Credit to private sector slows to N22.44tr in March
Analysts highlight risks of China/Nigeria currency swap

Babajide Komolafe

THE challenge   of excess liquidity in the interbank money market will persist this week following over-subscription of N808 billion recorded in treasury bills offers last week.

Last week, the excess liquidity challenge was aggravated by inflow of N371.83 billion from matured TBs, as well as inflow from statutory allocation of N654.49 billion distributed the previous week to the three tiers of government by the Federation Accounts Allocation Committee (FAAC).

To combat this challenge, the CBN on Thursday conducted Open Market Operations (OMO) to mop up the liquidity. The N500 billion worth of 105-Days and 245-Days OMO bills offered by the apex bank was however oversubscribed by N600 billion as total subscription stood at N1 trillion. The CBN sold N600 billion at stop rates of 11 percent and 12.1 percent respectively.

CBN Headquarters

Also N95.4 billion worth of 91-Days, 182-Days and 364-Days primary market TBs offered and sold by the CBN was oversubscribed by N307.6 billion, at stop rates of 10.3 percent, 11 percent and 11.1 percent respectively. Hence, while the CBN offered N595.4 billion worth of OMO and primary market TBs, investors demanded for N1.4 trillion, resulting to N808 billion oversubscription.

The oversubscription translates to excess liquidity which would be seeking for investment outlet this week. In addition to this is N265.5 billion inflow from maturing TBs expected this week. Thus in the absence of aggressive liquidity mop up by the CBN, excess liquidity will persist with cost of funds moderating downward or remaining stable as witnessed last week.

According to data from FMDQ, interest rate on Collateralised (Open Buy Back, OBB) lending remained 2.83 percent while interest rate on Overnight lending dropped by nine basis points to 3.33 percent last week from 3.42 percent the previous week.

Credit to private sector slows to N22.44tr in March

Meanwhile, credit to the private sector slowed by N180 billion or 0.78 percent to N22.44 trillion in March. This sharply contrast the N630 billion or 2.88 increase recorded in February when credit to private sector rose to N22.62 trillion.

Credit to the government also fell by 10.84 percent to N3.82 trillion in March, reflecting decline in domestic borrowing by the government especially through TBs.

The above were highlights of the CBN’s Depository Corporation Survey for March released last week.

According to the survey Broad money rose month-on-month (m-o-m) by 1.184 percent to N24.30 trillion in March  driven by 8.49 percent m-o-m increase in Net Foreign Assets (NFA) to N15.62 trillion, which more than offset a 9.76 percent m-o-m decrease in Net Domestic Assets (NDA) to N8.68 trillion.

The growth in NFA was partly attributed to increase in oil dollar revenue (boosting external reserves) and further strengthened Nigeria’s position as a net lender to the rest of the world.

On domestic asset creation, the decrease in NDA resulted from a 2.39 percent decline in Net Domestic Credit (NDC) to N26.27 trillion, accompanied by a 1.71 percent m-o-m increase in Other Liabilities (net) to N17.58 trillion in the month under review.

Further breakdown of NDC showed a 0.78 percent m-o-m moderation in Credit to the Private sector to N22.44 trillion (share of NDC increased to 85.44 percent from 84 percent), accompanied by a 10.84 percent decrease in Credit to the Government to N3.82 trillion.

Naira depreciates as CBN injects N559m

The naira last week depreciated in the Investors and Exporters (I&E) window even as the CBN increased its weekly intervention to N559.34 million.

Data from FMDQ showed that the indicative exchange rate for the I&E rose to N360.75 per dollar last week from N360.41 per dollar the previous week, translating to 34 kobo depreciation for the naira. The local currency however remained stable at N362 per dollar in the parallel market.

Meanwhile, volume of dollars traded in the I&E window dropped marginally by 2 percent to $1.02 billion last week from $1.04 billion the previous week.

The CBN on its part increased its weekly intervention to N559.34 million comprising $210 million injection on Wednesday and $349.34 million on Friday.

Analysts highlight risks of Nigeria/China currency swap

Last week the CBN announced the execution of a $2.5 billion currency swap agreement with the Peoples Bank of China (PBoC), aimed at enhancing trade relations between Nigeria and China.

Analysts at Lagos based Afrinvest Limted however noted that while the agreement will be beneficial to the Nigerian economy in several ways, it portends some risks to the economy.

They said: “Whilst we are excited by the symbolism of this agreement, we also note that the impact on the economy will be limited by the relatively small size of the Swap Line which could barely cover 40 percent of Nigeria’s Chinese import in a single year. Furthermore, a key downside risk to the agreement is that the ease of transaction with a highly competitive country like China could worsen Nigeria’s trade balance and weaken domestic manufacturing capacity. We think this concern is justified, particularly in a period of heightened trade skepticism. Yet, it also emphasizes the need to deepen domestic policies on improving competitiveness.

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