Naira Drops as Demand Pressure Weakens CBN Intervention

19 Nov 2012

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Naira notes

By Obinna Chima
The naira fell against the United States dollar at the three segments of the forex market last week due to strong demand for the greenback, THISDAY findings have shown.

In fact, an intervention by the Central Bank of Nigeria (CBN), which last week increased dollar supply at its regulated Wholesale Dutch Auction System (WDAS) by 250 per cent was unable to save the naira.
The banking sector regulator offered and sold a total of $350 million at its WDAS last week, the highest in eight weeks, as against the $100 million that was offered the preceding week. The central bank sells dollars on Mondays and Wednesdays.

At the WDAS, otherwise known as the official market, the value of naira depreciated by one kobo as it closed at N155.75/$1 on Wednesday, from N155.74/$1 the preceding week.

Similarly, at the interbank market, the local currency dipped by N1 to close at N158.55/$1 from N157.55/$1 the preceding week. In the same vein, at the parallel market, the naira declined by 60 kobo to close at N159/$1 from N158.40/$1 it stood the preceding week.

However, analysts have hinged the performance of the forex market for the rest of the year on the outcome of the Monetary Policy Committee (MPC) meeting, which commences today.

Cumulatively, a total net outflow of N304.46 billion was withdrawn from the market via the government securities and forex market last week.
NIBOR Movement
The interbank market was tight last week due to the Open Market Operations (OMO) activities and forex sales by the central bank. As a result of this, the Nigerian Interbank Offered Rates (NIBOR) jumped to an average of 14.38 per cent on Friday, compared with the 12.59 per cent it attained the preceding Friday.

For instance, data made available by the Financial Market Dealers Association (FMDA) showed that while the Overnight tenor advanced to 12.08 per cent on Friday, compared with the 10.83 per cent it was the preceding Friday, the 7-day tenor also increased to 13.12 per cent on Friday, from the 11.12 per cent it stood the preceding Friday. Also, just as the 30-day tenor leapt to 13.83 per cent on Friday, from 12.20 per cent, the 60-day tenor also increased to 14.25 per cent, from 12.58 per cent.

Meanwhile, a separate report by the FSDH Securities Limited showed that there was no transaction at the primary market segment of the forex market last week.

But it showed that at the open market operation (OMO) transactions held during the week, there was a total outflow of about N249.95 billion from the system. The transactions were traded at a discount rate range of 13.60-13.85 per cent.
FSDH anticipated that government securities maturities of about N148.38 billion (91-day TB: N30.647 billion; 182-day TB: N45 billion; 364-day TB: N40.536 billion and OMO: N32.20 billion) to hit the system this week.
“Also, we expect the Debt Management Office (DMO) to sell bonds (re-openings) on behalf of the FGN worth a total of about N50 billion (16 per cent 7-year FGN Bond: N25 billion and 16.39 per cent 10-year FGN Bond: N25 billion). The Federation Account and Allocation Committee (FAAC) is expected to inject funds into the system for the three tiers of government, which should bring about liquidity in the coming week.
“However, we expect that the CBN would employ OMO to achieve its desired liquidity level. The robust foreign reserves in addition to the managed float strategy of the CBN should keep forex rate stable,” FSDH stated.
The National Bureau of Statistics (NBS) is expected to release inflation figure for the month of October today. Also, the outcome of the MPC will also determine the direction of the market.
FAAC Allocation
A total sum of N640.766 billion was last week shared among the three tiers of government for the month of October. However, gross revenue for the month stood at N640.766 billion, about N46.065 billion higher than the N594.701 billion generated in the previous month. Speaking at the monthly meeting of the Federation Accounts Allocation Committee (FAAC), Minister of State for Finance, Alhaji Yerima Ngama, attributed the increase to higher collections on Petroleum Profit and Company Income Taxes.

He said crude oil production and lifting had experienced several disruptions as a result of shut down, leakage and fire outbreaks at Trans-Niger Pipeline.
Other reasons given for the low oil revenue in the period under review include crude oil theft as well as maintenance work at Qua Iboe, Brass and Forcados terminals.
MFBs in Northern Nigeria
The Nigeria Deposit Insurance Corporation (NDIC) last week expressed concerns over the poor presence of Microfinance Banks (MFBs) in the northern part of the country. Managing Director/Chief Executive Officer, NDIC, Mr. Umaru Ibrahim, insisted that the “grossly uneven” distribution of MFBs in the country was frustrating the country’s financial inclusion strategy.

The NDIC boss also disclosed plan by Central Bank of Nigeria (CBN) and NDIC to introduce All-Women MFBs to be owned 100 per cent by women. He pointed out that out of the 869 MFBs in existence, 346 (39.81 per cent) are located in the South-west, 162 (18.64 per cent) in the South-east, 158 (18.8 per cent) in the North Central, while only 63 (7.5 per cent) and 32 (3.68 per cent) are located in the North-west and North-east respectively. He disclosed that Lagos, Anambra and Abuja had the highest number of MFBs.
Agric Credit Instruments
The Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina, last week advised commercial banks to create credit instruments and services that are tailored to the risks and cash flow patterns in the agricultural sector.

Adesina said there were tremendous opportunities for commercial banks and other stakeholders in the finance industry to initiate much-needed overhaul of the agricultural financial lending system.

He explained: “In recent years, the topic of unlocking agricultural finance has gathered increasing popularity and has been widely discussed in arenas such as this. While progress has been made in agricultural lending, it is still far from being enough to meet the needs of this very important sector.”
Africa-Canada Trade
Export Development Canada (EDC) last week said it had provided a $30 million (N4.8 billion) five-year line of credit to the African Export-Import Bank (Afreximbank) to boost Africa-Canada Trade.
EDC said the funds would be used to provide financing to African companies procuring Canadian goods or services.

President and CEO, EDC, Stephen Poloz, and President of Afreximbank, Jean-Louis Ekra, signed the agreement for the line of credit at a ceremony in Cape Town, South Africa.

According to Poloz, “Afreximbank’s business interests align very well with those of EDC, particularly Afreximbank’s focus on the private sector and creating trade opportunities. While the line of credit is intended to facilitate business in all sectors, we see significant opportunities in ICT and extractive already developing.”
ATM Charges
All charges accruing from the use of Automated Teller Machines (ATMs) of ‘other banks’ are to be suspended with immediate effect, the Bankers’ Committee announced last week.

It also emerged that the committee is planning a significant donation to victims of the recent floods which affected some states the country. It said a formal announcement would soon be made to that effect. Also, the CBN said it was working with the Securities and Exchange Commission (SEC) to establish a joint examination of stockbroking firms, particularly, those owned by holding companies under the new banking reforms in the country. Acting Managing Director, Keystone Bank, Shehu Mohammad, said the planned suspension was partly aimed at enhancing financial inclusion and encouraging ATM usage in line with CBN’s cashless programme.
Government Stockbroker
The Debt Management Office (DMO) last week appointed Stanbic IBTC Stockbrokers Limited as government stockholder. The engagement empowers the Stanbic IBTC to provide prices for FGN bonds on the floor of the Nigerian Stock Exchange (NSE) to enable retail investors in particular, buy or sell FGN bonds.
Standard & Poor’s
Standard & Poor's (S&P), international ratings agency last week upgraded its long-term counterparty credit ratings on First Bank of Nigeria Plc (FBN), Zenith Bank Plc and Guaranty Trust Bank Plc (GTBank) to 'BB-' from 'B+'.

The New York-based agency also raised its long-term Nigeria national scale ratings on the banks to 'ngAA-' from 'ngA+'. According to S&P, the stable outlook on the three banks was in line with its view that the banks' business and financial profiles will remain relatively unchanged over the next 12 months.
The international agency explained: “At the same time, the 'B' short-term counterparty credit ratings on all three banks were affirmed. The rating actions on FBN, Zenith, and GTB follow the upgrade of the Federal Republic of Nigeria.” 

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