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CBN Liquidity Operations Put Nigerian Banks’ Cash Positions Under the Spotlight as OMO Auctions Absorb Excess Liquidity
Nigerian banks are holding a very large amount of spare naira, and the Central Bank of Nigeria is working almost weekly to take a share of it. Central bank data through October 7 shows the pattern clearly. Lenders parked N7.52 trillion at the Standing Deposit Facility on September 24, two days after the rate cut, and had trimmed that to N3.76 trillion by October 7. In between, the central bank pulled in trillions through Open Market Operations (OMO) auctions, while trillions more flowed back to banks as earlier bills matured. The cash position of the banking system is shifting from day to day, and the size of those swings is what has analysts watching so closely.
Two kinds of figures need to be kept apart. One is the stock of cash, meaning how much money banks hold at a given moment. The other is the flow, meaning how much comes in from maturing securities, government payments and coupons, and how much the CBN takes out through auctions and reserve requirements. System liquidity ended September at about N4.70 trillion, up 1.14 percent from N4.65 trillion in August, according to the Financial Markets Dealers Association. That calm month-end figure hides a very uneven ride. Liquidity rose to about N8.84 trillion at one point after monthly allocations from the Federation Account were paid out, then fell back as cash reserve debits, OMO sales and primary market issuance drew it down. A bank treasurer looking at the daily balance would have seen a market that moved by several trillion naira within weeks.
The CBN’s own operations explain much of the movement. In September, it sold about N17.51 trillion in OMO bills while N10.89 trillion matured, a net withdrawal of roughly N6.62 trillion. On October 6, it allotted N3.31 trillion, while N2.17 trillion in older bills matured, so the net drain was about N1.14 trillion. The 182-day bill took about 81 percent of that sale and is due to mature on April 6, 2027, which means the cash it absorbed stays out of the banking system for roughly six months. A longer maturity gives the central bank a more durable tool than overnight facilities, because the money cannot simply be withdrawn the next morning.
Market reports also point to a change in who is buying. September’s OMO subscriptions rose to about N20.6 trillion from N18.72 trillion in August, and the increase was linked partly to a decision to widen access to individuals, companies and non-bank financial institutions through deposit money banks. If that reading is right, some of the cash being absorbed no longer comes only from bank balance sheets but from a broader group of investors who use banks as the gateway. It makes the headline subscription figures harder to compare with earlier months and shows why bid totals are running well above the amounts offered.
Why does the central bank keep doing this? Part of the reason is the reset it announced on September 22. The Monetary Policy Committee cut the benchmark by 350 basis points to 23 percent and set the corridor around it at +50/-300 basis points, putting the Standing Deposit Facility rate at 20 percent and the Standing Lending Facility rate at 23.5 percent. The committee described the move as an operational realignment, aimed at making the policy rate match where banks were actually trading with each other. Keeping short-term rates close to that new reference point requires draining cash that would otherwise push them toward the floor. Reserve requirements also play a role. The cash reserve ratio stays at 45 percent for commercial banks, 16 percent for merchant banks and 75 percent for non-TSA public sector deposits, so a large share of deposits is already locked at the central bank before any auction takes place.
Pricing shows how well the approach is working. After the cut, the overnight funding rate settled at 20 percent, the same level as the deposit facility rate, and the overnight rate was about 20.39 percent. Both sit at the bottom of the corridor, not near the 23.5 percent ceiling, which tells you banks still have plenty of cash and few reasons to pay up for more. A tight market would look different, with rates climbing toward the lending facility rate as banks scrambled for funds. The Treasury bill market tells a similar story. The average yield fell by 147 basis points to 17.74 percent in September, and the October 7 auction showed demand still outstripping supply.
What comes next depends on the calendar of inflows. The Financial Markets Dealers Association expects the banking system to receive about N13.25 trillion in October, around 15 percent less than the N15.56 trillion projected for September. OMO maturities make up the largest share at N9.05 trillion, down from N11.60 trillion in September. The rest includes N1.22 trillion in Treasury bill maturities, N434.16 billion in federal government bond coupons, N2.5 trillion in estimated allocations from the Federation Account, and smaller amounts from corporate bond coupons and commercial paper. Lower maturities should make the CBN’s job somewhat easier, since fewer bills will return cash to the system. They do not remove the need to sell new bills, though, because the money coming back is still large compared with the cash the system can comfortably absorb.
For bank customers, the cash positions of lenders matter because they influence what banks do with the money. Surplus naira can be held at the central bank, put into OMO bills and Treasury bills, lent to other banks or lent to customers. With deposit and bill yields still well above inflation, which stood at 15.39 percent in August according to the National Bureau of Statistics, lending has to offer an attractive return to compete. That is why households and small businesses should not expect an immediate drop in loan rates, even though banks are flush with cash. For savers, lower returns at the deposit window feed gradually into lower returns on accounts and short-term products.
Several indicators are worth following in the coming days. The first is the daily balance at the Standing Deposit Facility, which shows whether banks keep redeploying cash. The second is the size of each OMO auction compared with the amount maturing, since that determines whether liquidity rises or falls on the day. The third is the overnight funding rate, which will show whether it moves away from the 20 percent floor. The fourth is the release of bank half-year results, which should show how lenders are balancing government securities against loans. The central bank publishes policy decisions, auction results and daily operations data on the Central Bank of Nigeria website, and the next Monetary Policy Committee meeting is scheduled for November 23 and 24. For more coverage of banking and the economy, visit Business Tech.
Meta Description: The CBN keeps absorbing excess cash through OMO auctions as bank deposits at the central bank swing from N7.52 trillion to N3.76 trillion. See what it means.
Focus Keyword: CBN liquidity operations
Related 6 Keywords: Nigerian banks excess liquidity, OMO auctions Nigeria, Standing Deposit Facility, system liquidity Nigeria, Cash Reserve Ratio 45 percent, Nigeria overnight funding rate
Notes for the editor:
- Headline: I kept your H1 and added “OMO Auctions” and “Excess Liquidity” as the two search terms that were missing.
- Links: One Business Tech internal link and two outbound links to official sources (the Central Bank of Nigeria and the National Bureau of Statistics). Please open both before publishing, since I could not test them.
- Data cut-off: The latest central bank figures I could find run through October 7. I did not find published OMO or deposit facility data for later sessions, so please update the figures if newer numbers are out when you publish.
- Facts to verify: The N13.25 trillion October inflow forecast and its breakdown come from the Financial Markets Dealers Association, and the widening of OMO access to individuals and companies is drawn from market reports rather than a CBN circular I could open. Please confirm both against the primary documents.
- Overlap: This builds on the same October auction data as earlier pieces in this series. The new material is the flows breakdown, the 182-day maturity date, the wider OMO access and the pricing signals. Keep the publish dates apart.
