Nigeria bank liquidity crisis fears grow as rising cash demand, OMO auctions, and limited inflows push NIBOR rates above 26%, with smaller banks under pressure

Nigeria’s banking sector is facing mounting liquidity pressures as a surge in cash demand from the public and private sectors strains available funds, raising fears of a Nigeria bank liquidity crisis and tighter credit conditions.

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Daily Sun investigations reveal that increased government disbursements, corporate tax remittances, and pre-inflation consumer withdrawals are driving the spike in currency demand, forcing banks—especially mid-tier lenders—to activate contingency plans and slow new loan approvals.

Despite last week’s N258 billion in maturing Treasury bills and N600 billion in OMO maturities, liquidity was drained by a massive N2.1 trillion OMO sale by the Debt Management Office (DMO), effectively mopping up excess cash from the system.

The strain was immediately visible in money market rates:

NIBOR overnight rate: 26.92%
1-month: 27.71%
3-month: 28.38%
6-month: 29.14%

Collateralised lending rates also tightened, with the Open Buy Back (OBR) at 26.50% and Overnight (O/N) at 27.00%.

The Treasury bills secondary market saw yields rise 15bps to 17.91%, while the NITTY curve showed mixed movement, with 1-month, 3-month, and 6-month tenors climbing but the 3-month segment dipping.

At last week’s CBN NT-Bills auction, demand outstripped supply, but allotments fell short of offers, with the 364-day paper’s stop rate rising to 16.50%.

The DMO’s OMO auction saw an overwhelming N2.20 trillion subscription against a N600 billion offer, with the 245-day tenor clearing at a steep 23.70%.

Analysts warn the squeeze will likely deepen this week, with no major maturing instruments to inject fresh liquidity. Banks are expected to lean heavily on the interbank market, already under strain.

Cowry Asset Management noted that the CBN’s aggressive mop-up is part of its inflation fight, but it risks pushing banks toward extreme conservatism, potentially impacting the wider economy.

“The CBN is walking a tightrope,” said one policy analyst. “This is not a crisis yet, but it is a critical inflection point.”

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While no official CBN statement has been issued, insiders suggest an emergency liquidity injection is being considered if market conditions deteriorate further.