By Ademola Alawiye

Monday, 6 Dec 2010

As rescued banks continue to seek for new institutional investors, analysts have said that the emergence of new investors may cause a rally in the share prices of the affected banks.

According to the Bi-monthly Economic and Business Update of the Financial Derivatives Company Limited, the emergence of new core investors for the Central Bank of Nigeria‘s administered banks may cause a rally in the share prices of the rescued banks.

The analysts noted that liquidity in the market would remain tight as banks prepare for common year end reporting in December.

The report added, ”Deposit mobilisation efforts will utilise interest rates as a tool to generate liability and maintain deposits. With increased money market rates, we expect investors to opt for the safety of fixed income investments.”

The analysts pointed out that the rapid expansion in public borrowing, crowding out the private sector, was a concern and was recently highlighted by the World Bank.

The report stated, ”Recent data from the CBN shows that net credit to government expanded by an annualised rate of 64 per cent between December 2009 and October 2010. According to the Debt Management Office, Nigeria‘s domestic debt increased by 33.8 per cent in June to $25.1bn year-on-year, which is the fastest annual growth in nearly 11 years.”

It added, ”The government is executing a budget in excess of N5tn. In addition to this, an average of N450bn has been shared monthly amongst the three tiers of government from federal accounts this year alone. Excess crude account dwindled to less than $500m but recently increased to $1bn. Despite this, the government has continued to borrow on a large scale.”

On interest rate, the analysts said the era of artificially low interest rates seemed to have come to an end after the CBN increased benchmark interest rate to 6.25 per cent in September.

They added that although the Monetary Policy Committee of the CBN kept interest rate unchanged, its decision to increase the standing deposit rate to 4.25 per cent per annum would further extend the life period of current high interest rates era.

 

Source: Punch