Banks Deplete Balance with CBN


By Emele Onu and Obinna Chima, 09.19.2010 


The opening balance of banks with the Central Bank of Nigeria (CBN) dropped significantly last week – reflecting the gradual drain of inter-bank market liquidity.  Banks’ deposits with the CBN had maintained a daily average of N400 billion but by last weekend, the opening balance of the banks had dropped by more than half, to about N180 billion. 


Consequent upon the drain of cash with the banks; massive cash withdrawals by the  Nigerian National Petroleum Corporation (NNPC) and big outflow for foreign exchange purchases among others, cost of borrowing among the banks increased last week.The Nigerian inter-bank lending rates climbed to 4 per cent on the average last week from 1.66 per cent the previous week.
Traders specifically attributed the spike in the rates to the sale of foreign exchange and significant cash withdrawals by the NNPC.Managing Director and Chief Executive, Slamad Bureau De Change, Mr. Amaeze Olisaemeka, confirmed the market development to THISDAY last Friday.


He explained: “The market did not get enough supply of foreign exchange from the oil and multinational companies as expected. The market usually gets a sizeable amount from them to cushion the supply from the CBN.At the forex market, the naira depreciated across the various market segments after the Eid el Fitri holiday.The naira slipped as a result of heavy pressure from the demand side of the market. 


However, some other market participants expressed the hope that the trend would reverse this week in response to the injection from the Federation Account and Allocation Committee (FAAC), which is also a major determinant of the direction of the market.The government announced the distribution of N433.7 billion from the federation accounts to the three tiers of government for the month of August last week. The money is expected to begin to hit the system from this week. The market would also be looking up to the Monetary Policy Committee (MPC) meeting, which comes up tomorrow for direction.


Meanwhile, as President Goodluck Jonathan and former Military Head of States, Ibrahim Babangida, formerly declared their intention to run for the presidency last week, and more politicians expected to do same in the days ahead, analysts have warned that the volume spending in the country this year might climb above 50 per cent, heightening fears of possible inflation.


Inter-Bank Rates Movement

The Nigerian inter-bank lending rates climbed to 4 per cent on the average last week from 1.66 per cent the previous week.The overnight (call) tenor advanced by 2.3 per cent to 3.71 per cent as at last Thursday, compared with the 1.12 per cent it stood on Monday just as the 7 days tenor jumped to 4.67 per cent last Thursday, representing an increase by 2.0 per cent over the 1.55 per cent it opened the week last Monday.


Similarly, 60 days tenor climbed by 0.4 per cent, from 4.83 per cent  last Monday to 6.75 per cent at the close of trade on Thursday while the 90 days tenor rose by 0.3 per cent to 7.67 per cent last Thursday, compared with the 5.75 per cent it attained last Monday. The NIBOR 180 days tenor also leaped by 0.3 per cent to 8.96 per cent last Thursday, over the 6.96 per cent it stood at the beginning of the week, even as the 365 days tenor raced to 9.58 per cent last Thursday,representing progression by 0.2 per cent, over the 7.83 per cent it achieved last Monday.        


The Open-Buy Back (OBB) rates at the inter-bank market also suffered as a result of the outflow from the system. The OBB for banks rose by 1.9 per cent to 3.12 per cent last Thursday, over the 1.06 per cent it was at the beginning of the week while the OBB for Discount Houses increased by 1.9 per cent, from 1.05 per cent last Monday to 3.08 per cent on Thursday.Reports from the Financial Market Dealers Association (FMDA) as at Thursday also showed that both the 90 days and 180 days tenor of the London Inter-Bank Offer Rate (LIBOR), which is also a tool for projecting the forward rates for foreign exchange quotes  closed at 0.2914 per cent and 0.4744 per cent respectively as at Thursday.


Despite all these, the prime and normal lending rates maintained their positions as they stood around their previous positions of between 17 and 19.60 per cent respectively.At the fixed securities market, the Debt Management Office (DMO) announced last weekend it would sell N120 billion in 3, 5 and 20-year bonds this week – representing its ninth debt auction of the year.According to the details of the auction, the DMO plans to sell N40 billion each in the 3-year, 5-year and 20-year instruments. All the instruments are re-openings of previous issues.


Forex Transactions

At the Inter- bank foreign exchange market, the naira slumped last week by 21 kobo to N151.62 kobo last Thursday, compared with the N151.41 kobo it was at the beginning of the week.Also, at the Central Bank of Nigeria’s (CBN) Wholesale Dutch Auction System (WDAS), the naira fell by 6 kobo to N149.47 to a dollar last Wednesday, over the N149.41 to a dollar it traded last Monday. In spite of the increased demand for the dollar at the WDAS, from $325.600 million last Monday, and subsequently to $350.493 million last Wednesday, the CBN restricted the offer to $300 million on the aforementioned trading days last week.


The parallel market rate oscillated at between N152.50 and N153.50 to one dollar at the various trading posts in the metropolis and outskirts of Lagos last week.Dealers are calling for enhanced funding of the market to guarantee the stability of the naira, which the CBN said it is benchmarking at N150/$1.


Other Mkt Devts 

Bank Auditors’ Tenure  

The CBN last week gave banks up to December 31, 2010 to replace external auditors that have been appointed for more than 10 years. The directive also included the years spent with constituent legacy banks.The apex bank warned :”Failure to comply will result in the CBN directing the affected auditors to resign mandatorily.”


CBN said its directive to the banks is in line with the provisions of the CBN Code of Corporate Governance for Banks.The banking watchdog said the maximum period of 10 years as contained in the code shall include the period an audit firm, which later merged or changed name, first commenced audit assignment in the bank.


Power Project

In line with the Federal Government’s intention to end the monopoly of the power sector, Governor, CBN, Mallam Lamido Sanusi, last week said the Federal Government intends to invest N400 billion ($2.6 billion) from the pension funds to promote foreign investment in the sector.Sanusi, who disclosed this Bloomberg at a conference in London, last Thursday, explained that the role of CBN is to provide conducive atmosphere for interested investors in the power sector and also guarantee that the funds would be released for viable and eligible power projects.


The government had proposed to sell 11 distribution units of Power Holding Company of Nigeria (PHCN) and allow private companies to build gas-fired, coal-fueled and hydroelectric plants. The government also plans to increase output to 14,019 megawatts by 2013. Sanusi stated that out of about N2 trillion of pension funds in the country, the CBN is working with the Pension Commission “to see how we can unlock about 400 billion of that into power infrastructure.”


Rescued Banks

The CBN Governor, who further confirmed the receipt of bids for some of the nation’s rescued banks, also said that some of the bids may be rejected.Sanusi, who said this to Reuters, had said the CBN would ensure shareholders’ value are protected, insisting that, “not every bid would be accepted.”According to him, the CBN would ensure that the banks are not sold at give-away price, adding that not all offers would be accepted.The CBN had last year bailed-out eight banks, which it described as sick, fired the Managing Directors and Chief Executive officers and other principal officers of the affected banks and subsequently injected about N620 billion in the banks. 


The eight rescued banks are Afribank, Bank PHB, Equitorial Trust Bank, Finbank, Intercontinental Bank, Oceanic Bank, Spring Bank and Union Bank. The CBN stated last month that it had received bids for four of the affected banks, stressing that two foreign institutions were involved in the bidding process for the rescued banks, as well as several local banks and private equity firms in partnership with foreign banks.


MPC Meeting

In order to facilitate the attainment of the objective of price stability and to support the economic policy of the Federal Government, the CBN has stated that Tuesday’s MPC meeting would focus on ‘attacking’ inflation. He reiterated the fact that the apex bank is targeting an inflation rate of less than 10 per cent. Inflation had reached 13 per cent in July after a re-weighting of the consumer price index.


Sanusi, who said this to Bloomberg, added that last month’s reduction of the weighting of food in the inflation basket to 50.7 per cent, from 63.7 per cent, may help the banking sector watchdog achieve that goal by reducing the impact of rising costs on the overall inflation rate. “Reducing the weight given to food actually improves the efficacy of monetary policy in checking inflation so we should be able to target single digit and basically address that through adjustments in monetary variables,” Sanusi  had said. He said any monetary policy action by the central bank must be able to address the cost-push pressures driving inflation.





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