Banks operating in Nigeria deposited about N4.1 trillion with the Central Bank of Nigeria over five days, even as the broader financial system continued to grapple with a funding shortfall.
The placements were made through the apex bank’s Standing Deposit Facility, a mechanism that allows banks to earn interest on excess funds held with the central bank.
The development highlights a widening divide in liquidity conditions across the banking sector, where institutions with surplus cash prefer risk-free returns at the central bank rather than lending in the interbank market.
According to fixed-income analysts, the trend reflects persistent fragmentation in liquidity distribution, despite the tight monetary policy stance maintained by the CBN.
Market data show that the banking system recorded an average liquidity deficit of about N4.1 trillion during the week. Although this represented an improvement from the previous week’s shortfall of roughly N5.0 trillion, the scale of deposits with the central bank indicates that surplus funds remain concentrated among a few banks.
In recent months, the CBN has adopted aggressive liquidity-management measures, including frequent Open Market Operations to absorb excess funds from the financial system and control inflationary pressures.
Last week alone, the central bank conducted OMO sales exceeding N2 trillion, with maturities and inflows only partly offsetting the liquidity tightening.
As a result, short-term money market rates have remained elevated but relatively stable. The overnight lending rate hovered around 22 percent, easing slightly as early liquidity inflows reduced funding pressure.
Similarly, the Open Repo Rate remained steady at comparable levels, indicating that benchmark short-term interest rates remain firmly anchored despite shifts in market liquidity.
Analysts say the simultaneous presence of large deposits at the central bank and a system-wide liquidity deficit reflects structural inefficiencies rather than a lack of cash in the system.
“Liquidity is not evenly distributed. Some banks are long and prefer to stay risk-free at the central bank, while others are borrowing at elevated rates,” analysts said.
Investor behaviour in the fixed-income market reflects a similar level of caution. Demand has been strongest at the short and long ends of the yield curve, while the mid-tenor segment has seen relatively weaker participation.
At a recent OMO auction, subscriptions rose to more than four times the amount offered, with most investors targeting longer-dated instruments to lock in attractive yields.
Short-term instruments also attracted strong interest as investors sought flexibility in managing liquidity amid uncertainty over policy direction and inflation trends.
Nigeria’s inflation rate for March stood at 15.38 percent, slightly above expectations, reinforcing market expectations that the central bank will maintain its hawkish policy stance.
However, analysts expect near-term liquidity conditions to improve as inflows enter the system.
Estimates suggest that more than N1.6 trillion from Treasury bill maturities, bond coupon payments and maturing OMO bills could flow into the market in the coming days.
Part of this liquidity may be absorbed through a planned N750 billion Treasury bill auction.
Analysts at Cordros Capital noted that in the absence of further liquidity-mopping actions by the CBN, system liquidity could expand, potentially easing funding pressures and leading to a decline in overnight lending rates.
They added that inflows from OMO maturities and Federal Government bond coupon payments could support market liquidity in the near term.
Despite this outlook, analysts say the persistence of large deposits at the central bank suggests that liquidity segmentation will continue to shape Nigeria’s money market dynamics in the coming months.
