The Nigerian banking system is being hit by cash crunch this week as overnight lending rates at the interbank market rose to over 300 percent just as the Debt Management Office (DMO) raised less than expected at the April bond auction.
Traders said overnight lending rate, which rose slightly above100 per cent on Tuesday, rose on Wednesday.
However, the rate rose to about 300 percent on Thursday at the close of business as banks scrambled for cash to pay for bond purchases and cover their positions.
Naira liquidity was said to have dried up as interbank lending rates, which is the rate at which banks lend to each other, got higher thereby forcing commercial banks to borrow from the Central Bank of Nigeria (CBN).
“The market is currently short of funds with major placers asking for a higher rate on their money because of pressure from those who need cash to cover their positions,” a trader said.
But the DMO said it raised N105.32 billion from bond sales on Wednesday, and payment for the debt sale was due yesterday, draining liquidity in the market and pushing up the cost of money in the market.
The debt office said it raised less money than it originally planned after investors demanded higher yields to buy the debt, having raised N29.7 billion less than it wanted to.
Traders said investors demanded yields of up to 17.55 percent on the notes but the DMO offered the bonds at yields below 17 percent on an improving inflationary outlook in Africa’s biggest economy.
Inflation figures dropped for the second month running according to latest data released by the National Bureau of Statistics (NBS) on Wednesday.
NBS said Nigeria’s inflation rate eased for the second consecutive month in March to 17.26 percent, down from 17.78 percent in February, which was the first drop in 15 months.
The DMO offered a fresh 20-year bond at par at 16.24 percent coupon to raise N56.25 billion.
It sold a 10-year debt of N34.04 billion at 16.24 percent as against 16.28 percent at its previous sale.
The debt office raised N15.03 billion via a five-year debt at 15.98 percent compared with 16.24 percent previously.