NIGERIA’S financial system is expected to receive N13.79 trillion in liquidity inflows in November, with repayments of maturing Central Bank of Nigeria (CBN) securities and government payments accounting for most of the anticipated funds.
The projection by the Financial Markets Dealers Association (FMDA) represents a 2.16 percent increase from the N13.50 trillion estimated for October, reflecting a rise in expected Treasury bills (T-bills) repayments and other government-related cash flows.
The outlook comes as the banking system recorded higher liquidity in October following a moderation in the CBN’s open market operations, through which the apex bank absorbs excess funds from financial institutions.
According to the FMDA’s October market report, banking system liquidity climbed to N7.373tn in October from N4.703tn in September, an increase of 56.75 percent.
The November projection suggests that banks and other financial market participants could receive substantial cash inflows from maturing securities and government disbursements, although the eventual effect on liquidity will depend on the CBN’s subsequent monetary operations.
OMO maturities account for bulk of inflows
Repayments of maturing Open Market Operations securities are expected to provide the largest share of November’s liquidity. The FMDA estimates that N8.927 trillion in OMO securities will mature during the month, accounting for approximately 64.75 percent of projected inflows.
Federal Account Allocation Committee disbursements are expected to contribute N2.50 trillion, representing 18.13 percent of the total.
T-bill maturities are projected at N1.919 trillion, while Federal Government bond coupon payments are estimated at N323.15 billion.
Other expected inflows include N68.03 billion from corporate bond coupons and N50.02 billion from commercial paper maturities.
Together, OMO repayments, FAAC allocations and T-bill maturities are expected to account for about 96.8 percent of November’s projected inflows.
Related Articles
The association also expects T-bills maturities to rise significantly, increasing by 46.49 percent from N1.31 trillion in October.
By contrast, OMO maturities are projected to decline by 1.37 percent, while Federal Government bond coupon payments are expected to fall by 49.08 percent.
Corporate bond coupon payments are forecast to increase by 213.28 percent, although their contribution to overall liquidity remains relatively small.
READ ALSO: Cardoso downplays $1.37bn reserve drop, cites strong FX liquidity
A $105.94 million Eurobond coupon payment is also due in November but is excluded from the naira liquidity estimate.
CBN reduces liquidity withdrawal
The anticipated inflows follow a shift in the CBN’s approach to managing excess funds in the banking system.
During September, the apex bank sold N17.51 trillion in OMO securities against maturities of N10.89 trillion, resulting in a net liquidity withdrawal of approximately N6.62 trillion.
The pace of absorption eased in October, when the CBN allotted N6.182 trillion in fresh OMO securities against N9.051 trillion in maturities.
This left a difference of about N2.87 trillion between maturities and new allotments, before accounting for other liquidity movements.
The reduction in the volume of funds absorbed through OMO auctions helped support the increase in banking system liquidity during October.
Related Articles
T-bill auctions also reflected selective demand management, with the Debt Management Office (DMO) accepting only a portion of investor subscriptions at recent auctions.
The combination of maturing securities, government disbursements and reduced liquidity absorption has created conditions for relatively comfortable funding balances in the banking system.
READ ALSO: Nigeria’s broad money supply falls to N123.4trn in January, signals mild liquidity tightening
Liquidity may influence short-term yields
The projected inflows could influence demand for fixed-income securities, particularly T-bills and other short-term instruments.
Banks receiving funds from maturing investments and government allocations may seek to reinvest part of their balances in available securities.
If the CBN and DMO offer less fresh debt than the volume of maturing obligations, investors could compete more aggressively for available instruments.
Such demand could support bond and T-bill prices while putting downward pressure on yields. However, the relationship between liquidity and yields will depend on the volume of fresh securities issued, investor appetite and the rates offered by the government.
The anticipated inflows do not necessarily mean that the banking system will retain the entire amount, as the CBN could absorb part of the funds through subsequent OMO auctions.
READ ALSO: CBN flags liquidity surge, election spending as risks to recovery
The FMDA report also indicates that interbank funding rates remained relatively stable in October despite the rise in liquidity.
Related Articles
The Nigeria Overnight Financing Rate closed at 20 percent, while the overnight rate declined by five basis points to 20.38 per cent.
The Monetary Policy Rate (MPR) remains at 23 percent following the CBN’s September decision to reduce it by 350 basis points.
With the next Monetary Policy Committee meeting scheduled for November, investors will also be watching for signals on the apex bank’s approach to liquidity management and interest rates.
The FMDA expects liquidity conditions to remain relatively comfortable if the CBN continues with the selective allotments seen towards the end of October.
Nevertheless, banks have been advised to maintain adequate liquidity buffers, given the apex bank’s continued use of OMO auctions to manage excess funds.
The final impact of November’s projected N13.79tn inflows will depend on government cash movements, fresh securities issuance and the extent to which the CBN withdraws funds from the banking system.
