With banks and financial institutions earning between 25.75 and 19 per cents on deposits at the Central Bank of Nigeria (CBN) the volume of deposits at the apex bank soared in the past week, rising by 104.83 per cent.
Data from the CBN website showed that the Standing Deposit Facility, which is the deposits of banks with the apex bank between Monday, August 26, 2024 to Monday September 2, stood at N3.857 trillion.
This is higher compared to N1.883 trillion that was deposited at the apex bank in the previous week and 1,015 per cent higher than N345.91 billion that was recorded in the week of August 12 to 19 2024.
The rise in the deposits is following the circular released by the CBN which puts interest rate for commercial and merchant banks at 25.75 per cent for deposits up to N3 billion and 19 per cent interest payment on deposits above N3 billion.
Also, Payment System Banks (PSBs) are offered interest of 25.75 per cent on deposits of up to N1.5 billion while deposits above N1.5 billion will attract 19 per cent interest rate.
On the other hand, borrowing by banks from the CBN reduced as the Standing Lending Facility to banks declined by 32 per cent last week when compared with the previous week. According to the data, banks had borrowed a total of N334.17 billion from the CBN.
This is lower than the N491.47 billion that was borrowed through the SLF window the previous week and 81.63 per cent lower compared to N1.82 trillion that was borrowed through the window in the week of August 12 to 19, 2024.
Meanwhile, liquidity undersupply worsened by almost three time to N466.9 billion in August, partly weighed on by primary market sales of N51.9 billion relative to N48.0 billion repayments, as outflows from banks to the Standing Deposit Facility (SDF) hit N270.4 billion
At the primary market auction (PMA), the CBN approached the market with a total offer of N626.1 billion across two auctions – 41.0 per cent higher than the prior month. The auctions were greeted with strong interest as the broad subscription rate stood at 2.4 times of offer relative to 1.5 times in July. Notably, demand was skewed towards the long end (3.1 times) as investors sought to lock funds, anticipating yield tapering.
Despite strong interest, the CBN under-allotted papers with bid to cover of 1.1x on the 182-day Instrument with an offer of N117.6 billion that had a subscription of N90.0 billion, and a sale of N84.6 billion, 91-day instrument with an offer of N77.3 billion and 364-day instrument with an offer of N431.2 billion.
Despite the average stop rate for the August auction increasing by 52bps m/m to 19.7 per cent across all tenors, the final auction of the month saw a significant decline in the stop rate by 60 basis points to 19.4%, driven by substantial repricing at the long end (-1.2ppts). As such, the secondary T-bills yields fell 2.6ppts m/m to average 21.2%, reflecting bullish bias across all tenors (91-day: -2.5ppts; 182-day: -3.6ppts; 364-day: -1.6ppts).
For this month, analysts at Afrinvest West Africa say they expect a bullish outlook, premised on the likelihood of a peak to domestic inflation in July, and, by extension, a softer or muted interest policy stance which could be confirmed at the September MPC meeting.
Additionally, the global context of a possible US rate cut, combined with local market developments around the operationalisation of the SDF asymmetric corridor reinforce rally expectations. Notably, the CBN has cut the interest rate on excess deposits by commercial and merchant banks above an initial N3.0 billion limit to 19 per cent, down from 25.75 per cent. This effectively lowers the theoretical floor for Treasury bills, assuming other factors remain constant.
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