MD, Financial Derivatives, Mr. Bismarck Rewane

By Obinna Chima

The Managing Director/Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has said the operations of the tier 1 banks will not be affected by the recent hike in the cash reserve requirements (CRR), due to the cheap funds available to them.

The FDC boss made the declaration in his monthly economic news and views, presented at the Lagos Business School’s executive breakfast meeting, a copy of which was made available to THISDAY at the weekend.

The monetary policy committee (MPC) had at the last meeting in July, raised the cash reserve ratio to 12 per cent, from the eight per cent it stood previously. It however, left the benchmark interest rate and other monetary policy tools unchanged.

The tier 1 banks include First Bank of Nigeria Plc, Zenith Bank Plc, Access Bank Plc, United Bank for Africa Plc and GTBank.
Continuing, Rewane maintained that the further tightening will affect banks’ loan growth and the cost of funds.

“Manufacturing companies also face challenges as their cost of borrowing increases, there will be sharp increase in the Nigerian Interbank Offered Rates (NIBOR) and we expect a further rise in bond yields

“Higher interest expense squeezes the net-interest margins (NIMs) of banks. NIM’s are expected to shrink by 1.50 per cent,” he added.
According to Rewane, banking stocks might face sell pressure in the short-run due to the MPC decision, saying that higher interest rates may adversely impact stock market sentiment.

He added: “Long-run expectations of stock market returns remain unchanged as the initial impact is unpredictable but so far neutral. Any irrational fall in stock prices will be an opportunity to buy. Government securities coupon rates have benefited from the market tightness and we believe the short end of the yield curve remains the most attractive.”
The economists also said that the value of cheques in Lagos declined by

5.21 per cent in June to N1.52 trillion, adding that the value of property in areas such as Maryland, Agege, Gbagada, all in Lagos, appreciated last month.

“Life span of properties are on the market on the decline. Affordability of rental prices, when compared to prime areas, has helped increase demand. Prime areas still experiencing a supply glut as property developments is springing up in Lekki, Park View and Ajah.
“While the average vacancy rate is between 50 and 60 per cent in prime locations, average vacancy rate is between 30 and 40 per cent with the office space segment comprising the majority. Vacancy rate in shopping malls is low at 10 per cent. The real estate market remains a viable form of investment,” he added.