Due to growing rate of defaults at the interbank money market, some banks are no longer willing to give out funds to other banks on overnight basis, banking source said on Friday.
"Most fund placers are no longer lending overnight because the default rate is gradually growing, hence the concentration on collateralised lending through OBB," one trader said.
Banking source said since the government ordered the transfer of its deposits to a Treasury Single Account (TSA) last month, some banks have defaulted in the repayment of funds borrowed on the interbank market.
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| Emefiele |
In order to forestall further default and save the system from total collapse, top banks which control liquidity in the market has stopped lending to other banks on overnight basis, rather interbank lending is now conducted based on availability of collateral.
"Any banks that cannot provide treasury bills backing for its borrowing would not get overnight cash accommodation in the system," another dealer said.
bankers who spoke on the subject said the security of depositors' fund is paramount, hence the resorting to lending based on secured basis.
However, Nigeria's interbank lending rate has jumped to 7 percent as of Friday from 1 percent at the end of last week as payments for foreign exchange and treasury bills have drained liquidity from the banking system, traders said.
Liquidity in Africa's biggest economy showed a surplus of about 256 billion naira ($1.3 billion) on Friday, well down from over 1 trillion naira last week, traders said.
"Markets liquidity dropped significantly this week due to provision of about 300 billion naira made for foreign exchange intervention by the central bank and many banks' liquidity positions declined, leading to an increase in cost of funds," one dealer said.
The secured open buy back (OBB) - the rate at which lenders can borrow from the interbank market using treasury bills as collateral - rose to 7 percent from 0.5 percent last week, well below the 13 percent central bank benchmark interest rate.
Traders said with state-owned energy company NNPC's plan to recall the proceeds of its dollar sales to some banks to its account with the central bank next week, the cost of borrowing could rise further.
"Hopefully, budget allocation to some states and local government could come in next week to counter the impact of intending cash withdrawal by the NNPC and keep the rate at the present level," a senior treasurer with one of the top bank said.
However, Nigeria's interbank lending rate has jumped to 7 percent as of Friday from 1 percent at the end of last week as payments for foreign exchange and treasury bills have drained liquidity from the banking system, traders said.
Liquidity in Africa's biggest economy showed a surplus of about 256 billion naira ($1.3 billion) on Friday, well down from over 1 trillion naira last week, traders said.
"Markets liquidity dropped significantly this week due to provision of about 300 billion naira made for foreign exchange intervention by the central bank and many banks' liquidity positions declined, leading to an increase in cost of funds," one dealer said.
The secured open buy back (OBB) - the rate at which lenders can borrow from the interbank market using treasury bills as collateral - rose to 7 percent from 0.5 percent last week, well below the 13 percent central bank benchmark interest rate.
Traders said with state-owned energy company NNPC's plan to recall the proceeds of its dollar sales to some banks to its account with the central bank next week, the cost of borrowing could rise further.
"Hopefully, budget allocation to some states and local government could come in next week to counter the impact of intending cash withdrawal by the NNPC and keep the rate at the present level," a senior treasurer with one of the top bank said.
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