Cost of funds rises as market liquidity drops to n96bn
It appears that you're referring to a financial market phenomenon where the cost of funds (i.e., the interest rate at which banks borrow money) has increased due to a significant decline in market liquidity.
Here's a breakdown of what's happening:
Cost of Funds (CoF): The cost of funds is the interest rate at which banks borrow money from other banks, the central bank, or other financial institutions. It's a key indicator of the overall cost of borrowing in the economy.
Market Liquidity: Market liquidity refers to the ability of financial markets to absorb large trades or transactions without significantly affecting the market price. In other words, it's the ease with which assets can be bought or sold without disrupting the market.
N96bn: This is the amount of liquidity that has dropped in the market, which is a significant decline.
When market liquidity drops, it can lead to an increase in the cost of funds for several reasons:
- Increased demand for cash: As liquidity declines, banks and other financial institutions may need to hold more cash reserves to meet their short-term funding needs. This increased demand for cash can drive up the cost of borrowing.
- Reduced competition: With less liquidity in the market, there may be fewer buyers and sellers, leading to reduced competition and higher prices (i.e., interest rates) for borrowing.
- Increased risk aversion: When market liquidity is low, investors may become more risk-averse, leading to a decrease in the supply of funds available for lending. This can drive up the cost of borrowing as lenders demand higher returns to compensate for the increased risk.
In summary, the rise in the cost of funds as market liquidity drops to N96bn is likely due to the increased demand for cash, reduced competition, and increased risk aversion in the financial markets.