Banks park N6.98tn at CBN as Treasury bill offer hits N800bn

Nigerian banks held N6.98tn with the Central Bank of Nigeria on Tuesday, a signal that lenders still have excess cash they have not pushed into lending or other investments. The balance came ahead of an N800bn Treasury bill offer conducted on Wednesday for the Debt Management Office.

The CBN’s Standing Deposit Facility allows banks to park excess funds and earn interest instead of deploying the money into other assets. A high SDF balance suggests some financial institutions have more funds than they are willing or able to put into alternative investments at prevailing market rates and risk levels.

Liquidity and T-bill auction

The Financial Markets Dealers Association projected N2.81tn in inflows into the financial system this week, largely from maturing Open Market Operation instruments. 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, pointing to the government’s focus 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 more funds to subscribe to government securities or keep placements in other money market instruments.

Banks and lending

Ike Ibeabuchi, an emerging markets analyst, said the high placements help explain why entrepreneurs in the productive sector believe Nigerian banks are not making much contribution to economic growth. “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,” he said.

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

Auction outcomes

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 show that 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.

The combined picture is of a banking system holding large idle balances while the government continues to borrow from the domestic market. For the naira and Nigerian businesses, the key issue remains whether banks will move more funds into productive lending as yields and liquidity conditions shift.