Banks Lodge N6.98trn With CBN Despite N800bn T-Bill Offer

Nigerian banks held N6.98tn with the Central Bank of Nigeria (CBN) on Tuesday, highlighting the volume of funds financial institutions are yet to deploy into lending and other investment opportunities as the apex bank offered N800bn in Treasury bills.

The banks’ placements at the CBN’s Standing Deposit Facility came ahead of Wednesday’s T-bill auction, which was conducted on behalf of the Debt Management Office DMO.

The development came as the Financial Markets Dealers Association projected N2.81tn in inflows into the financial system this week, largely from maturing Open Market Operation instruments.

The combination of substantial deposits at the CBN and fresh liquidity expected from maturing securities highlights the challenge of absorbing excess funds in the banking system while the government continues to borrow from the domestic market.

The SDF allows banks to deposit excess funds with the CBN, earning interest rather than deploying the money into other assets. Elevated placements can indicate that some financial institutions have more funds available than they are willing or able to deploy into alternative investments at prevailing market rates and risk levels.

“This explains why entrepreneurs in the productive sector believe that Nigerian banks aren’t making much contribution to economic growth, as they appear more interested in investing in government securities and earning interest on risk-free placements with the CBN than lending to businesses that create jobs, expand production and drive economic activity,” said an emerging markets analyst, Ike Ibeabuchi.

The N6.98tn balance, recorded on 27 October, is therefore a key indicator of liquidity conditions ahead of the T-bill auction.

The CBN’s T-bill offer comprises N100bn in 91-day bills, N100bn in 182-day bills and N600bn in 364-day bills.

The one-year instrument accounts for 75 per cent of the total offer, signalling the government’s concentration on longer-tenor domestic borrowing.

The auction comes as N2.41tn in OMO maturities is expected to flow into the financial system this week. Federal Government bond coupon payments are projected at N263.58bn, while T-bill maturities will provide another N130.72bn.

These inflows could give banks and other investors additional funds to subscribe to government securities or maintain placements in other money market instruments.

However, the volume of funds held at the SDF does not mean all the money will automatically flow into T-bills. Investment decisions will depend on the yields offered, liquidity needs and competing opportunities in the financial markets.

The sizeable SDF balance comes as investors continue to assess returns available on government securities against other short-term investment options.

At the 7 October T-bills auction, the DMO allotted N968.47bn against an advertised offer of N900bn, while the stop rate on the 364-day bill declined to 15.85 per cent.

At the 14 October auction, investors submitted N1.032tn in bids, but the DMO accepted only N269.06bn, rejecting about 74 per cent of subscriptions.

The outcomes illustrate how the amount investors are willing to invest does not necessarily determine the amount the government raises, as the DMO can reject bids offering yields it considers too high.