By Babajide Komolafe
Credit to private sector rose by N633 billion to N22.6 trillion in February, surpassing credit to the government which rose by N161 billion to N4.29 trillion during the month.
The above, which indicates increased willingness by banks to lend to businesses and households, contradicted the trend in January, when credit to the private sector fell by N300 billion while credit to the government rose by N284 billion.
Analysts at Lagos based Cowry Asset Management Limited attributed the increase in credit to government in February to investors’ preference for safe assets.
“The increase in credit to the government was, in part, informed by the sustained preference for safe assets by lenders despite the moderation in yields since the inception of the year as Federal Government planned to restructure its debt profile in 2018”, they said.
Meanwhile, banks lost N96 billion current account deposits in two months, January and February. According to the Depository Corporation survey for February released by the Central Bank of Nigeria (CBN) last week, banks’ demand (current account) deposits fell for the second consecutive months by N34 billion in February to N9.16 trillion. In January, banks’ demand deposits dropped by N64 billion to N9.2 trillion. Thus, banks lost N96 billion in demand deposits in the first two months of the year.
The Depository Corporation survey for February showed Broad Money increased by 0.79 percent month-on-month (m-o-m) to N24.02 trillion in February 2018 as a 7.89 percent m-o-m increase in Net Domestic Assets (NDA) to N9.62 trillion partially offset a 3.46 percent m-o-m decrease in Net Foreign Assets (NFA) to N14.40 trillion.
On domestic asset creation, the increase in NDA was driven by a 4.11 percent increase in Net Domestic Credit (NDC) to N26.91 trillion, offset by a 2.13 percent m-o-m increase in Other Liabilities (net) to N17.29 trillion in the month under review.
Further breakdown of NDC showed a 2.88 percent m-o-m increase in Credit to the Private sector to N22.62 trillion, that constituted 84 percent of the NDC, accompanied by 11.17 percent increase in Credit to the Government to N4.29 trillion.
On the liabilities side, increase in Broad Money followed a 1.81 percent m-o-m increase in Quasi Money (near maturing short term financial instruments) to N13.29 while Narrow Money fell to N10.78 trillion (of which Demand Deposits fell by 0.35 percent to N9.16 trillion) in 2018.
Meanwhile, Reserve Money (Base Money) increased m-o-m by 6.38 percent to N6.45 trillion as bank reserves rose m-o-m by 10.49 percent to N4.17 trillion while Currency in circulation fell m-o-m by 0.42 percent to N1.94 trillion.
Cost of funds to rise as CBN sustains liquidity mop-up
Cost of funds in the interbank money market will rise this week as the CBN is expected to sustain its aggressive liquidity mop-up operations to address excess liquidity which persisted in the market last week.
Last week, the market experienced inflow of N476 billion from matured treasury bills, TBs, which prompted further decline in cost of funds. Consequently average short term interbank interest rate dropped by 251 basis points (bpts) to 1.21 percent last week from 3.8 percent the previous week.
Data from FMDQ revealed that interest rate on Collateralised lending (Open Buy Back, OBB) dropped by 134 bpts to 2.33 percent last week from 3.67 percent the previous week.
Similarly, interest rate on Overnight lending dropped by 108 bpts to 2.92 percent last week from 4.0 percent the previous week.
In a bid to contain the excess liquidity in the system which rose to N1.1 trillion on Thursday, the CBN offered and sold N500 billion worth of secondary market (Open Market Operations, OMO) TBs.
Analysis of the OMO offer revealed increased investors’ apathy for short dated bills and preference for long dated bills. While the N100 billion worth of 112-Days bills offered was grossly subscribed as investors demanded for N1.2 billion, with stop rate at 12.2 percent, the N400 billion worth of 245-Days bills recorded huge oversubscription as investors demanded for NN963.9 billion worth of bills, with stop rate at 13.99 percent.
This week, while there will be an inflow of N263.37 billion from maturing TBs, which is more than expected outflow through primary market TB sale of N58.49 billion, the CBN is expected to offer and sell more OMO bills so as at bring the volume of excess liquidity to appropriate levels.
In their projections for this week, Cowry Assets analysts stated: “This week, T-bills worth N263.37 billion will mature via both primary and secondary market which will more than offset the treasury bills worth N58.49 billion to be auctioned via the primary market; viz: 91-day bills worth N5.85 billion, 182-day bills worth N29.25 billion and 364-day bills worth N23.396 billion. Hence we expect sustained ease in financial system liquidity with concomitant moderation in interbank rate. This, however, should warrant increased OMO auctions in order to mop up excess liquidity.”
Naira depreciates as I&E turnover drops by 8.5%
On the foreign exchange scene, the naira depreciated in the parallel market and in the Investors and Exporters (I&E) window last week.
In the parallel market, the naira depreciated by N1 as the parallel market exchange rate rose to N363 per dollar last week from N362 per dollar the previous week.
In the I&E window, the naira depreciated by 31 kobo, as the indicative exchange rate of the window rose to N360.32 per dollar last week from N360.01 per dollar the previous week.
Financial Vanguard analysis also showed that volume of dollars traded in the window dropped by 8.5 percent to $1.17 billion last week from N1.28 billion the previous week.
The CBN however sustained its weekly intervention in the foreign exchange market, as it injected $210 million through the interbank foreign exchange market. According to the apex bank, $100 million was allocated to the wholesale segment, while the SME window and invisibles each received $55 million.