…cost of borrowing could rise further

By Don Kere  |  Nigeria’s interbank lending rate jumped to 7 percent as of Friday from 1 percent at the end of penultimate week as payments for foreign exchange and treasury bills drained liquidity from the banking system, traders said, reports Reuters.

Liquidity showed a surplus of about N256 billion ($1.3 billion) on Friday, well down from over N1 trillion penultimate week, traders said.

“Markets liquidity dropped significantly last week due to provision of about N300 billion 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.

“Most fund placers are no longer lending overnight because the default rate is gradually growing, hence the concentration on collateralised lending through OBB,” another trader said.

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 this week, the cost of borrowing could rise further.

“Hopefully, budget allocation to some states and local government could come in this 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.