By Emele Onu, 07.04.2010 

 

The announcement of the award of National Honour on the Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, raised interest at the money market last week.  Dealing banks, traders as well as investors in the market, local and international, were concerned about the implication of the recognition on the state of the market at present, in the medium and long-term.

 

 

The main interest last week was market and stakeholder perception of the Honour and what it could mean on the stability of the market. The CBN Governor was listed among those to be conferred with the Honour of the Commander of the Order of the Niger (CON).President, Association of Bureau de Change Operators of Nigeria (ABCON), Dr Emmanuel Balogun, said: “We were waiting for such action by the government to confirm to us that it approves the policies of the CBN. To us the award matters a lot, as it tells us that policy measures could be sustained in the future.”Balogun said the government might have assessed Sanusi as somebody with a strong idea and a burning desire to make accomplishments, adding: “The Award seeks to encourage other Nigerians with a big vision to come out and do it.”

 

 

A treasurer with one of the second-generation banks said: “The market is interpreting the award to mean that the government is fully in support of the leadership of the CBN and its reforms and for us, we can expect stability in policies, thereby trade with greater confidence.“It sends positive signal to international investors that the government is actually backing the reforms in the banking sector and the CBN regulation of the financial markets. It creates a market environment where both buyers and sellers can enter transactions on the strength of an investment plan, with projections in the future.”     

 

 

The National Honour was instituted for recognising and rewarding the outstanding feats and achievements of Nigerians and friends of the country. It was instituted by the National Honors Act No. 5 of 1964, during the First Republic, to honour Nigerians from all walks of life, who have rendered special and outstanding services in their various callings, to the benefit and progress of the nation.The Act empowers the Nigerian President to make provisions for the award of honours, decorations and dignities on a yearly basis. According to the National Honours Award Committeee:“The recognitions and rewards place on record public appreciation for the contributions of Nigerians and non-Nigerians that have distinguished themselves in their services to the country.They are also instruments for motivating the wider citizenry to strive for greater heights and to contribute more actively towards promoting the nation’s intellectual, creative and societal value systems. Traders said the Award, and any other activity that suggests an agreement between the fiscal and monetary authorises, are positive for the development of the market.  

 

 

Interest, Lending, Inter-bank, Securities Trading 

 

Rates inched marginally last week because of outflow to foreign exchange and securities trading, but the market remained generally liquid owing to the past fiscal inflow. That ensured that borrowing cost among banks maintained the very low region. Interest rate on the low tenored instruments moved up but very marginally, compared to the longer tenored papers where higher levels of appreciation were noticed. 

 

 

Call closed last week at 1.95 per cent as against 1.17 per cent it traded at the end of the previous week to June 25, 2010, while the 7-Day Nigerian Inter-bank Offer Rate (NIBOR) closed at 2.04 per cent from 2.35 per cent the previous week.Higher tenored papers rose higher as rate on 30-Day NIBOR increased to 6 per cent from 4.74 per cent; 60-Day NIBOR from 5.71 per cent to 6.91 per cent and 90-Day instrument from 7.04 per cent to 8.08 per cent. 

 

 

However, rate on domestic credit remained high. Interest on savings and overnight accounts, which hit the zero point in some banks recently has merely rose to between 3 and 5 per cent in some banks. But lending rate as published by banks is still between 17 and 18 per cent for most borrowing.Last week, the CBN offered N132.14 billion in 91-day, 182-day and 364-day treasury bills, in the components of N31.84 billion in 91-day treasury bills, N50.30 billion in 182-day bills and N50 billion in 364-day bonds. Traders said the transactions left the system with less liquidity for banks to do other businesses.

 

 

CBN undertakes OMO as a monetary control measure – to control the supply of money, influence cost of funds and check inflation, among others. An analyst said the expansionary monetary policy implemented by the regulator would require close monitoring of the money in circulation in the economy. It is the thinking in some quarters that even though the expansionary monetary policy may induce high liquidity, it would not pose a problem to the CBN for now as the injections are not translating to increase in credit to the domestic economy. Money in circulation as at the end of May, 2010 stood at N1.056 trillion, lower than N1.184 trillion at the end of December, 2009.

 

 

Also last week in the bond market, the Council of the Nigerian Stock Exchange (NSE), approved the Bayelsa State government N50 billion bond issue.The Governor of Bayelsa State, Dr. Timipre Sylva, expressed confidence that the bond issue will be fully subscribed as it is fully underwritten by banks.

Bayelsa State is offering 50,000,000 bond units at N1, 00 per unit. The bond issue, which has a tenor of seven years, is offered at a coupon rate of 13.75 per cent.In another development, the Debt Management Office (DMO) said Nigeria would be entering the international debt market for the $500 million euro bond before the end of October this year.

 

 

The Director General of the DMO, Dr Abraham Nwankwo, allayed fears expressed in some quarters that the downturn in the value of the euro might work against the issue.He said: “The fortune or misfortune of any foreign currency will not determine the fate of the Nigerian bond offer. First, the offer will be open to investors of all currency jurisdictions and second, fund managers and institutional investors usually keep a mixed portfolio of currencies.”

 

 

Forex Transactions

 

Large dollar sales by the oil majors, which dealers said have complemented significant supply from the CBN buoyed the value of the naira against the greenback last week. Traders had forecast the local currency to appreciate last week as the market reached month- end, when oil firms usually offload their dollars in exchange for naira to meet local financial commitments.Naira firmed at the official window, the wholesale dutch auction system (WDAS) last Wednesday after the CBN sold $250 million at N148.50 per dollar compared to the peak demand of $262.64 million, and to the $250 million it sold at N148.55 a dollar last Monday.

 

 

At the inter-bank forex market, the local currency rose to 150.05 to the dollar last Thursday, after some oil majors sold about $192 million at the inter-bank. The naira had earlier in the week gained at the inter-bank market to N150.70 to a dollar from N150.93/$1, the previous weekend. But parallel market rate was largely stable at N153/$1.Traders said dollar inflows from oil firms increased liquidity in the system and provided support for the naira.

 

 

Chevron and Total were said to have sold $78 million and $22.50 million respectively last Tuesday, while Mobil was believed to have sold about $92 million last Wednesday. The NNPC, THISDAY gathered sold a total of $410 million last week, helping the naira to appreciate.The Financial Markets Dealers Association (FMDA) expect the naira-dollar relationship this week to compare favourable with the trend the previous week, provided the CBN sustains its level of funding of the market. FSDH Research also said the forex rate is expected to remain stable (this week) as CBN meets all genuine demand. There were other developments that could impact on the market from the near to medium term.

 

 

External Reserves

 

Nigeria’s external reserves dropped by about $900 million last week. The reserves, which opened the week at about $38 billion dropped to $37.17 billion last Thursday. The reserves, which ended 2009 at $42.40 billion, had peaked at $64 billion in August 2008 during the oil boom when the price of crude oil reached N147 per barrel. Revenue shortfalls as well as funding for foreign exchange and imports are some of the reasons for the depletion of the country’s external reserve position.However, the reserve is said to fund about 17 months of import at present.

 

 

Rescued Banks’ Recapitalisation 

 

The CBN made many disclosures last week, concerning the recapitalisation of the rescued banks.In the first instance, it extended the recapitalisation deadline it gave Unity Bank and Wema Bank by three months. The CBN said in a statement that the banks now have up to September 30, to complete the recapitalization process.The banking watchdog noted that the extension of the deadline became impetrative due to unanticipated three months extension in timeline for setting up the Asset Management Corporation of Nigeria (AMCON).

 

 

Sanusi said last week that AMCON would clear $10 billion (about N1.5trillion) of bad loans from the banking system by the end of this year.He said the debt purchases would cost the CBN “roughly” $5 billion, as commercial banks do not have collateral to cover the bad loans.According to the Governor, the bids on the rescued banks would be released by September or October this year.He said four international banks were among the likely bidders for Nigerian banks and that he expected bids to be in by the end of July.

 

 

The CBN boss expressed concern at the likelihood of another asset buddle at the nation’s capital market, owing to huge interest of foreign investors to invest in the country. He said he expected foreign investment in Nigeria to rise as investors bet on rising oil prices, increased Nigerian oil production, and improved regulation of the banking sector.

 

 

Nigerian Banks’ Risk Perception 

 

Standard & Poor’s (S&P) last week said Nigerian banks continue to look extremely risky, despite a bailout of the sector last year.S&P considers that the Nigerian banking sector  is (B+/Stable/B)  and of high risk, pointing out that it placed Nigeria’s Banking Industry Country Risk Assessment (BICRA) in Group 9 similar to banking systems in Costa Rica (local currency BB+/Stable/B, foreign currency BB/Stable/B), Lebanon (B/Positive/B), and Belarus (local currency BB/Negative/B, foreign currency B+/Negative/B).  

 

 

Explaining the low rating and high-risk tag on the nation’s banking sector, it said the development is inherent to the country’s operating environment, evident in high unemployment, low wealth levels,and high political risk.It identified a number of hurdles in the way of the recapitalisation of the rescued banks, the execution of the banking reforms and the return of the financial institutions to profitability. It said the CBN might need to guarantee the acquisition of the rescued banks to be able to win the interest of investors. 

 

 

The rating agency said that further consolidation and international participation in the Nigerian banking sector remains likely, “although it remains unclear how and when this will take place.” It said the Nigerian capital market might not be supportive to the recapitalisation of the banks owing to the legal battles regarding the ownership of the ailing institutions.

 

(Source:ThisDay)