Nigerian banks' placements with the Central Bank of Nigeria's Standing Deposit Facility (SDF) rose to N6.28tn on September 29, highlighting a substantial liquidity surplus within the banking system. This significant increase came as banks continued to hold excess funds, even as the CBN provided additional securities through Open Market Operations (OMO) for investors to deploy their liquidity. The rising SDF balance suggests that banks have enough funds available for placement with the central bank.
The increase in SDF placements was substantial, rising by N264bn in one day to N6.28tn on September 29. This followed a day earlier when the balance was N6.014tn, representing a significant rise. The balance was also N379bn higher than the N5.899tn recorded on September 25, indicating that excess funds available to banks have remained elevated despite the central bank's continued liquidity management operations.
The buildup in SDF placements coincided with another major Open Market Operations (OMO) auction by the CBN, which offered N2.5tn worth of securities on September 29. The auction came as N2.433tn in existing OMO instruments matured and became due for repayment, leaving the fresh offer only about N66.8bn above the amount returning to investors. This auction comprised N500bn of 147-day bills, N1tn of 182-day bills, and N1tn of 266-day bills.
The securities offered by the CBN are scheduled to mature between February and June 2027, extending the CBN's liquidity-management operations into the second quarter of next year. Despite the CBN's efforts to manage excess cash, banks' opening balances fluctuated during the period, falling to N131.82bn on September 29 from N277.74bn on September 28. This fluctuation indicates that banks continue to experience changes in their liquidity positions.
The persistent SDF accumulation comes alongside strong investor appetite for OMO securities. Four OMO auctions conducted earlier in September attracted about N20.58tn in bids against a combined offer of N3.9tn. The CBN allotted approximately N12.823tn from those auctions, indicating significant demand for OMO securities. September subscriptions have already surpassed the N18.72tn recorded in August.
Despite the strong demand for OMO securities, accepted rates on longer-tenor OMO instruments have declined. Rates fell from about 18.99 percent at the beginning of September to 17.29 percent at the September 24 auction. This decline in accepted rates may reflect changes in market conditions and investor preferences. The combination of elevated SDF placements and strong OMO demand points to significant liquidity within the financial system.
The significant liquidity within the financial system, with banks and other investors continuing to seek interest-bearing instruments, underscores the need for effective liquidity management. As the CBN intensifies efforts to manage excess cash, banks and investors are likely to continue seeking opportunities to deploy their liquidity. According to Nonso Iheoma, a financial analyst and economist, "The rising SDF balance suggests that banks have enough funds available for placement with the central bank, even as the CBN provides additional instruments for investors to deploy liquidity."
Key points
- Nigerian banks' deposits with CBN's Standing Deposit Facility rose to N6.28tn on September 29.
- The increase in SDF placements reflects a substantial liquidity surplus within the banking system.
- Strong investor appetite for OMO securities continues, with September subscriptions surpassing N20.58tn.
