Nigerian banks suffer 50% loss from CBN treasury bills sale

The Nigeria banking sector suffered more than 50 percent loss in its overnight interbank lending rate on Friday as a result of maturity of Central Bank of Nigeria’s (CBN) treasury bills for the second week of September.

Banks were lending overnight naira call at 35 percent rate from Wednesday but this fell to 15 percent, more than half the former value, at the weekend, which is attributed to injection of funds into the system by CBN.

Traders at the interbank lamented the sharp fall of the rate, which had seen them suffer lower return on weekly projections.

The central bank said it had repaid around 293 billion naira in matured bills to some commercial lenders on Thursday, increasing liquidity and forcing down borrowing costs among banks.

It sold 139.42 billion naira of treasury bills in open market operations on Thursday at 18.5 percent, to reduce system liquidity. But the market cash balance remained up at 51.65 billion on Friday against an 87 billion-naira deficit on Wednesday.

Cost of overnight borrowing among banks had reached 35 percent on Wednesday after cash dried up as some commercial lenders resorted to borrowing at the central bank discount window to help meet their immediate obligations.

“We expect the rate to be trading around the 15 to 18 percent level next week if the central bank did not sell fresh treasury bills to mop up cash from the system,” one dealer said.

The overnight lending rate had closed last week at 16 percent but gradually climbed to 35 percent on Wednesday, then eased marginally to 20 percent on Thursday after the cash from matured treasury bills reached the system.

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