Nigeria Banks Lose N3.86tn Liquidity as CBN Tightens Cash

By Chibuzor Alli

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

The N3.86tn liquidity decline pushed system liquidity down 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 drop followed the CBN’s offer of N1tn in OMO bills, which absorbed a substantial amount of excess cash from banks.

CBN OMO triggers N3.86tn liquidity decline

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

The overnight interbank lending rate, however, edged up to 22.30 per cent from 22.19 per cent. The movement points to some upward pressure on the cost of short-term funds as banks responded to tighter cash conditions.

AIICO Capital said money market rates had remained relatively stable despite the significant reduction in available banking system liquidity.

The financial system could face further pressure in the near term, although a N57.42bn coupon payment expected to enter the 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.

Nigerian banks face tighter cash conditions

AIICO Capital 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.

The latest banking liquidity movement comes as treasury bill yields continued to rise in the secondary market, with investors demanding 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.

Treasury bill yields rise as liquidity tightens

The latest figures also highlight a major shift 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.

Over the same period, the overnight lending rate is 0.45 percentage points lower, while treasury bill yields are 1.81 percentage points higher.

The combination of declining N3.86tn liquidity and rising treasury bill yields points to continued restrictive monetary conditions, even though the key policy and overnight financing rates have remained broadly anchored around 22 per cent, according to financial analysts.