WEDNESDAY, 07 JULY 2010 01:12 BLESSING ANARO  

 

Following the financial crisis that hit the banking sector in 2009, most banks that had huge amounts provided for in their financials as a result of non-performing loans given out to the capital market and the oil and gas sector must have learnt a bitter lesson they would not want to repeat itself.

 

To this end, most banks have learnt to channel their investments to safe havens like the bond market, leaving little or nothing for the real economy for growth.However, inspite of this deft move, as it may be considered, the Central Bank of Nigeria (CBN) in a bid to ensure that banks lend to the productive sector, recently came out with a set of new guidelines for granting liquid asset status to state government bonds.

 

One major aspect to note under the new guideline, for instance, is that banks shall no longer invest more than 10 percent of their shareholders’ funds in bonds issued by a single state government.This, according to market watchers, will ensure the banks do not plunge all their resources into bonds, particularly state government bonds in the name of investing in safe havens.

 

That exactly explains why Abraham Nwankwo, director-general, Debt Management Office (DMO) who spoke at a workshop on the “Nigerian Federal Government Bond Market: Safe haven in times of crisis by the Primary Dealers Market Makers (PDMM)”, disclosed that from 2003 when the bond market opened, the DMO had offered FGN bonds worth N2.51 trillion, but recorded a total subscription of N4.55 trillion, with N2.52 trillion allotted during the period. This represents 81.28 percent oversubscription level.

 

During that period, Nwankwo said the bonds were issued in tenors of 3, 5, 7, and 10-year until November 2008 when a 20-year bond was issued.The director general continued that the confidence shown on FGN bonds was remarkable, stressing that the number of transactions increased from 5,482 in 2006 to 30,241 in 2007, 80,135 in 2008 and 107,836 as at October 2009. On the other side, value of transactions rose from N585.41 billion in 2006 to N3.95 trillion in 2007, N10.09 trillion in 2008, and N14.68 trillion as at October 2009.

 

He recalled that when the DMO first issued FGN bonds in 2003, its intention was driven largely by the need to restructure the Federal Government of Nigeria’s domestic debt from predominantly short-term Nigerian Treasury Bills, which was about 63 percent to a combination of short, medium and long-term. However, he noted the objective had been achieved.

 

Afrinvest Research in its current report noted that a turnover of 604.1 million units worth N662.4 billion ($4.4bn) in 6,081 deals was recorded in the last fortnight. The most active bond (measured by turnover volume) was yet again the 7th FGN Bond 2013 Series 1.It revealed that the Over-the-Counter (OTC) bond market experienced price volatility on all maturities over the fortnight, saying yields, particularly on medium-term securities, moderated downwards at the beginning of the fortnight.

 

Afrinvest, however, added that the fiscal injection in the middle of the first week led to a spike in prices by the end of that week, and as a result market operators were passive at the beginning of the second week, as they positioned themselves for the auction on June 23. This, however, it stated reversed after the auction with prices of short-tenured bonds rising and medium-long tenured bonds moderating downwards.

 

Also, the FSDH Weekly in its review for the week dated June 25, 2010, declared that, at OTC of the bond market, a turnover stood at 346.55 million units worth N381.44 billion in 3,629 deals was recorded in contrast to a total of 257.51 million units valued at N280.91 billion exchanged in 2,452 deals during the week ended Thursday, June 24, 2010.

 

In the preceding week, the most active bond (measured by turnover volume) was the 7th FGN Bond 2013 Series 1, with a traded volume of 85.2 million units valued at N84.67 billion in 803 deals. This was followed by the 5th FGN Bond 2013 Series 1, with a traded volume of 37 million units valued at N40.89 billion in 309 deals. Twenty of the available 37 FGN Bonds were traded during the week, compared with 27 in the preceding week.

 

(Source:BusinessDay)