Naira, external reserves maintain downward trend

Banks lose N725bn deposits to low interest rates

By Babajide Komolafe

Indication to this emerged last week, when the Central Bank of Nigeria, CBN, credited banks with N200 billion for Cash Reserve Ratio, CRR, in February, implying the banks’ recorded decline in a deposit.

The CRR represents the portion of deposits banks are requested to keep as cash with the CBN. In January the CBN increased the CRR to 27.5 per cent from 22.5 per cent.

This means the CBN will debit banks with 27.5 per cent of any increase in deposits while it will credit them with 27.5 per cent of the decline in deposits.

The N200 billion CRR credited to the banks represented the 27.5 per cent of the total deposit shortfall which translates to N725 billion.

ALSO READ: Senate probes differences in banks’ deposits, lending rates

Financial Vanguard investigation revealed that the sharp decline in deposits was prompted by the crash in interest rates on fixed deposits, which now ranges from one per cent to three per cent, a development caused by the excess liquidity occasioned by the exclusion of local investors from investing in Open Market Operation (OMO) treasury bills.

Alluding to this state of the money market, a member of CBN’s Monetary Policy Committee (MPC), Professor Mike Obadan, in his personal statement at the last meeting of the Committee said, “The liquidity build-up continues as long as the OMO bills held by these agents mature.

“Monetary policy stance would need to take cognisance of this factor. The above policies have led to the crash of deposit rates, particularly, term or fixed deposit rates which are now even less than the savings rates in most cases.”

Confirming this development to Financial Vanguard, a senior official of one of the Tier-1 banks said, “You can’t blame the customers because no matter the number of funds you want to deposit, the bank will not offer you more than three per cent.

“Even if you bring N1 billion, you may not get more than two per cent.”

Financial Vanguard investigation also revealed that while some customers decided to stake their money in the stock exchange, others move theirs into dollar-denominated investments.

“We have a customer who has so far moved one-third of his deposits to offshore investments while another one moved about $1 million and invested it in the New York Stock Exchange”, the bank official told Financial Vanguard under the condition of anonymity.

Cost funds to decline further

Meanwhile, the N200 billion CRR credit boosted liquidity in the interbank money market prompting average short term cost of funds to fall by 370 basis points (bpts).

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending fell by 379 bpts to 11.71 per cent on Friday from 15.5 per cent the previous week. Similarly, the interest rate on Overnight lending fell by 356 bpts to 12.86 per cent on Friday from 16.42 per cent the previous week.

This trend according to analysts at Cowry Assets Management Limited will persist this week due to a boost in liquidity expected from maturing treasury bills worth.

“In the new week, T-bills worth N127.04 billion will mature via the primary and secondary markets which will more than offset T-bills worth N72.30 billion to be auctioned by CBN via the primary market; viz: 91-day bills worth N1.80 billion, 182-day bills worth N0.00 billion and 364-day bills worth N70.50 billion. Hence, we expect the stop rates to decline marginally amid financial liquidity ease”, they said.

Naira depreciates further

…External reserves decline persist

On the foreign exchange scene, the naira depreciated last week against the dollar in the Investors and Exporters (I&E) window for the second consecutive week.

Data from FMDQ showed that the naira depreciated by N1 in the window as the indicative exchange rate for the window rose N366.25 per dollar last week, the highest in two years, from N365.25 per dollar the previous week. Consequently, the naira has depreciated by N1.99 in two weeks in the I&E window.

The naira, however, remained stable at N358 per dollar in the parallel market.

On the other hand the nation’s external reserves last week continued on its downward albeit on a slower pace. Data from the CBN showed that the external reserves fell to $36.22 billion on Thursday, March 5  from $36.329 billion on Thursday, February 27.

This represents week-on-week (w/w) decline of $109 million, down from $356 million declines recorded the previous week.


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