By Okafor Joseph Afam

Liquidity in Nigeria’s banking sector has rebounded significantly, reaching ₦572.8 billion from a ₦307.8 billion deficit recorded in January. This surge is driven by substantial inflows from primary market repayments, open market operations (OMO) repayments, and standing lending facility (SLF) transactions, according to a recent Afrinvest report.

Key Liquidity Drivers

The report highlights major inflows, including:

• ₦2.9 trillion from primary market repayments
• ₦823.3 billion from OMO repayments
• ₦24.2 trillion from SLF transactions

These inflows outpaced outflows from OMO sales (₦1.4 trillion), primary market auctions (₦1.4 trillion), and standing deposit facility (₦4.2 trillion).

Interbank Rates Decline Amid Liquidity Surge

As liquidity improved, interbank rates dropped month-on-month (m/m):

• Open Repo Rate (OPR): Down 2.4 percentage points to 26.8%
• Overnight Rate (OVN): Down 2.2 percentage points to 27.3%

Understanding Key Market Instruments

• Standing Lending Facility (SLF): A short-term loan from the Central Bank of Nigeria (CBN) to commercial banks.
• Standing Deposit Facility (SDF): A tool used by CBN to manage excess liquidity.
• Open Market Operations (OMO): The CBN’s buying and selling of government securities to regulate money supply.

Strong Demand in NT-Bills Auctions

Investor demand remained high at Nigeria Treasury Bills (NT-bills) auctions, with a total offer of ₦1.4 trillion attracting:

• ₦5.6 trillion in subscriptions
• ₦1.4 trillion in actual sales

Long-term instruments saw the highest interest, with a bid-to-offer ratio of 5.5x, while short- and mid-term notes had ratios of 0.8x and 0.3x, respectively.

Yield Curve & Fixed-Income Market Outlook

Buy-side interest led to declines in yields across the curve:

• Short-term instruments: Down 2.6% to 19.4%
• Mid-term instruments: Down 2.8% to 19.8%
• Long-term instruments: Down 4.6% to 21.3%

Looking ahead, Afrinvest analysts anticipate a bullish trend in the fixed-income market, supported by net inflows of ₦2.6 trillion from bond coupon payments and maturities.

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