(L-R) SOla Oni, asistant general manager, corporate communications, Nigerian Stock Exchange; Judy Bonnier, sales manager, Thomsn Reuters and Onyewuchi Asinobi, CEO of CSCS, during the Thomson Reuters and the NSE cockpit evening in Lagos.

NIGERIAN banks are deep in their battle against liquidity glut in the market even as cost of  funds in the Nigerian financial market has continued to nose-dive with the inter- bank rate closing at 1.43 percent compared to 2.16 percent the previous week.
Wale Abe, executive secretary of the Financial Market Dealers Association of Nigeria (FMDAN) said the system is cash awash hence the rates are dropping. Wale said the drop in the cost of funds in the market is coming on the heel of serious liquidity occasioned by slashing of the standing facility deposit rate from two to one percent by the Central Bank of Nigeria (CBN). This was aimed at moving banks’ money, about N650 billion that was with the apex bank, into the system for onward lending to the economy.
The FMDAN chief executive also attributed the huge liquidity to ‘limited investment outlets’. He said the banks are doing skeletal lending because of risk management challenges, a situation that imposes stringent conditions for accessing credit facility.
He said deposit rates hovered around three to five percent, while lending rates are between 17 and 21 percent last week, just as the rates are expected to dip further this week as the N273 billion ($1.8 billion) monthly budget funds to government agencies hit the market.
The secured Open Buy Back (OBB) dipped to 1.10 percent from 1.75 percent, far below the central bank’s 6.0 percent benchmark interest rate. Overnight, it fell to 1.20 percent from 2.25 percent, while call money slipped to 2.0 percent from 2.50 percent, traders said. Dealers said the market had a surplus of N464 billion, up from 335 billion naira last week, despite big outflows in bonds purchases, payment of the Nigeria Deposit Insurance Corporation premium by retail banks, Cash Reserves (CR) and forex purchases.
Nigeria’s Acting President Goodluck Jonathan last week approved the release of $1 billion from the country’s windfall oil savings for urgent national development projects, but bankers said the fund had yet to be disbursed to government agencies. “If the $1 billion from the excess crude account is disbursed next week, then rates could remain stable or drop. At the foreign exchange market the liquidity also forced the naira to depreciate by 15 kobo on the dollar. 
An analyst said the current lull in lending activities by banks has implications for their profits in the short and medium term. Indeed, it may extend the time it will take the banking industry to bounce back to profit. The current behaviour is a reflection that banks are comfortable with a safe one percent interest rate per annum from the CBN than take credit risks at above 15 per cent per annum. Another evidence of the cautious approach is the amount of funds that banks are putting into government bonds, despite their low yields.