21 December 2015, Lagos – Banks are desperately searching for how to invest the over N1 trillion of excess cash in their vaults. This desperation was reflected in trading for treasury bills (government securities) where banks and other investors demanded for 291 percent more bills than the amount offered for sale by the Central Bank of Nigeria (CBN). Trading results show that banks and other investors demanded for N791.42 billion worth of treasury bills but the CBN offered N202.4 billion.
Further analysis show that in the secondary market, where existing bills are sold, the CBN offered N50 billion worth bills (Open Market Operation, OMO) while investors demanded for N236.84 billion, out of which the apex bank accommodated N233.84 billion. At the Primary market, where fresh bills are sold, the CBN offered N152.4 worth of fresh bills, while investors demanded N554.58 billion, out of which the apex bank accommodated N155.4 billion.
Recall that the CBN on Tuesday November 24th, lowered interest rate it pays on bank’s excess cash deposited in its Standing Deposit Facility (SDF) to 4.0 percent from 11 percent. Since then banks have been battling with where to invest their excess cash. Investigation revealed that volume of excess cash in bank’s vaults rose during the week, due to reimbursement for unmet demand for foreign excess exchange, and payment of matured treasury bills.
From N665 billion on Monday, excess cash rose sharply by 84 percent to N1.19 trillion on Tuesday before dropping N262 billion on Wednesday. On Thursday excess cash rose again by 131 percent to N606 billion due to repayment for matured treasury bills. Consequently, cost of funds (interest rates) remained low in the interbank money market. According to Afrinvest Plc, “Money market rates stayed at low levels with the Overnight (O/N) lending and secured Open Buy Back (OBB) lending instruments closing at 0.5 percent and 1.0 percent respectively on Monday.