Financial System liquidity in H2-2020: Thinning out?

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For us, a number of factors are pointing towards reduced system liquidity in H2-2020. First, on the domestic front, net inflows of funds from maturing OMO bills belonging to local players will begin to wane from Q3-2020.

We recall that the decision taken by CBN to stop OMO sales to locals was taken towards the
end of Oct-2019. Based on CBN data, from Dec-2019, the amount of OMO bill holdings belonging to local non-bank corporates has dropped significantly, to N3.9tn as at the end of Apr2020.

This means that from Apr2020 to the end of Oct-2020, all holdings in the hand of local non-bank corporates (N3.9tn as at Apr-2020) is expected to be exhausted. Also, by implication and accounting for time passage, a larger proportion of portfolio holdings on OMO bills will be in the hands of FPIs and Banks in Q4-2020, with these set of investors calling the shots at the OMO market.

Financial System liquidity in H2-2020: Thinning out? - Brand Spur

Also, inflows from FAAC are likely to come in lower than the previous year, as the
government’s revenue takes a hit from the lower oil prices. Overall, we expect inflows from domestic sources to track lower in H2- 2020, strengthening the case for a potential increase in yields compared to H1-2020.

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United Capital Research

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