Banking Liquidity Drops ₦3.86tn as CBN OMO Auction Tightens Cash Conditions

Liquidity in Nigeria’s banking system fell sharply on Thursday following a fresh Open Market Operations (OMO) intervention by the Central Bank of Nigeria, with available cash declining by ₦3.86tn.

Market data referenced by AIICO Capital Limited in an investor note showed that system liquidity dropped 65.53 per cent, from ₦5.89tn to ₦2.03tn.

The decline followed the CBN’s offer of ₦1tn worth of OMO bills, which drew a substantial amount of excess cash out of the banking system as financial institutions invested in the securities.

Despite the significant reduction in liquidity, key monetary policy rates remained unchanged. The Nigerian Overnight Financing Rate held steady at 22.00 per cent, matching the 22.00 per cent policy rate.

However, the overnight interbank lending rate increased marginally to 22.30 per cent from 22.19 per cent. The movement points to some pressure in the short-term funding market as banks adjusted to the reduced availability of cash.

AIICO Capital said money-market rates had remained relatively stable despite the substantial decline in system liquidity.

The investment firm, however, warned that short-term rates could face further upward pressure if liquidity conditions tighten further. It said the direction of money-market rates would depend largely on the size of subsequent OMO auctions and the amount of cash returning to the financial system through government payments and other inflows.

Some relief could come from a N57.42bn coupon payment expected to enter the financial system, according to Herwood Securities Limited.

AIICO Capital noted that with the banking system’s liquidity buffer now reduced to ₦2.03tn, the potential for short-term borrowing costs to rise had increased.

Meanwhile, activity in the secondary treasury-bill market continued to reflect tighter financial conditions. The average treasury-bill rate rose to 18.81 per cent from 18.77 per cent as investors sought higher returns amid continued selling pressure and repricing across the short-term fixed-income market.

The latest liquidity decline also represents a significant change from the beginning of 2026. According to AIICO Capital, banks now have 46.81 per cent less liquidity than they held at the start of the year.

Over the same period, the overnight lending rate has declined by 0.45 percentage points, while treasury-bill yields have increased by 1.81 percentage points.

The developments highlight the changing conditions in Nigeria’s money market. Although the CBN’s policy and overnight financing rates remain anchored at 22 per cent, the substantial reduction in banking-system liquidity and the rise in treasury-bill yields point to tighter monetary conditions.

Market participants will therefore be watching upcoming OMO auctions, government-related inflows and other liquidity injections closely for indications of how short-term funding conditions may evolve.