Articles

CBN Withdraws N512.68bn from Circulation via OMO

08 Apr 2013

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CBN office

By Obinna Chima

The Central Bank of Nigeria (CBN) last week withdrew a total of N512.68 billion from circulation through its Open Market Operations (OMO).

Through OMO, the banking sector watchdog sells treasury bills to control the volume of money in the economy. OMO is a monetary policy instrument used to buy or sell securities in the open market. As a result of its restrictive monetary policy, the apex bank intensified its mop up of excess liquidity in the system by sale of treasury bills with OMO.

A breakdown of  data made available by the Financial Market Dealers Association (FMDA) showed that the CBN held a ‘special’ OMO auction where it sold a total of N419.071 billion bills in a 289-day tenor instrument at a rate of 12.75 per cent last Wednesday. The report also showed that another auction was held last Thursday where N34.407 billion worth of 105-day bills was sold, while another N59 billion was sold in a 133-day tenor instrument.

As a result of the outflow, the interbank rate declined marginally to an average of 11.33 per cent on Friday, compared to the N11.22 per cent it attained the preceding Thursday as the liquidity position of the market diminished further. For instance, while the Overnight (Call) tenor closed at 10.29 per cent, the same position it was at the end of the preceding week, the 7-day tenor increased to 10.62 per cent on Friday, as against the 10.54 per cent it was the preceding Thursday. Also, just as the 30-day tenor climbed to 11.04 per cent on Friday, from 10.92 per cent, the 60-day leapt to 11.46 per cent, compared to the 11.25 per cent it was the preceding Friday.
Forex Market


The CBN held only one session of its regulated bi-weekly auction last week due to the public holidays observed for the Easter celebration. The Bank sold only $237 million, out of the $300 million it offered at the Wholesale Dutch Auction System (WDAS). The regulator had offered a total of $600 million the preceding week.

But the value of the naira appreciated at both the bi-weekly auction and the interbank. At the WDAS, the value of the naira appreciated slightly by one kobo to N155.74 to a dollar, as against the N155.75 to a dollar it was the preceding week. At the interbank segment of the forex market, the value of the local currency appreciated by 48 kobo as it closed at N157.92 to a dollar on Friday, higher than the N158.40 to a dollar it was the preceding Friday.

IMF versus AMCON
The Asset Management Corporation of Nigeria (AMCON) last week criticised a recommendation by the International Monetary Fund (IMF) that the federal government should wind down AMCON’s operations. Managing Director/Chief Executive Officer, AMCON, Mr. Mustapha Chike-Obi, expressed dissatisfaction with the suggestion by the IMF.


Part of the multilateral institution’s 2012 Article IV consultation on Nigeria released at the weekend, recommended winding down the operations of the corporation over what it described as the need to curb moral hazard and fiscal risks.


But Chike-Obi said: “I find it very surprising that an institution as serious as IMF will make such recommendation like that without telling us how to do it and in what time frame and what assistance they can offer for us to wind down.”

Standard & Poor’s
Standard & Poor’s (S&P) last week predicted that Nigerian banks may report increased loan losses from next year amid anticipated growth in lending. S&P’s Johannesburg-based analyst, Matthew Pirnie forecast that the Nigerian banking industry would record between 20 and 30 per cent rise in loans and deposits this year due to foreign exchange and non-oil industry lending.


“We expect increased losses in 2014 to 2015. We tend to see quite short credit cycles in Nigeria,” he added. Loan book diversification is happening “slowly” as there are unknown risks to lending in areas such as agriculture, said Pirnie.


“Lending is still to a narrow group of large corporates with banks holding many of the same names in their portfolios,” he said

NDIC
The Managing Director/Chief Executive, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, last week said that the corporation was developing a framework for granting financial assistance to  primary mortgage banks (PMBs) and microfinance banks (MFBs) as part of efforts to reposition the sub-sector for greater performance.


But, he stressed that stringent conditions would be put in place to ensure that only deserving MFBs and PMBs benefit from the proposed assistance. He said working with the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance (FMF), the soon-to-be released framework would shut out MFBs and PMBs that are poorly managed from accessing such funds.

Non-performing Loans
AMCON last week said it had stopped buying non-performing loans (NPLs) from the banking sector. Chike-Obi said that the move aimed at discouraging excessive risk-taking after the 2009 financial crisis. He said the corporation would no longer serve as a lifeline to banks with bad loans. The International Monetary Fund (IMF) in its latest report commended Nigeria's success in stabilising its banking sector but recommended that AMCON should wind down its operations to curb "moral hazard", whereby a party is more willing to take a risk, knowing that the potential costs of taking such a risk would be borne by others.

Nigeria’s Crude Oil
Following the rising spate of oil theft in the country, Renaissance Capital Limited (RenCap) last week said it had downwardly adjusted its 2013 crude oil production projection for Nigeria from 2.45 million barrels per day to 2.30 million barrels per day. The financial advisory and research firm also identified the floods that ravaged some part of the country last year as another factor that led to the downgrade. According to RenCap, the seeming recovery in oil output from second quarter of 2012 made it to believe that the trend would continue into 2013.


“However, floods in fourth quarter of 2012 and a pick-up in oil theft in first quarter 2013 compelled us to revise our projections. We downwardly adjust our oil production projection to 2.30 million barrels per day, from 2.45 million barrels per day owing to the increase in oil theft,” it explained.

Treasury Bills
The CBN plans to issue a total of N740.629 billion treasury bills this quarter. The amount represented a reduction by 10.4 per cent, compared to a total of N826.310 billion issued in the first quarter. A breakdown of the “Nigerian Treasury Bills Issue Programme” for second quarter showed that five auctions would be held at the bi-monthly market this quarter. For 91-day treasury bills, the CBN intends to issue a total of N110.724 billion this quarter, while for the 182-day treasury bills a total of N163.491 billion would be offered to investors. Also, for the 365-day treasury bills the apex bank plans to issue a total of N466.414 billion this quarter. However, a total of N740.629 billion treasury bills are expected to mature this quarter.

Legacy Banks’ Cheques

Commercial banks last week started enforcing a directive by the CBN that they should stop accepting and presenting legacy banks’ cheques for clearing and settlement. The apex bank’s directive became effective on April 2. This implies that cheques from the defunct Afribank, Bank PHB, Equitorial Trust Bank , Oceanic Bank, Intercontinental Bank, Finbank and Spring Bank can no longer be presented for transactions and clearing.


The CBN had in November last year directed all banks and other financial institutions not to honour or present, for clearing, cheques from legacy or liquidated banks from January 2, 2013. However, it later extended the deadline to March 31, 2013.


Since the expiration of the new deadline, some financial institutions have been disseminating the information to their respective customers in a bid to sensitise them. Ecobank Nigeria, in an e-mail titled: “CBN Prohibition of the Use of Legacy/Liquidated Banks’ Cheque Books for Transactions,” to its customers last Tuesday, reminded them that Oceanic Bank cheques would  not be allowed for transactions from April 1.


Tags: Nigeria, Featured, Business, CBN

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