Nigeria’s Banking Liquidity Drops N3.86tn as CBN Tightens Cash Conditions

Liquidity in Nigeria’s banking system fell by N3.86 trillion on Thursday after the Central Bank of Nigeria conducted a fresh Open Market Operation, tightening cash conditions across the financial system.

Market data cited by AIICO Capital Limited in an investor note showed that system liquidity dropped by 65.53 per cent, from N5.89 trillion to N2.03 trillion.

The sharp decline followed the CBN’s offer of N1 trillion in Open Market Operation bills, which absorbed a significant portion of excess funds held by banks.

Open Market Operations are among the monetary policy tools used by the central bank to manage liquidity in the financial system and influence short-term interest rates.

Despite the substantial liquidity reduction, the Nigerian Overnight Financing Rate remained unchanged at 22.00 per cent. The CBN’s policy rate also remained at 22.00 per cent.

However, the overnight interbank lending rate increased slightly to 22.30 per cent from 22.19 per cent.

The movement indicated some upward pressure on the cost of short-term funds as banks adjusted to the tighter liquidity environment.

AIICO Capital said the development showed that money market rates had remained relatively stable despite the significant decline in available banking system cash.

The investment firm, however, warned that liquidity conditions could come under additional pressure in the near term, particularly if further monetary operations absorb funds from the banking system.

A N57.42 billion coupon payment expected to enter the financial system could provide some relief by injecting additional funds into the market.

AIICO Capital said short-term borrowing costs were likely to remain close to the CBN’s 22.00 per cent target, although the reduction in the liquidity buffer could increase the risk of higher rates.

The firm explained that the direction of money market rates would depend largely on the size of the next OMO auction and the volume of liquidity returned to banks through government payments, coupon payments and other system inflows.

Meanwhile, Treasury bill yields continued to rise in the secondary market as investors demanded higher returns on short-term government securities.

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 shift in banking system cash conditions compared with the beginning of 2026.

According to AIICO Capital, banks are now holding 46.81 per cent less liquidity than they did at the start of the year. During the same period, the overnight lending rate has declined by 0.45 percentage points, while Treasury bill yields have risen by 1.81 percentage points.

The combination of falling system liquidity and rising Treasury bill yields suggests that monetary conditions remain relatively restrictive, even though the key policy and overnight financing rates have remained anchored around 22 per cent.

The development is expected to remain a key factor for banks, investors and other participants in the money market as they assess borrowing costs, available funds and the likely direction of short-term interest rates.

Market participants are also expected to monitor upcoming CBN liquidity operations, government payments and other inflows closely, as these could determine whether liquidity conditions ease or become tighter in the coming sessions.

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