By Babajide Komolafe
THE moderation in cost of funds in the interbank money market is expected to persist this week in response to N376 billion inflow from maturing treasury bills (TBs). Last week, the Central Bank of Nigeria (CBN) mopped up N517.61 billion via secondary market (Open Market Operations, OMO) TBs auction.
This combined with outflow of N145.29 billion to fund primary market TB purchases resulted to outflow of N669 billion out of the interbank money market. However, the impact of the outflow was mitigated by inflow of N415.95 billion from matured TBs, prompting average short term cost of funds to fall by 642 basis points (bpts).
Data from FMDQ showed that interest rate on Collateralised lending (Open Buy back, OBB) fell by 625 bpts to 4.08 percent last week from 10.33 percent the previous week. Similarly, interest rate on Overnight lending dropped by 659 bpts to 4.83 percent last week from 11.42 percent the previous week.
This week, the market will experience inflow of N376 billion from maturing TBs hence analysts projected further moderation in cost of funds. “We expect relative ease in the financial system liquidity with resultant moderation in interbank rates even as there will be no primary market auctions during the week”, said analysts at Lagos based Cowry Assets Management Limited.
CBN spends N848bn to mop up N13.9trn
Meanwhile, the CBN said it spent N848 billion to mop up N13.9 trillion from the interbank money market in the first half of the year (H1’18) even as credit to the various segment of the economy fell during the period.
The CBN disclosed this in its half year economic report released last week.
The report stated: “Total amount of CBN bills worth N13.972 trillion was issued in the first half of 2018. Public subscription and sale amounted to N11.651 trillion and N9.743 trillion, respectively. This compared with N3.702 trillion issues and N4.593 trillion and N3.874 trillion subscribed to, and sold, in the first half of 2017. The high level of activity was attributed, largely, to the increased monthly disbursements to the three-tiers of government, huge amount of CBN bills maturities, and increased number of auctions during the period. Consequently, the cost of liquidity management, in the review period, rose to N848.32 billion, compared with N577.46 billion in the corresponding period of 2017.
Reduction in subscription
“Nigerian Treasury Bills worth N1.653 trillion for 91-,182- and 365-day tenors were issued and allotted, while public subscription stood at N 3.223 trillion in the first half of 2018. At that level, NTBs declined by N1.255 trillion or 43.6 per cent and the public subscription decreased by 18.7 per cent from the levels in the corresponding period of 2017. The decline in NTBs reflected fewer issues, increased OMO auctions and the redemption of bills worth N638.9 billion, while the reduction in subscription, was traced to the liquidity condition, occasioned by the actions of monetary authority around the period of auctions.”
According to the apex bank, credit to the federal government, private sector, and consumer credit fell by 9.7 percent, 0.1 percent and 6.6 percent respectively.
The report stated: “As a result of the government’s effort to reduce its domestic debt, net claims on the federal government declined by 9.7 per cent to N3.286 trillion at the end of the first half of 2018, in contrast to the growth of 7.7 per cent at the end of the corresponding half of 2017. This was due to the reduction in holdings of government securities, especially treasury bills by 106.6 and 18.3 per cent, by the CBN and banks, respectively. Consequently, the contribution of net claims on the federal government was negative 1.5 percentage points to the growth of total monetary assets, in contrast to a positive contribution of 1.6 percentage points at end-June 2017.
“Credit to the private sector declined by 0.1 per cent to N22. 275 trillion at end-June 2018, in contrast to an increase of 0.02 per cent at the end of the corresponding period of 2017. The development owed, wholly, to the decline of 1.1 per cent in claims on the core private sector. The contribution of claims on the private sector to the growth of total monetary assets was negative 0.1 percentage point, in contrast to the positive contribution of 0.02 percentage point in the second half of 2017
“At N604.3 billion, consumer credit fell by 6.6 per cent at the end of the review period, compared with the decline of 3.3 per cent at the end of the corresponding period of 2017. At that level, consumer loans constituted 3.0 per cent of total credit to the core private sector, in the first half of 2018, compared with 3.5 per cent at the end of the corresponding half of 2017. Thus, consumer credit constituted low risk to commercial banks’ exposure to the core private sector.”