Nigerian Banks Hold Record Excess Cash as System Liquidity Climbs to ₦2.1 Trillion
Nigerian banks are awash with cash as system liquidity hit a record ₦2.1 trillion last week, reflecting reduced intervention by the Central Bank of Nigeria (CBN) and fresh government inflows. According to new data from Coronation Merchant Bank, liquidity in the financial system opened at ₦1.96 trillion and closed the week stronger at ₦2.09 trillion, compared to ₦1.64 trillion the previous week.
The surge in liquidity has begun to influence short-term interest rates. The overnight (OVN) lending rate eased slightly to 26.96 per cent, while the Open Repo Rate stayed flat at 26.50 per cent. Analysts say the drop is tied to the CBN’s decision not to conduct any liquidity mop-up operations during the week — a move that left banks holding larger cash reserves.
Research firm Cordros noted that the banking system’s net long position — a gauge of excess reserves — rose to ₦1.95 trillion from ₦1.47 trillion the week before. “The system remains net long due to the CBN’s relative inactivity in liquidity management and the timing of government inflows,” the firm said, adding that further boosts are expected this week from Federal Government bond coupon payments of about ₦141.71 billion.
Excess liquidity can put downward pressure on short-term interest rates, a trend that benefits banks with idle funds but can complicate the CBN’s monetary policy goals. Fixed income traders say lenders are likely to remain cautious in deploying surplus funds given ongoing macroeconomic uncertainties and the central bank’s current policy stance. “While surplus cash gives banks flexibility, it also raises questions about how efficiently credit is being allocated in the economy,” one analyst noted.
With short-term yields still contained and inflationary pressures persisting, market watchers expect overnight rates to remain subdued unless the CBN resumes targeted liquidity management. For now, Nigerian banks are likely to maintain high cash buffers, keeping the financial system stable in the short term while debates over the optimal use of idle funds and the effectiveness of monetary policy continue.
source: the sun