Banking System Eyes N2.86tn Inflow as OMO Maturities, FAAC Disbursement Loom

Nigeria’s banking system is expected to receive N2.858 trillion in fresh liquidity this week, driven mainly by maturing Open Market Operations (OMO) bills, Treasury bills and other primary-market repayments, according to the Financial Markets Dealers Association (FMDA).

The FMDA weekly market report projected N2.067 trillion in OMO maturities, N392.792 billion in Treasury bills maturities and N349.838 billion in Federal Government of Nigeria (FGN) bond coupons. It also expects N42.872 billion from commercial paper maturities and N5.25 billion from corporate bond coupons.

FAAC and DMO auction

The report flagged a potential N2.43 trillion Federation Account Allocation Committee (FAAC) disbursement to the federal, state and local governments as another source of liquidity. The main scheduled drain is the Debt Management Office’s (DMO) N1.75 trillion FGN bond auction on October 19. The auction involves reopening the February 2034, September 2036 and June 2038 bonds.

Liquidity rose before inflows

Banking system liquidity rose 69.39 per cent week-on-week to N6.283 trillion from N3.709 trillion in the previous week. The rise was driven largely by N2.409 trillion in OMO maturities, N80.84 billion in Treasury bills maturities and N30.20 billion in other primary-market repayments, with the DMO’s N269.06 billion Treasury bills sale partially offsetting the inflows. FMDA said: “System liquidity rose 69.39% w/w to N6.283trn from N3.709trn, driven largely by N2.41trn of OMO maturities (with no offsetting OMO sale last week, only repayments), alongside N80.84bn of T-bill maturities and a further N30.20bn of other primary-market repayments, even as the DMO’s N269.06bn T-bill sale partially offset the inflows.”

Gross external reserves rose 0.02 per cent week-on-week to $55.089 billion, a fresh high since December 2008. Average Brent crude prices increased 3.92 per cent week-on-week to $106.02 per barrel.

Naira and fixed income

The naira depreciated marginally by 0.06 per cent week-on-week to N1,332.31 per dollar at the Nigerian Foreign Exchange Market (NFEM). The parallel market rate was unchanged at N1,375 per dollar. NFEM interbank turnover rose 14.08 per cent week-on-week to $1.08 billion.

Average FGN bond yields increased 32 basis points to 16.43 per cent from 16.11 per cent. The two-year bond yield rose 142 basis points to 17.50 per cent, the seven-year yield increased 61 basis points to 17.04 per cent and the 10-year yield rose 46 basis points to 17.05 per cent. The 30-year yield declined 60 basis points to 14.60 per cent. FMDA stated: “FGN bond yields climbed further, up 32bps on average to 16.43 per cent, led by the 2-year (+142bps) and 7-year (+61bps), while the 30-year (-60bps) was the only tenor to rally.”

Treasury bill yields moved higher, with the average yield increasing seven basis points to 18.23 per cent. The one-month and three-month yields rose 79 basis points and 65 basis points to 18.83 per cent and 17.65 per cent. The six-month yield declined 101 basis points to 17.70 per cent, while the 12-month yield fell 29 basis points to 18.38 per cent.

At the October 14 primary market auction, the DMO allotted N269.06 billion against a reduced offer of N450 billion, down from N900 billion previously. It rejected the bulk of demand on the 364-day paper. Stop rates remained at 15.50 per cent for the 91-day bill and 15.80 per cent for the 182-day bill. The 364-day rate rose five basis points to 15.90 per cent, its first increase since August. FMDA described the development as “a pause in the post-MPR rate-cutting momentum.”

The inflow outlook, if it materialises, could ease short-term funding pressures in the banking system, though the N1.75 trillion bond auction and higher yields may still influence naira liquidity and lending costs.