribute this projection to ongoing monetary policy adjustments and reforms by the CBN aimed at strengthening the financial system’s resilience.

Afrinvest added: “In the month of March, system liquidity declined 38.9 per cent m/m to settle at N352.0bn as outflows from SDF (N96.4bn) and primary market sales (N3.3tn) outweighed average inflows from SLF (N1.1tn) and primary market repayments (N1.9tn). Consequently, OPR and OVN rates went up 4.3ppts m/m apiece to 27.3 per cent and 28.2 per cent, respectively.

“In the primary market, the CBN conducted three rounds of T-Bills auctions with a total offer of N660.7bn across the 91, 182, and 364-day instruments. Investors’ appetite was moderately strong, with the overall bid-to-offer ratio at 8.7x, relative to 3.3x in February. The 182-day instrument enjoyed the most buy interest with bid-to-offer ratio of 12.2x (February: 0.8x). Trailing, the 364-day instrument had a bid-to-offer ratio of 8.8x, while the 91-day instrument was the least competitive, with a bid-to-offer ratio of 5.4x.

“Overall, stop rates for the 91, and 182-day instruments declined 76bps and 50bps, respectively to settle at 16.2 per cent and 17.0 per cent while the 364-day instrument gained 2.1ppts to print at 21.1 per cent from the prior month. Elsewhere, the CBN held an OMO auction, totalling N500.0bn across three offerings (95-day: N75.0bn, 179-day: N75.0bn, and 361-day: N350.0bn). Demand was strong (bid-to-offer: 2.3x), and resultantly, the CBN allotted N1.1tn across all tenors.

“In the secondary T-Bills market, average yield rose 23bps m/m to 18.6 per cent, following selloffs on the 91 (up 21bps to 15.5%), 182 (up 15bps to 17.9%), and 364- day bills (up 34bps to 22.3 per cent). Despite, the N148.4bn and N80.0bn worth of maturities expected from T- Bills and OMO maturities in April, we anticipate the bearish performance to be sustained in line with monetary policy adjustments and reforms by the CBN.”

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