FAAC Allocation Lowers Cost of Funds

21 Jan 2013

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Minister of Finance, Dr Ngozi Okonjo Iweala

By Obinna Chima
Cost of borrowing among commercial banks reduced to an average of 12.24 per cent on Friday, compared to the 13.79 per cent it was the preceding Friday.

This was attributed to the inflow of funds for December shared among the three tiers of government by the Federal Account Allocation Committee (FAAC) last week.

According to a report by FSDH Merchant Bank Limited, about N283 billion of FAAC allocation hit the market last week.
Consequently, data made available by the Financial Market Dealers Association, showed that various tenor at the market for short-term borrowing among commercial banks reduced.

For instance, while the call (overnight) tenor plummeted to 10.42 per cent on Friday, from 12.62 per cent the preceding Friday, the 7-day tenor also fell to 10.91 per cent on Friday, as against the 12.96 per cent it attained the preceding Friday.

Similarly, just as the 30-day tenor reduced to 11.79 per cent on Friday, from 13.62 per cent the preceding Friday, the 60-day tenor also declined to 12.46 per cent, from 13.8 per cent. The 90-day, 180-day and 365-day tenor all closed at 12.92 per cent, 13.37 per cent and 13.83 per cent respectively.

On its part, FSDH said: “Having opened the week on a tight note, coupled with the withdrawals of about N175.05 billion from the system via the open market operation (OMO) and the foreign exchange sales by the CBN; the market was liquid at the end of the week due to the injection of about N283 billion from the FAAC.

“There was no transaction at the primary segment of the government securities market during the week. Cumulatively, a total net outflow of N175.05 billion was withdrawn from the market via the government securities and forex market during the week.”

However, it revealed that at the OMO and Repurchase (REPO) transactions held last week, there was a total inflow of about N147.36 billion into the system, while there was a withdrawal of about N303.67 billon from the system.

This led to a net outflow of N156.32 billion from that segment of the market. The transactions were traded at a discount rate range of 12.47 per cent-13.24 per cent.
The direction of rate in the short-term would be determined by the outcome of the Monetary Policy Committee (MPC) meeting which holds in Abuja, today.

The MPC members are expected to review the performance of key economic indicators in Nigeria and the global economic outlook and also take major decisions that would drive the economy this quarter of 2013.

Exchange Rate
At the Central Bank of Nigeria’s (CBN), Wholesale Dutch Auction System (WDAS), the apex bank offered a total of $170 million. This represented a reduction by $80 million, compared to the amount of the greenback supplied the preceding week. But just like the preceding week, only $119.82 million of the amount offered to the dealers was sold.

The value of the naira appreciated against the dollar at the WDAS, while it slipped at the interbank and parallel markets.
At the official market, the value of the naira gained 50 kobo to close at N155.72 to a dollar, from N157.77 to a dollar the preceding week. Similarly, at the interbank market, the naira shed 90 kobo to close at N157.20 to a dollar, from N156.30 to a dollar the preceding week. At the parallel market, the naira also shed 20 kobo to close at N159.50 to a dollar from N159.30 to a dollar the preceding week.
Poverty Reduction
The World Bank Vice President for Africa, Makhtar Diop, last week revealed that the multilateral institution, in conjunction with the Federal Government, were working out modalities, on how to reduce poverty in the country, where a staggering 112.519 million Nigerians are poor according to the National Bureau of Statistics (NBS). Diop, whose institution last year stated that it had no reliable data at all about the reality of poverty in the country, however pointed out that a recent study conducted by the bank indicated that the poverty level had receded by two per cent. According to him, the new level of poverty in the country stood at 46 per cent.
He said the bank and the federal government were now poised to tackle poverty in the country.

Diop, who was in Nigeria to understudy her opportunities and challenges, however, applauded the incumbent administration for taking crucial steps to curb the spread of poverty.
Power, Airline Fund
The CBN last week said it planned to extend the N300 billion Power and Airline Fund (PAIF) with a view to increasing available funds for power sector projects. The apex bank said the proposed extension of the fund was one of the major planks of the apex bank’s economic development programme for this year. This, it said, would also include the size, tenors, structures, projects, collaterals and other terms in a holistic approach to further align the financial system to the critical funding requirements of the power sector.
The CBN launched the PAIF in 2010 with the objectives of addressing the critical finance needs as well as to stimulate the sectors.
Monetary Policy Framework
The CBN last week said that it was working towards achieving a six per cent inflation rate in the country, even as it defended its monetary policy framework.

CBN Director, Financial Markets Department, Mr. Emmanuel Ukeje, insisted that the poor state of infrastructure in the country was working against the effective transmission of monetary policy. But Mr. Henry Boyo argued that the underdevelopment suffered by the country was as a result of poor monetary policy framework by successive leadership at the CBN.

Ukeje, however, explained: “The central is not just working on the issue of single-digit inflation rate. We just held a board meeting and the governor of the CBN, on his own, said going forward, we should be able to push inflation down to about six per cent. But we all have the responsibility.”
Single Currency
THISDAY reported last week that prospects for the proposed take-off of a single currency regime by 2015 remained blurred as none of the six member countries of the West African Monetary Zone (WAMZ) including Nigeria, satisfied the required macroeconomic convergence criteria last year. The drive towards the adoption of a single currency regime in the West African sub-region was originally fixed for 2003 but this had been postponed three times largely because of “mixed” progress among member countries in attaining the set criteria.

Minister of State for Finance, Mr. Yerima Ngama, said performance of member nations on the convergence scale had worsened remarkably from a score of 79.2 per cent in June 2011 to 62.5 per cent in 2012, adding that there was urgent need for more collective efforts towards the actualisation of the new (2015) date for the monetary union.
As part of efforts to recover its debt, the Asset Management Corporation of Nigeria (AMCON) said last week that it had restructured about N1 trillion loans. The amount represents a significant increase of N572 billion, compared to the N428 billion loans restructured for 518 obligors as at 2011. AMCON has a total of 13,000 debtors.

Managing Director/Chief Executive Officer, AMCON, Mr. Mustafa Chike-Obi, disclosed this in an exclusive chat with THISDAY in Lagos. Although Chike-Obi said that the corporation had made strong recovery in recent times, he declined to comment on the amount of debt recovered. This, he said, was as a result of a directive from the Central Bank of Nigeria (CBN).

The AMCON boss explained: “We have 13,000 debtors and have about 100 staff members working on them. So, we are doing 100 restructuring a day. So, the amount of debt recovered and restructured is always changing. But we have restructured about N1 trillion loans.”

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