Nigerian banks made no bids on the interbank money market on Tuesday as they awaited instructions on how to comply with a directive to transfer government revenues into a single account with the central bank, dealers said.
President Muhammadu Buhari has ordered that all revenues be paid into the "Treasury Single Account" (TSA) from Tuesday, as part of a drive to fight corruption and aid transparency.
"No trading is currently going on because no bank was willing to put out quotes until there is a clearer direction with the implementation of the Treasury Single Account," one dealer told Reuters.
"The market is right now frozen, as no trading going on," another trader said.
Analysts have predicted that implementation of the government policy will drain naira liquidity from the banking system, potentially putting some banks in a dire situation.
The overnight lending rate closed at 5 percent on Monday, but dealers said the rate was initially quoted at 200 percent on Tuesday. No deals were done using that rate.
About 1.2 trillion naira, or 10 percent of banking sector deposits, is expected to be transferred to the government account with the central bank in the course of implementing the TSA policy, Bismarck Rewane, chief executive at Financial Derivative Company said.
"We expect an initial paralysis in the market and a disruption of operations of some of the banks, but they would overcome that," Rewane said.
He said the central bank could reduce the size of the cash reserve requirement (CRR) commercial lenders are expected to keep with it and inject some liquidity into the banking system to minimise the impact of the new account policy.
The CRR, which is the amount the central bank requires banks to set aside, is currently 31 percent for both public and private sector deposits.