Banks’ Deposit Declines by N213bn

• Banks’ Deposit Declines by N213bn

BANKS’ deposit fell by N213 billion in December, reflecting impact of the economic recession on individuals and businesses. Meanwhile, Federal Government’s Bonds, FGB, recorded significant sell-off last week leading to a fall in prices in both the OTC platform and the Eurobond market.

Banks are mandated to keep 22.5 percent of their total deposit as Cash Reserve with the Central Bank of Nigeria (CBN). Consequently, the apex bank, on a monthly basis, debits banks for 22.5 percent of any increase in bank deposit for the month.

However, if a bank records decline in deposit, the CBN credits the bank 22.5 percent of that decline in deposit.

Financial investigations reveal that last week, the CBN credited banks N48 billion for CRR for the month of December, implying that banks in the country recorded a decline in deposit to the tune of N213 billion.

Earlier in June 2016 the Financial Stability Report of the CBN for half year 2016, stated that “Banks’ deposit with the CBN fell by 12.50 per cent at end-June 2016, compared with the 3.84 per cent decline at the end of the second half of 2015.

The Report had indicated that banks’ deposit fell to N3.69 trillion at the end of June 2016, from N3.95 trillion at the end of December 2015. Similarly, the share of banks’ deposit in the total deposit with CBN fell to 35.1 percent in June 2016 from 42.3 percent in December 2015.

N84bn inflow moderate cost of funds

Meanwhile cost of funds dropped to previous level after rising by almost 100 percent during the week. From 7.0 percent at the opening of business on Monday, short interest rates (Overnight borrowing and Open Buy Back, OBB) rose sharply to 14 percent by midweek following outflow of N222 billion for purchase of treasury bills. This was further compounded by outflow of another N2.2 billion for foreign exchange purchase. Hence market liquidity fell from N174 billion on Monday to N17 billion on Wednesday.

Market liquidity

Market liquidity was however revived due to inflow of N84 billion comprising N48 billion for CRR credit and N36.7 billion inflow from excess crude reserve. The inflows prompted market liquidity to rise and close at N56 billion.

Meanwhile the CBN will sell N195.9 billion worth of treasury bills this week in continuation of its effort to manage excess liquidity in the interbank money market. These comprise N36.77 billion worth of 91 Days bills, N39.17 billion of 182 Days bills and N120 billion worth of 364 Days bills. However due to inflows from payment of maturing bills of similar tenors and value, as well as inflow from statutory funds, the interbank money market is expected to be liquid this week with relative stability of cost of funds.

Investors dump FGN Bonds

Last week was a reversal of fortunes for federal government bonds, as there was massive sell-off by investors in Over-The-Counter (OTC) segment and the Eurobond segment.

According to analysts at Cowry Asset, a Lagos based investment firm: “In the just concluded week, FGN bonds traded at the OTC segment depreciated in value for all maturities amid sell pressure. The 20-year, 10.00 percent FGN July2030 debt10-year,16.39 percent FGNJAN2022debt, the7-year16.00 percent FGNJUN 2019 debt and the 5-year, 15.10 percent FGNAPR2017 debt depreciated by N0.67, N0.38, N0.39 and N0.14 respectively; theircorresponding yields rose to 16.30 percent (from 16.13 percent), 16.41 percent (from 16.24 percent), 16.37 percent (from 16.17 percent) and 14.82 percent (from 14.38 percent) respectively.

Elsewhere, FGN Eurobonds traded on theLondon Stock Exchange decreased in value across allmaturities amid sell pressure.The 10-year, 6.75 percent JAN28,2021bond, the5-year,5.13 percent JUL12,2018bondand the10-year,6.38 percent JUL12,2023bondlostUSD0.15 (yield rose to 5.75 percent),$0.35 (yield rose to 3.45 percent) and$0.32 (yield rose to 6.42 percent) respectively. This week, we expect a mix of bargain hunting and profit taking at the OTC market.”