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$355m OTC FX Futures Contracts Mature This Week

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Forex Weekly Outlook October 31-November 4
  • $355m OTC FX Futures Contracts Mature This Week

In line with the OTC FX futures market framework, OTC FX futures contracts valued at $354.71 million will mature this week.

However, the Central Bank of Nigeria (CBN), as has been the tradition since the OTC futures market was introduced last year, is expected to replace the maturing instrument with a March 2018 contract.

But activities at the FMDQ OTC FX Futures Market remained relatively quiet last week as total value of open contracts increased to $4.09 billion as at last Thursday, from the $3.99 billion recorded the preceding week.

The April 26 2017 (which was the cheapest instrument for an extended period of time at the launch of the Futures market) remains the most subscribed, with value of open contracts at $893.77 million, according to a report by Afrinvest Securities Limited.

Nevertheless, the central bank continued its liquidity injection drive last week as it continued Special Wholesale Intervention Forward Sales for maturing Letters of Credit (LCs). Similarly, banks continued to sell personal and business travel allowances as well as tuition and medical fees. As a result, exchange rate at the parallel market firmed up slightly.

For instance, the naira/dollar exchange rate opened the week at N460/$1, but appreciated to N454/$1 by Thursday, before closing the week at N449/$1.

However, the naira marginally weakened against the dollar at the interbank market during the week as naira/dollar exchange rate fell from N306/$1 last Monday to N306.75/$1 by Thursday before appreciating slightly to N306.50/$1.

“In the week ahead, we expect the apex bank to continue its drive to boost FX liquidity in the market. Current external reserves level of $30.3 billion (March 15, 2017) suggests that the CBN is in a healthy position to continue dollar sales to the market,” Afrinvest stated in the report.

Money Market Review

Despite a drop in system liquidity and increased primary market activities during the week,

open buy back (OBB) and overnight lending rates trended south-wards on most trading days save for Tuesday, when it rose 1.2 and 1.1 percentage points respectively.

Available data showed that the week opened with financial system liquidity at negative N66.2 billion. Nonetheless, OBB and overnight rates closed 0.5 per cent points and 0.7 per cent lower than Friday’s close, settling at 14 per cent and 14.6 per cent respectively. This was despite the announcement of an open market operations (OMO) auction by the CBN where it offered N10 billion of the 143-day and N20 billion of the 318-day instruments although no sale was however recorded.

However as the debit for successful bids at the DMO Bond auction dragged liquidity on Friday, OBB and overnight rates rose 3.3 per cent and 2.7 per cent points respectively to close at 14.3 per cent and 15 per cent, down 0.2 per cent and 0.3 per cent week-on-week respectively.

Activities in the treasury bills market were bullish last week as buying interest was evident during the trading sessions. Consequently, average yield dipped on most trading days save for Monday when it closed flattish as late sell-offs tapered the impact of the earlier buying interest on yields. Subsequently, average treasury bills yield closed 16.8 per cent on Friday, down two per cent week-on-week. In the primary market, the central bank auctioned N39 billion, N48.5 billion and N126.3 billion respectively of the 91-day, 182-day and 364-day instruments. The auction was oversubscribed by 0.8 times with investors showing more interest in the longer dated bills.

But this week, it is expected that treasury bills maturity of N135 billion would hit the system, although its impact on system liquidity level is expected to be tapered by a scheduled roll-over of the same amount.

Bond Market Review

The local bonds market was relatively quiet ahead of the DMO’s scheduled primary market auction. Average yield on benchmark bonds opened the week at 16 per cent and closed flattish on the first three trading days. Last Wednesday, the DMO offered N45 billion, N50 billion and N35 billion respectively of the JUL 2021, MAR 2027 (New issuance) and MAR 2036 instruments.

The auction was oversubscribed by 0.6 times as total subscription stood at N216.4 billion relative to offered amount of N130 billion. Investors showed preference towards the longer tenored instruments as total subscription to the MAR 2027 bond stood at N75.99 billion relative to offered amount of N50 billion whilst total subscription to the MAR 2036 instrument settled at N102.18 billion relative to offered amount of N80 billion.

The Federal Government through the Debt Management Office also commenced the issuance of the first tranche of the Retail Savings Bond. The savings bond (with a maturity date of March 22, 2019) was offered at an interest rate of 13.01% (paid quarterly). Offer for subscription was open from Monday 13th March – Friday 17th March.

Contrary to the performance recorded the preceding week, performance of the Sub-Saharan sovereign Eurobonds was largely bullish as investors hunted for bargains across board despite a rate hike by the US FED during the week. Consequently, yield on all SSA sovereigns fell save for the Nigerian 2021, South African 2041 (up 6bps apiece) as well as the Gabon 2024 and Ivory Coast 2028 (up 3bps apiece). Average yield on the Ghana, Kenyan and Zambian sovereign Eurobonds dropped 15basis points (bps), 8bps and 17bps respectively whilst yield on the South African 2017 declined 29bps.

Inflation

For the first time in 15 months, the Consumer Price Index (CPI), which measures the rate of inflation, dropped to 17.78 per cent (year-on-year) in February 2017, the National Bureau of Statistics (NBS) said last week. In its latest CPI report released on Tuesday, NBS said the figure was 0.94 per cent points lower when juxtaposed with the 18.72 per cent posted in January. According to the NBS, the new figure marked the first time in 15 months that the headline CPI has dipped on a year-on-year basis. The NBS traced the development to the effects of a slower increase in food and non-food prices as well as favourable base effects over 2016 prices. However, price increases were recorded in all divisions that constitute the headline index, said the report.

Housing, water, electricity, gas and other fuel, education, food and alcoholic beverages, clothing, foot ware and transportation services provided the major divisions that accounted for accelerating the pace of increase in the headline index. On a month-on-month basis, the headline index rose by 1.49 per cent in February 2017, representing a 0.48 per cent points higher from the 1.01 per cent recorded in January.

Similarly, the food index rose by 18.53 per cent (year-on-year) in February, up by 0.71 per cent points over what was recorded in January (17.82 per cent).

Etisalat Dollar Debt

Nigerian banks last week opposed a proposal by Etisalat Nigeria to convert part of a $1.2 billion loan from dollars into naira and want Abu Dhabi telecoms group Etisalat and its other shareholders to recapitalise it instead. A banker with knowledge of the negotiations told Reuters that the seven-year syndicated loan, on which Etisalat Nigeria missed a payment, has a dollar portion of $235 million which the telecoms operator wants to convert into naira to overcome hard currency shortages on Nigeria’s interbank market.

“Etisalat is asking for us to convert the dollar component to naira but banks don’t want that option and have told them to talk to their parent to settle the loan,” the source said, adding that regulators favoured the conversion.

The UAE’s Etisalat own 45 percent of Etisalat Nigeria, while Abu Dhabi’s Mubadala owns 40 percent of the company, which is due to meet its lenders on Thursday for debt talks mediated by Nigeria’s central bank and the telecoms regulator.

This meeting came about after authorities agreed with local banks to prevent Etisalat Nigeria, which was not available for comment, going into receivership. Nigeria has been running short of dollars as a result of lower global prices for oil, its major export. It economy entered a recession last year for the first time in 25-years. Most of the 13 lenders involved in the Etisalat Nigeria loan had raised dollars abroad to participate, meaning that further naira weakness would see them receive fewer dollars.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Finance

Nasdaq Set To Launch Options Trading For Coinbase Global

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Less than a week after the largest crypto exchange in the U.S. Coinbase was listed, Nasdaq is set to start trading options for Coinbase Global.

According to Reuters, a representative for Coinbase stated that the COIN.O options will start trading on Nasdaq on Tuesday, April 20.

The launch of equity options will offer a new way for investors to bet on the fortunes of Coinbase. Equity options represent the right, but not the obligation, to buy or sell a stock at a certain price, known as the strike price, on or before an expiration date.

The news follows Coinbase’s direct listing, which saw the firm’s stock fluctuate between a valuation of $429.54 and $310 on its first day of trading.

It was reported that the Chief Executive Officer of Coinbase, Brian Armstrong sold less than 2% of his holdings which worth about $292 million in shares on COIN’s first day of trading. According to filings made with the U.S. Securities and Exchange Commission, Armstrong sold 749,999 shares in three batches at prices ranging from $381 to $410.40 per share for total proceeds of $291.8 million.

It was also reported that insiders dumped nearly $5 billion in COIN stock shortly after it was listed. Filings on the Coinbase Investor Relations website showed a total of 12,965,079 shares were sold by insiders, worth over $4.6 billion at COIN’s $344 share price at close on Friday.

Yahoo Finance reported the stock has slumped 22.5% from a high of $429.54 on April 14 to a current after-hours trading price of $332.75 where it appears to have settled after Monday’s trading session.

On April 20, Coinbase Pro announced that will add support for new trading pairs for Basic Attention Token (BAT), Cardano (ADA), Decentraland (MANA), and USDC from April 20. The four assets will be paired with three fiat currencies (USD, EUR, GBP), BTC, and ETH, with limited trading functionality to be made available while market liquidity is assessed at launch.

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Banking Sector

Unity Bank Grows Asset by 67.90% to N492.02 Billion, As Gross Earnings Hit N42.71 Billion in FY 2020

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Unity Bank Plc grew its assets base to N492.02billion representing a significant increase of 67.90% from the N293.05 billion of total assets value recorded in 2019. This is even as the agric-focused lender declared gross earnings of N42.71 billion within the period under review.

A review of the Bank’s audited results for full-year ended 31 December 2020, released to the Nigerian Stock Exchange, showed that the Bank improved its bottom line marginally as Profit After Tax, PAT stood at N2.09 billion. Profit Before Tax, PBT closed at N2.22 billion, in a year that was defined by the unmitigated impact of global pandemic characterized by disruptions in business activities and the general downturn that resulted in revenue/returns dip in major leading sectors globally.

The lender substantially grew its customers’ deposit portfolio to N356.62 billion, up from N257.69 billion in the corresponding period of 2019, representing a 38.4% growth. This affirms positive market uptake of the Bank’s product offerings, as well as the lender’s growing customer base to its recent aggressive push with agile customer-centric products, which has played a role in deepening financial services penetration, especially to a wider world, an underserved spectrum of the retail market.

Other major highlight of the audited financial statement relates to growth in its net operating income which rose to N25.46 billion from N23.21 billion in the corresponding period of 2019, representing a 9.71% increase. This is even as the net interest income recorded a significant jump, as it rose by 7.60% to N17.75 billion from N16.49 billion in the corresponding period of 2019. Earnings per Share closed at 17.85 Kobo.

The Bank’s gross loans portfolio increased by 92.9% to N206.2 billion in December 2020 from N106.9 billion in December 2019. The Bank’s lending strategy was specially tailored to support the nation’s food agenda. This had the added advantage of improving food security across the country, providing employment to thousands of youths and entrepreneurs, contributing to the conservation of FX stocks and mitigating security challenges by ensuring adequate empowerment of citizens and deepening skills acquisition across the value chain.

Commenting on the result, Unity Bank’s Managing Director/Chief Executive Officer, Mrs. Tomi Somefun stated that the results showed the resilience of the Bank during unprecedented times of uncertainties and our ability to innovate and focus on key balance sheet items that will enable us to maintain the growth trajectory.

She further opined that: “Consequently, for the year under review, the opportunities to significantly create more quality assets for the business, thought to have a sustainable impact, informed part of choices made and we have seen some encouraging market uptake in this regard, apart from the benefits to the enterprise bottom-line that have also started trickling in. Other key performance indicators especially on the liability side of the business were equally not left out. The Bank deployed new product features and augmentation supported by omni-channel, USSD promotions and other channels to enhance services delivery efficiency, drive income generation capacities and enhance steady balance sheet growth for the year”.

Looking ahead, Somefun stated: “we will latch on targeted strategies to deploy significant investment in technology in order to ride the waves of the COVID-19 pandemic. On the back of this, the Bank focuses on achieving major efficiency gains, deepening its retail footprints and penetrating identified cluster market segments, as bulwarks to tapping into various youth markets platforms, in addition to the mass market would get a further boost”.

While laying an outlook for the future, the Unity Bank’s Chief further stated: “The Bank is also looking to consolidate on the gains from its core business areas and niche in the agribusiness sector. The Bank has solidly financed over one million farmers over the past three years. These farmers cut across several primary crop production such as rice, maize, cotton, wheat, sorghum, etc coupled with their rich value chains, and we hope to continue to expand on this as we play our part in driving the country’s quest for self-sufficiency in food production.”

Analysts are of the view that has made an appreciable impact in the agribusiness and its value chains consistently, the market is excited that the current year performance and different initiatives of the Bank show that the agribusiness is bankable not only as a differential positioning but also for sustainable business performance and profitability.

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Banking Sector

Access Bank To Acquire BancABC Botswana

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Access Bank Plc on Monday disclosed that it had entered into a definitive and binding agreement with ABC Holdings Limited to acquire 78.15 per cent shareholding in African Banking Corporation of Botswana Limited (BancABC Botswana).

The transaction, which is subject to regulatory approvals and customary conditions precedent, is expected to close before the end of this quarter.

ABC Holdings is a subsidiary of London Stock Exchange listed group – Atlas Mara Limited.

Access Bank disclosed this in a statement signed by its Company Secretary, Sunday Ekwochi.

Bostwana is renowned for its quality sovereign credit rating and stability. Access Bank’s market entry is expected to further solidify its strategy as, “a strong banking partner in key verticals across retail and corporate banking, including especially supporting trade in payments across southern Africa and Sub-Saharan Africa more broadly.”

Commenting on the deal, the GMD/CEO, Access Bank, Herbert Wigwe, said: “We remain committed to a disciplined and thoughtful expansion strategy in Africa, which we believe will create strong, sustainable returns for our shareholders and stakeholders at large, over the medium and long-term.

“The establishment of Access Bank through this acquisition in the Republic of Botswana will position the bank to deliver a more complete set of banking solutions to its clients active in and across the SADC and COMESA regions.

“This transaction complements our recent strategic growth acquisitions in South Africa, Zambia and Mozambique. We are building a bank of the future that Africans across Africa and the world would be proud of and look forward to welcoming the employees, customers and other stakeholders of BancABC Bostawana to Access Bank.”

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