Nigeria’s Liquidity Management Cost Rose By 42% To N2.114tr, CBN Report

The Central Bank of Nigeria (CBN) says it sent a total of N2.114tr to manage liquidity in the economy over the 12 months of 2018, representing 42.01% rise from ₦1.488tr in 2017.
According to the 2018 Annual Activity Report, the ninth in the series, by the CBN’s Financial Markets Department, total bills offered at the OMO auctions increased to
₦34.61tr; of which ₦24.916tr subscribed, while ₦22.35tr was and sold; compared with ₦13.762tr; ₦12.344tr; and ₦11.346tr, respectively, in 2017.
“The high level of activity during the review period was attributable to the increased number of auctions to moderate the excess banking system liquidity, occasioned by the payments of statutory revenue to the three tiers of government, other fiscal disbursements and maturing CBN Bills, amongst others,” the report explained.
The total request for repurchase transactions for the period under review, however, fell by 12.65% to ₦966.06bn from ₦1.105tr in the prior year, with the applicable interest rates ranging from 18.50 to 19.50% for the 4- to 90-day tenors, same as in the preceding year. Total interest earned on repo fell by 27.87% to ₦23.55bn, from ₦32.65bn in 2017, a situation the apex bank blamed on increased net liquidity in the system.
Within the period also, the CBN said banks were less frequent at the Standing Lending Facility (SLF) than in 2017, due to increased net system liquidity.
The remunerable threshold for daily deposits per institution at the Standing Deposit Facility (SDF), where they deposited excess funds at the end of each business day to square-up their positions remained ₦7.5bn.
This, the report stressed, “was to curtail unbridled requests by market participants and encourage lending to the real economy,” even as applicable rates which were anchored on the benchmark Monetary Policy Rate (MPR) for the SLF and SDF also remained 16.00 and 9.00% respectively, same as in 2017.
The average daily request for SLF was ₦48.44bn in 234 transaction days, out of which ILF conversion averaged ₦30.43bn, amounting to 62.82% of average daily requests, with an average daily interest charge of ₦35.81m. In the previous year, average daily request for SLF was ₦216.34 billion in 246 transaction days, out of which ILF conversion was ₦130.63bn or 60.38%, while average daily interest income stood at ₦159.96m.
“The reduction in patronage at the window in 2018 reflected the higher levels of injections into the banking system,” the report added.
On the SDF window, patronage increased to an average daily amount of ₦84.27bn for the 246 transaction days in 2018, up from ₦41.9bn for the 230 transaction days in 2017.
Also, average daily interest payments on the deposits increased to ₦30.51m in the review period, from ₦14.86m in 2017, with the increased transaction volume due to higher levels of banking system liquidity.
The value of inter-bank funds market transactions dropped by 94.95% to ₦1.661tr in 2018, from ₦32.91tr in 2017, with Open Buy Back (OBB) transactions accounting for 96.35%, while transactions at the unsecured inter-bank segment accounted for the balance of 3.65%, compared with 94.83 and 5.17%, respectively in 2017.
A breakdown of the transactions showed an appreciable decline in call placements by 96.22% to ₦60.70 billion, from ₦1.603tr in 2017; just as transactions at the OBB segment decreased substantially, by 94.87% to ₦1.601tr, from ₦31.207tr in 2017.
“The sharp decline in the volume of transactions in 2018 was traceable to the banking system preference for OMO auctions.”

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