December 30, 2019

Cost of funds to decline further as N405bn hit interbank market



…Naira depreciates by 50.5k as reserves drops to $38.7bn

By Babajide Komolafe

INTERBANK lending rates are expected to decline further this week in response to inflow of N405 billion from maturing treasury bills.

Investors anticipate further decline in TB rates as CBN sells N122bn

Last week Tuesday, the  Central Bank of Nigeria, CBN, deducted N650 billion from the account of some banks as Cash Reserve Ratio, CRR, levy for failure to meet the 65 percent Loan-to-Deposit Ratio, LDR. This caused 900 basis points spike in interbank lending rates to  12.1 percent average from 2.54 percent average Friday the previous week.

The upward trend was however aborted on Friday by inflow of N900 billion from matured secondary market (Open Market Operations, OMO) treasury bills. Hence interbank lending rates dropped by 785 bpts      to    4.25 percent average at the close of business on Friday.

However, short interbank lending rates closed higher when compared to the closing level in the previous week.

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Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending rose by 179 bpts to 3.93 percent on Friday last week from 2.14 percent Friday the previous week. Similarly, interest rate on Overnight lending rose by 164 bpts to 4.57 percent from 2.93 percent the previous week.

Investment analysts however opined that the decline in cost of funds on Friday will persist this week due to boost in liquidity expected from inflow of N405.9 billion comprising N74.84 billion from maturing Nigeria Treasury Bills (NTBs) and N331.05 billion from maturing OMO TBs.

According analysts at Lagos based Cowry Assets Management Limited, “In the new week, CBN will auction T-bills worth N74.84 billion, viz: 91-day bills worth N10.00 billion, 182-day bills worth N20.00 billion and 364-day bills worth N44.84 billion. The maturing T-bills worth N74.84 billion, in addition to the maturing OMO bills worth N331.05 billion, we expect rates to decrease marginally amid boost in financial system liquidity.”

Naira depreciates by 50.5k as reserves drops to $38.7bn

On the foreign exchange scene the naira continued its downward trend in the foreign exchange market as it depreciated by average of 50.5 kobo    in the parallel market and in the Investors and Exporters (I&E) window last week.

While the naira depreciated for the sixth consecutive weeks by 51 kobo last week in the I&E window, it depreciated by 50 kobo in the parallel market.

Data from DMDQ showed that the indicative exchange rate for the I&E window rose for the sixth consecutive weeks to N364.57 per dollar last week  from N364.06 per dollar the previous week, translating to 51 kobo depreciation.

Also the, the exchange rate platform of the Association of Bureaux De Change Operators of Nigeria (ABCON) showed that the parallel market exchange rate rose to N360.5 per dollar last week from N360 per dollar the previous week.

Financial Vanguard analysis showed that the naira has been on the downward trend in the I&E window since November 15th when it closed at N362.58 per dollar. Since then, the naira has depreciated by N1.99 kobo against the dollar in the I&E window.

Also the naira has been on the downward trend in the parallel market since November 21st  when it closed at N358 per dollar. Since then the naira has depreciated by N2.5 against the dollar in the parallel market.

The depreciation is driven by increased demand for dollars due to rising concerns over the six month decline of the nation’s external reserves. While the downward trend in the external reserves is driven by lower revenue from oil, which accounts for about 90 percent of the nation’s dollar earnings, it is aggravated by increased dollar sales by the CBN in its bid to meet dollar demand by foreign investors exiting the nation’s fixed income market.

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The declining trend persisted last week with the reserves closing at $38.775 billion on Tuesday December 24th, representing a week-on-week decline of $250 million when compared with $39.035 billion on Tuesday December 17th.