Liquidity in the commercial banks has increased in the banks QoQ despite the recession and an increase in the interbank rate. The reduced economic activity associated with the recession increases the credit risk and liquidity risk to the banks, as customers withdraw savings deposits and delay loan repayments
The total domestic deposits have increased from NGN 17.4trn to NGN 18.1trn in Q3 2016. The total bank deposits stood at N17.2 trillion, as at December 2015, according to the Central Bank of Nigeria,.
Loan to deposit ratio up from 68.78% to 79.32% in Q3 2016 according to CBN data. Shows that deposits could be further utilized to extend credit to the economy.
Inter bank rate
The inter bank rate has increased from 3.01% to 23.42%. The interbank rate is the rate of interest charged on short-term loans between banks. Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements. The interest rate charged depends on the availability of money in the market, on prevailing rates and on the specific terms of the contract, such as term length
The interbank rate is a function of the components listed below;
- risk of default,
- a premium related to the demand for funds, which depends on the funding liquidity of the borrowing bank,
- Market-wide conditions include the uncertainty about the path of expected overnight rates, which is reflected in a term premium, the ease of trading,
- Market liquidity, and
- factors related to the fixing process and the microstructure of the market (micro)