Cost of Funds Rises on N434 Billion Outflow

22 Apr 2013

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By Obinna Chima

The Nigerian Interbank Offered Rates (NIBOR) increased last week due to withdrawal of about N434 billion from the system through the purchase of government securities and forex.

The FSDH Merchant Bank Limited, which stated this in a report at the weekend, disclosed that the 7-day NIBOR closed higher at 14.13 per cent last week, 138 basis points increase from the preceding week’s figure of 12.75 per cent. Also, the 90-day NIBOR closed higher at 14.88 per cent, 138 basis points increase from the preceding week’s figure of 13.50 per cent.

However, at the Open Market Operations (OMO) transactions held last week, there was a total inflow of about N217.94 billion into the system, while there was also a total withdrawal of about N458.23bn from the system via OMO.
The FSDH added: “This brought about a net outflow of N240.29 billion from this segment of the market. The transactions were traded at discount rates in the range of 11.50 per cent - 12.25 per cent.”

But at the re-opening of the 7-year FGN Bond auction with a maturity date of June 29, 2019, the Central Bank of Nigeria (CBN) offered and sold a total of N35 billion to competitive bidders, while it sold a total of N11.30 billion to non-competitive bidders, bringing total amount sold to N46.30 billion, the FSDH report revealed.

The bond was 116.86 per cent subscribed at N40.90 billion by competitive bidders and was issued at a marginal rate of 11.50 per cent, while the coupon of 16 per cent was maintained.
“At the re-opening of the 10-year FGN Bond auction with a maturity date of January 27, 2019, the CBN offered and sold a total of N34.80 billion, while it was 147.53 per cent subscribed at N51.34 billion. The bond was issued at a marginal rate of 11.199 per cent, while the coupon of 16.39 per cent was maintained.

“At the re-opening of the 20-year FGN Bond auction with a maturity date of July 23, 2030, the CBN offered and sold a total of N35 billion, while it was 117.43 per cent subscribed at N41.10 billion. The bond was issued at a marginal rate of 12.599 per cent, while the coupon of 10 per cent was maintained,” it said.
However, government securities worth about N357 billion (91-day – N34 billion; 182-day- N45 billion; 364-day – N64 billion; OMO Bills maturing – N214 billion) expected to mature this week, would improve the liquidity position of the market this week.

Forex Market
The central bank offered a total of $600 million at its regulated Wholesale Dutch Auction System (WDAS) last week while it sold only a total of $498.67 million, representing 83.11 per cent of the amount offered. The value of naira was stable at the WDAS, while it depreciated at the interbank and parallel markets segment of the forex market.

At the WDAS, the naira closed at N155.75 to a dollar last week, same as the preceding week. But at the interbank market, the value of the naira depreciated by 82 kobo to close at N158.78 to a dollar from N157.96 to a dollar the preceding week. At the parallel market, the value of the local currency also depreciated by 30kobo to close at N160.30 to a dollar, from N160 to a dollar the preceding week.

The Consumer Price Index (CPI), which measures the rate of inflation in the country, reduced to 8.6 per cent year-on-year in March 2013, compared to the 9.5 per cent achieved in February. The last time the CPI got to its current level was in April 2008, when it stood at 8.2 per cent. The National Bureau of Statistics (NBS) disclosed this last week.

In March, the composite CPI increased by 0.71 per cent month-on-month from index levels recorded in February. The relatively slower headline index was primarily attributed to base effects from March of 2012. Also, in March, the composite Food Index increased year-on-year by 9.5 per cent to 144.6 points. This represented a 1.5 percentage point lower than the 11 per cent recorded in February.

World Bank
The World Bank last week predicted that the African economy would grow by 6.1 per cent in 2013 due to appreciation in commodity prices. Foreign direct investment (FDI) is also expected to reach a record of $54 billion by 2015 and will fuel the growth, the Bank added.

The World Bank said this in its latest “Africa’s Pulse,” a twice-yearly analysis of the issues shaping Africa’s economic prospects. In 2012, about a quarter of African countries grew at seven per cent or higher and a number of African countries, notably Sierra Leone, Niger, Cote d’Ivoire, Liberia, Ethiopia, Burkina Faso and Rwanda, were among the fastest growing in the world.
The report forecasts that medium-term growth prospects remain strong and would be supported by a gradually improving world economy, consistently high commodity prices, and more investment in regional infrastructure, trade, and business growth.

Notwithstanding the country’s position as Africa’s most populous country, KPMG has disclosed that only about 20 per cent of the population is banked. The foremost audit, financial and tax advisory firm however stated that two-third of the country’s population “have never banked at all before.”
The KPMG report pointed out that the Nigerian banking industry is made up of 20 banks with nearly 6,000 branches, most of which are concentrated in the urban areas. It also identified the concentration of banks in urban areas as a factor that contributes to the low level of banking penetration.

It explained: “Nigeria’s banking sector is expected to grow from about $117 billion in 2011 to more than $168 billion in 2015 (a CAGR of around 10 per cent). The sector has recently experienced a number of regulatory changes including a repeal of universal banking licenses and the promulgation of more stringent regulations by the country’s central bank which is aiming to reduce soaring books of non-performing loans and stamp out severe breaches of corporate governance.”

The International Monetary Fund (IMF) last week identified the rebound from the flood that ravaged the country last year as well as the implementation of power sector reform as factors that would boost Nigeria’s growth this year. In fact, the multilateral agency predicted that Nigeria’s Real Gross Domestic Product (GDP) would climb to 7.2 per cent before the end of 2013, from 6.3 per cent last year.
According to the Bretton Woods Institution, Africa is expected to continue growing at a strong pace in 2013 and 2014, with both resource-rich and lower-income economies benefiting from robust domestic demand.

Excess Charges
The Deputy-Director, Consumer Protection Department, CBN, Mrs. Umma Dutse, last week disclosed that the apex bank had recovered about N8.6 billion excess charges that were fraudulently deducted from bank customers by their respective financial institutions.
She stated that the amount was recovered between May 29, 2012 and March 31, this year, when the department was created to oversee the interest of consumers. According to her, the apex bank had received about 2,800 complaints bothering on excess charges, conversion, and frauds, adding that some of the banks had been made to pay the mandatory N2 million fines.

The Chief Executive, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, last week stressed the need to enhance the Investor Protection Scheme in the capital market in order to protect small investors. This, the NDIC boss argued, would also boost public confidence. He said an explicit Investor Insurance Scheme was critical to the development of a stable capital market.
He said the corporation had been in the forefront in its advocacy for a framework for the Investor and Small Insurance Policy Holder Protection Schemes in collaboration with the International Association of Deposit Insurers (IADI) study group. Ibrahim also decried the over-concentration of stockbroking firms in certain parts of the country, a situation, which, according to him, does not augur well for financial inclusion.

Nigeria’s Trade Balance
Nigeria’s trade balance improved from $10.93 billion in the third quarter (Q3) of 2012 to $11.42 billion in the fourth quarter (Q4), the CBN said last week. A report from the central bank showed that aggregate exports rose by 3.5 per cent from $23.39 billion as at Q4 2011, to $24.21 billion in Q4 2012.

The report also revealed that the share of total trade, trade balance, exports and total foreign exchange flows as percentage of Gross Domestic Product (GDP) recorded improved performance in Q4 2012.
It added: “With this level of integration, policy should support increased domestic production and global competitiveness. The degree of openness, depicting the share of Nigeria’s total external trade to GDP rose slightly to 53 per cent in Q4 2012 from 52 recorded in the preceding quarter.”

Tags: Nigeria, Featured, Business, CBN

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