• CBN Mops up N391bn Through TB Sales

The Central Bank of Nigeria (CBN) sold about N391 billion treasury bills on Friday, lifting the interbank lending rate up to 12 percent.

The central bank sold N82 billion in 181-day treasury bills at 18 per cent and N309 billion at 18.6 percent, mopping up liquidity from the money market and pushing up the cost of borrowing among commercial lenders.

“We have some major placers quoting about 20 per cent for overnight placement, but most takers are not willing to borrow at that rate,” one dealer told Reuters, adding that the rate eventually settled around between 10 percent and 12 percent.

Markets had opened on Thursday with a surplus liquidity of about N467 billion due to an injection of matured treasury bills until the central bank later debited banks for the purchases of N302.4 billion in primary market treasury bills.

Traders said the central bank on Friday further moved to reduce liquidity with the sale of open market operations bills, which fetched returns above the inflation rate.

The government had raised N302.4 billion at Wednesday’s treasury bills auction, more than the N242 billion planned due to strong demand for the one-year debt, while payment for the purchased was debited from commercial lenders’ accounts on Friday.

The naira traded flat at both official interbank window, but parallel market traders quoting the naira at N500 to the dollar. Commercial lenders quoted the currency at 305.25 a dollar, about the level it has traded since August.

Forwards Auction

The CBN last week sold $660 million in three- and five- month currency forwards at an auction aimed at clearing a backlog of dollar demand. The central bank had at the preceding Wednesday asked commercial lenders to bid in a special currency auction targeted at clearing backlog of dollar obligations of manufacturing, airlines, agriculture and petroleum sector. The results of the auction were announced last Tuesday while payment for the dollar sales was due last Wednesday. This was the first major dollar sales to the key sector by the central bank this year in a bid to spur growth and revive the economy which slipped into recession last year due to currency crisis necessitated by drop in global oil prices.

$1 Billion Eurobond

The federal government last week met investors for its first Eurobond sale in more than three years as Africa’s most populous nation battles an economic contraction and the worst dollar squeeze in almost a decade. This was just as Standard & Poor’s (S&P), a global financial services and ratings company assigned the proposed $1 billion Eurobonds a ‘B’ issue ratings. The agency stated this in a note on the debt issue. Officials last Friday commenced roadshows in London and the U.S. before the proposed issue of 15-year bonds, the country’s longest-maturity dollar notes yet, according to a person familiar with the matter, who is not authorised to speak publicly told Bloomberg. Finance Minister Kemi Adeosun and the central bank’s Deputy Governor Sarah Alade led the meetings, to be organised by Citigroup Inc. and Standard Chartered Plc. The delegation also included Udo Udoma, the budget minister, and Abraham Nwankwo, head of the Debt Management Office. The dates for the roadshow are: London: February 3, Los Angeles: February 6, Boston: February 7 and New York: February 8.

Four Skye Bank’s EDs Resign

Skye Bank Plc on Friday announced the voluntary resignation of four of its Executive Directors from the services of the bank. The directors who resigned were Mr. Idris Yakubu, Mrs. Markie Idowu, Mrs. Abimbola Izu and Mr. Bayo Sanni. The Directors had served in Executive Management capacity for nearly two years and had been part of the new Board of the Bank, which came into being following the intervention of the Central Bank of Nigeria on July 4 2016.

In a notification to the Nigerian Stock Exchange (NSE) the Group Managing Director of the bank, Mr. Tokunbo Abiru thanked the Executive Directors for their service to the comercial bank, noting that they had contributed immensely to the successful leadership transition which commenced last year. The bank has also announced that “the new development does not in any way affect the smooth running of the bank as it continues to deliver services to its customers across the country. The portfolios of the directors have been assigned to some General Managers to ensure a seamless transition.”

Manufacturing Index Declines in January

The Manufacturing Purchasing Managers’ Index (PMI) stood at 48.2 index points in January 2017, indicating a decline in the manufacturing sector during the review period. The index averaged 45.2 in the last twelve months, and had grown in December 2016 after recording declines for 11 consecutive months. The PMI is an indicator of the economic health of the manufacturing sector. The January 2017 PMI report released last week by the central bank showed that 10 of the 16 sub-sectors surveyed recorded decline in the review month in the following order: primary metal; transportation equipment; paper products; electrical equipment; fabricated metal products; printing & related support activities; cement; furniture & related products; plastics & rubber products; and chemical & pharmaceutical products. The remaining six sub-sectors were expected to expand in the order: petroleum & coal products; appliances & components; nonmetallic mineral products; food, beverage & tobacco products; textile, apparel, leather & footwear; and computer & electronic products.

Transactions Settlement

The CBN last week warned that any authorised dealer that defaults in the settlement of any auction or 2-way quote with the CBN in the financial market would be duly punished. The punishment includes suspension from all auctions as well as from its discount window. The central bank stated this in a circular to all authorised dealers titled: “Amendment of S4 Business Rules and Guidelines,” dated February 1, 2017, that was signed by its Director, Financial Markets Departments, Dr. Alvan Ikoku. Specifically, the amendment was with reference to Section 10.1 of the S4 Business Rules and Guidelines. The directive was with immediate effect.

It stated: “Any auction of 2-way quote with the CBN must be settled. If it is on queue, it shall be given highest priority and when it fails to settle, the system shall generate an automatic Intra-day Liquidity Facility (ILF) backed by collateral to settle the transaction. Where there are no securities, the allotment shall be cancelled and the defaulter suspended from all auctions for eight weeks from the date of default.

“ILF shall be bought back or converted to Standing Lending Facilities (SLF) by the participant by the close of business day, failing which it shall be automatically converted to SLF at the prevailing SLF rate plus 500 basis points.

“If any SLF is not repurchased by the participant bank by the next business day, such participants shall not be eligible to access the discount window until such outstanding obligation is settled in accordance with Section 27 of the Guidelines for the Conduct of Repurchase Transactions under the CBN Standing Facilities.”

Governance and Equitable Growth

A new World Bank policy report last week urged developing countries and international development agencies to rethink their approach to governance, as a key to overcoming challenges related to security, growth, and equity.

The 2017 World Development Report titled: “Governance and the Law,” explored how unequal distribution of power in a society interferes with policies’ effectiveness. Power asymmetries helped explain, for example, why model anti-corruption laws and agencies often fail to curb corruption, why decentralisation does not always improve municipal services; or why well-crafted fiscal policies may not reduce volatility and generate long-term savings.

The report noted that when policies and technical solutions fail to achieve intended outcomes, institutions often take the blame. However, it found that countries and donors need to think more broadly to improve governance so that policies succeed. It defined better governance as the process through which state and non-state groups interact to design and implement policies, working within a set of formal and informal rules that are shaped by power.

“As demand for effective service delivery, good infrastructure, and fair institutions continues to rise, it is vital that governments use scarce resources as efficiently and transparently as possible,” World Bank Group President Jim Yong Kim said.

Diaspora Bond

The federal government last week asked Goldman Sachs and Stanbic IBTC Bank to advise it on the planned sale of a debut “diaspora bond” targeted at Nigerians living abroad. Africa’s biggest economy first announced plans to sell bonds targeting Nigerian nationals abroad in 2013 to raise about $300 million. Goldman Sachs and Stanbic were due to manage the sale at the time, but the government did not appoint any bookrunners ahead of the election in 2015 that brought President Muhammadu Buhari to power. United Bank for Africa last Monday said the lender had been appointed as one of the bookrunners on the diaspora bond deal. First Bank and Standard Bank were also appointed, a local newspaper reported, quoting the debt office. Nigeria is the world’s fifth-biggest destination for international remittances after China, India, the Philippines and Mexico, with five million Nigerians living abroad sending money back to relatives, according to Western Union. Remittances make up the second-largest source of foreign exchange receipts in Nigeria, after oil revenues.