LAGOS — The new foreign exchange framework, which started on an impressive note, Monday, may have begun to face its first liquidity test — adequate and independent supply of foreign currency to the market.

Dealers, yesterday, said demand appeared to be outstripping supply, a development which forced Naira value to N284/ USD1.00, down from N281.85 it closed on Monday.

Vanguard learned that the expectation of inflow of foreign currency from oil companies and other independent suppliers had not materialized, thereby forcing the Central Bank of Nigeria, CBN, to intervene.

The apex bank had

contained the demand pressure in the first trading day of the new policy with a combination of spot and forward market actions where it dolled out about USD4.02 billion to assuage the tasty market.

The breakdown of the  Monday  dollar splash shows that the apex bank sold USD532 million on the spot segment while the balance went to meet the long outstanding demands under the previous forex regime.

The outstanding, totaling about USD3.5 billion, was met in the forward segment, made up of USD697 million in one-month forward, USD1.22 billion in two-month contract and USD1.57 billion due  in three months.

But settlement for the forward deals appeared unclear to the dealers as they expected prompt crediting of their dollar account and debiting of Naira equivalent, which has not happened.

Consequently, yesterday’s trading session appeared hazy, a development which may have contributed to the depreciation of the Naira.

Liquidity pressure

Meanwhile, a new liquidity pressure has hit the money market following the diversion of huge cash into foreign exchange by banks between  Monday  and  Tuesday, a development which spiked inter-bank interest rate to more than triple.

The  interbank overnight rate soared to 60 percent  on Tuesday  from 18 percent as banks expected the CBN to debit them about N1.15 trillion for the  Monday  and  Tuesday  transactions.

They were also said to be amassing more Naira cash for today and future trading days, thereby extending the liquidity strain indefinitely, a development which would bring huge pressure on interest rates.

Such pressure, money market dealers explained, would ultimately spike cost of funds across all segments into prime lending rate if it lingers for days.

Vanguard investigations reveal that over N1.5 trillion has been mobilized into the inter-bank foreign exchange transactions in the past two days.

The banks have been amassing cash for the purpose of foreign exchange bids since mid last week when CBN announced the new flexible foreign exchange framework, a development that made banks’ liquidity balances spike 382.5 per cent last week. It hit N1.1 trillion byFriday  before CBN applied some liquidity mop-up apparently to forestall the pressure it could bring to the exchange rate under the new foreign exchange market regime.

Meanwhile, interest rates in the interbank money market rose sharply to 51 per cent yesterday as banks scramble for naira to fund the $4.2 billion sold by the Central Bank of Nigeria, CBN, on Monday.

The naira depreciated marginally to N284.83 per dollar in the interbank foreign exchange market, despite $150 million supplied by the CBN through the 15 banks appointed as Primary Foreign Exchange Dealers, PFXDs.

On Monday, the CBN had sold $4.2 billion in spot and futures to clear backlog of matured foreign exchange obligations of banks.

This move, according to a Bank Treasurer, who spoke on condition of anonymity, exceeded market expectations and triggered demand for funds in the interbank money market. “Our challenge now is how to source for naira to fund the dollars sold by CBN, and we are talking about over N1 trillion, it is quite challenging”, he told Vanguard.

The intense competition for funds sent cost of funds to its highest level this year, with short term interbank interest rates rising by average of 165 percent yesterday.

According to data provided by Financial Market Dealers Quote (FMDQ), interest rate for Overnight lending shot up to 51 percent from 18.7 percent on Monday, indicating increase of 168 percent. Similarly, interest rate for Securitised Lending (Open Buy Back) rose to 45 percent from 17.3 percent on Monday.

Naira depreciates

The revived interbank foreign exchange market entered the second day yesterday; with the CBN supplying $150 million to create liquidity for trading.

Market sources confirmed to Vanguard that the apex bank sold $10 million to each of the 15 PFXDs at exchange rate of N281 per dollar. The PFXDs in turn traded the dollars with other banks in the interbank market.

However the naira depreciated in both the spot (immediate delivery) and futures (future delivery) segments of the market yesterday. Data provided by FMDQ showed that the naira depreciated in the spot market by N2.98 or 1.1 percent to N284.83 per dollar, from N281.85 per dollar on Monday.

In the Futures market, the naira depreciated across all the tenors. The exchange rate for Seven Days (7D) forward rose by 10.5 percent to N284.05 per dollar from N257 Monday. 14D futures rose by 9.8 percent to N287.3, while 1M futures rose by 9.6 percent to N292.7 per dollar. Exchange rate for 2M futures rose by 9.1 percent to N297.82, 3m futures rose by 7.6 percent to N302.13, 6m futures rose by 4.5 per cent to N302.13, One Year (1Y) futures rose by 0.5 percent to N307.95 per dollar.

Naira appreciates in parallel market

The naira however appreciated to N338 per dollar at the parallel market from N345 per dollar on Monday. President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe attributed the appreciation to decline in activities in  the parallel market. The told Vanguard, “The market is still in a wait-and-see mood. Operators want to observe the trend in the revived interbank market to ascertain the direction of the naira and the implementation of the flexible exchange rate regime.”

GlaxoSmithkline leads N224bn gain on NSE

Investors gained N224 billion on the Nigerian Stock Exchange (NSE) yesterday, as activities resumed on positive note after  sell-off on Monday by profit takers and bargain hunters.

Specifically, the market capitalisation or total value of listed shares rose to N10.105 trillion from N9.881 trillion on Monday, indicating 2.3 per cent increase. The All Share Index, ASI, rose by the same margin to settle at 29,422.71 points from 28,769.90 points in the previous day.

The total value of traded shares jumped 201.4 per cent from N2.25billion to settle at N6.79 billion while the total volume traded increased by 22.5 per cent to 533.3million units.

Sentiment remained strong across all the major sectors with exception of ASeM that recorded zero activity during the day. The NSE 30 Index closed higher at 1,306.94 basis points, representing 2.4 per cent increase from Monday close of 1,276.22 points. The banking sector recorded the highest gains amongst all the other sector, returning 3.5 per cent on the back of 5.17 per cent, 4.84 per cent and 4.62 per cent appreciation on the shares of Access Bank Plc, United Bank for Africa, UBA Plc and Fidelity Bank Plc in that order. The industrial goods sector returned three per cent to investors driven by gains in Lafarge WAPCO Plc and Dangote Cement Plc, which rose by 3.87 per cent and 2.78 per cent respectively. Increased buying interest in Nigeran Breweries Plc (0.8 per cent), among others.

Nestle Nig. Plc (2.66 per cent) and Guinness Nigeria Plc (4.10 per cent) buoyed the consumer sector, while the oil and gas sector returned 0.4 per cent as gains in Oando Plc and Total Nigeria Plc, which rose by 2.43 per cent and 1.30 per cent drove positive trend in the sector.

Gainers and Losers

Market breath closed really high as there was almost four gainers to a loser as 37 stocks appreciated in price as against 10 that recorded price depreciation.

GlaxoSmithkline led the gainers, appreciating by 10.20 per cent or N1.53 to close at N16.53, followed by Champion Breweries Plc with 9.19 per cent or N0.34 increase to close at N4.04, while Access Bank Plc garnered 5.17 per cent or N0.30 to close at N6.10. National Aviation Handling Company, NAHCo Plc, was up 4.98 per cent to close at N4.22, while Dangote Sugar Refinery Plc went up by 4.95 per cent or N0.33 to close at N6.99.

Other top gainers include AG Leventis, 4.90 per cent to close at N1.07; UAC-Property Plc, 4.90 per cent to close at N4.50; UBA, 4.84 per cent to close at N4.98, Tiger Branded Consumer Goods Plc, 4.84 per cent to close at N4.98 and Custodian and Allied Insurance Plc, which rose by 4.81 per cent to close the day at N3.92 per share.

Transnationwide Express Plc led the losers with 8.92 per cent or N0.14 decline to close at N1.43, followed by NEM Insurance Plc with 4.81 per cent or 0.05 price depreciation to close at N0.99. Unity Bank Plc closed as the third on the decliners’ table, dropping by 4.27 per cent to close at N1.12; Caverton Offshore Support Group Plc went down by 4.11 per cent to close at N1.40, while Honeywell FlourMills Plc depreciated by 3.17 per cent to close at N1.83 per share.