Banks in Nigeria are still able to earn yields above 17 percent on selected central bank and government securities, even after the Central Bank of Nigeria lowered its benchmark Monetary Policy Rate by 350 basis points in September.
The CBN reduced the MPR from 26.5 percent to 23 percent and adjusted the standing facilities corridor to +50/-300 basis points. That placed the Standing Deposit Facility at 20 percent and the Standing Lending Facility at 23.5 percent, while the Cash Reserve Requirement for deposit money banks was held at 45 percent.
Despite that policy easing, surplus funds placed overnight with the apex bank continue to return 20 percent, while some OMO and government instruments still clear above 17 percent. The result is a more gradual repricing of bank asset yields than the headline cut initially suggested.
At the October 22 Open Market Operations auction, the CBN sold N2.628 trillion in OMO bills, about N629 billion more than the N2 trillion initially offered. The 138-day bill cleared at 17.63 percent and the 180-day instrument at 17.14 percent. Both were above the October 6 auction, when comparable 147-day and 182-day bills cleared at 17.22 percent and 16.92 percent respectively.
The deposit window tells a similar story. Banks placed roughly N8.85 trillion at the Standing Deposit Facility, while banking-system liquidity was around N7.26 trillion. The Nigerian Overnight Financing Rate and the Open Repo Rate both sat near 20 percent.
In the bond market, Nigeria's benchmark 10-year yield rose to 17.05 percent in the week ended October 16. The September 2036 and June 2038 FGN bonds cleared at 17.29 percent and 17.19 percent at the October 19 auction.
Analysts expect the pressure on bank interest income to build slowly. MorganCapital projects a gradual decline in yields, with the 364-day Treasury bill around 14.5 percent to 16 percent. Blue Marina forecasts the 364-day bill at 16 percent, average OMO stop rates at 17 percent and FGN bond rates between 17 percent and 17.5 percent by December, with inflation easing to 13.80 percent and the MPR held at 23 percent.
Chukwudi Nga, MD/CEO of MorganCapital Investment Limited, noted that cheaper short-term funding and stronger credit demand could support banks, while cautioning that lower rates may pressure interest margins and investment income.
