Banking liquidity slumps N3.86tn as OMO drains cash

Nigeria’s banking system liquidity plunged by N3.86tn on Thursday after the Central Bank of Nigeria conducted a fresh open market operation, tightening cash conditions across the financial system.

System liquidity fell 65.53 per cent to N2.03tn from N5.89tn, according to market data cited by AIICO Capital Limited in an investor note.

The sharp decline followed the CBN’s offer of N1tn in OMO bills, which absorbed a significant amount of excess cash from banks.

Despite the liquidity squeeze, the Nigerian Overnight Financing Rate remained unchanged at 22.00 per cent, while the policy rate was also maintained at 22.00 per cent.

However, the overnight interbank lending rate increased slightly to 22.30 per cent from 22.19 per cent, indicating some upward pressure on the cost of short-term funds as banks adjusted to tighter liquidity conditions.

AIICO Capital said the movement showed that money market rates had remained relatively stable despite the substantial reduction in available banking system cash.

The liquidity position could come under further pressure in the near term, although a N57.42bn coupon payment expected to enter the financial system may provide some relief, according to Herwood Securities Limited.

“We expect short-term borrowing costs to stay close to the central bank’s 22.00 percent target, but with the cash buffer now down to N2.03 trillion, the risk is that rates drift higher,” AIICO Capital said.

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The investment firm said the direction of money market rates would depend largely on the size of the next OMO auction and the amount of liquidity returned to banks through government payments and other system inflows.

Meanwhile, treasury bill yields continued to rise in the secondary market as investors demanded higher returns.

The average treasury bill rate increased to 18.81 per cent from 18.77 per cent, reflecting continued selling pressure and repricing across the short-term fixed-income market.

The latest liquidity movement also highlights a significant change in banking system cash conditions compared with the beginning of the year.

According to AIICO Capital, banks are now holding 46.81 per cent less liquidity than they had at the start of 2026, while the overnight lending rate is 0.45 percentage points lower and treasury bill yields are 1.81 percentage points higher.

The combination of declining system liquidity and rising treasury bill yields suggests that monetary conditions remain restrictive, even though the key policy and overnight financing rates have remained broadly anchored around 22 per cent, according to financial analysts.