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Cash Crunch Hits Banks as CBN Mops up Naira

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  • Cash Crunch Hits Banks as CBN Mops up Naira

In order to reduce demand for foreign exchange, especially the dollar, the Central Bank of Nigeria has engaged in continuous and aggressive mop up of cash from the economy in the past six months.

The development is said to be responsible for the cash crunch that has hit the economy with a heavy toll on consumers (households), companies and commercial banks, especially mid-size lenders in the country.

Specifically, through its twice-a-month primary market auction of Treasury Bills and now almost daily Open Market Operations (secondary market auction), the CBN has mopped up trillions of naira in the past six months, according to top bankers who spoke on condition of anonymity.

The development has made the lending rate to soar, especially among the Tier-1 banks, which are able to do little lending at the moment.

While mid-sized banks are struggling to maintain their liquidity positions due to the shortage of naira, the situation is making it increasingly difficult for companies to access credit to expand their operations.

“The loan book of banks is growing leaner and leaner because of the tight liquidity situation the CBN’s actions have put the banks,” a top executive of a commercial bank, who spoke on condition of anonymity, said.

Just on Friday, the CBN disclosed that it sold about N204.9bn in treasury bills following its auction held on Wednesday July 19, 2017.

It sold one-year treasury bills at 23 per cent and 182 days at 19 per cent true yield, respectively.

The CBN reportedly raised N1.129tn through the auction of the TBs in the second quarter of 2017.

In its TB issuance programme, running from March 16 to June, the apex bank also said N1.086tn worth of bills would mature during the same period.

The CBN is planning to issue the TBs worth N1.24tn in the third quarter of this year.

A CBN debt calendar for the third quarter released on Friday showed that it would sell N1.24tn worth of treasury bills from June 15 to August 31.

The apex bank aims to auction N226.64bn in 91-day bills, N311.32bn in 182-day and N698.64bn in 364-day debt.

Aside from the regular mop up of liquidity through the regular primary and secondary markets’ action of the TBs, the CBN was said to be mopping up huge amounts of cash from the banking system through a special Open Market Operation.

The special OMO has been described by industry players as a pre-emptive action by the CBN to stop banks from speculating against the naira.

It was learnt that the CBN was not ready to allow the banks to be in possession of large amounts of cash to buy the dollars the regulator was pushing into the forex markets almost on weekly basis.

A top banker, who chose to speak on condition of anonymity, explained, “The CBN has carried out about three of such special OMOs this year. This is a situation where the CBN forced down the TBs on some banks, whether they want it or not. This happens when the CBN carefully watched the maturity day of some particular TBs.

“Once it sees that some banks have huge cash at the maturity date of some instruments, the regulator debits their accounts and offers the TBs, whether they want it or not. The idea is just to ensure that banks don’t have huge cash to buy forex. The legality of this special OMO is another thing entirely.

“It is part of the proactive moves to stop banks and other key players from attacking the naira through speculative demand.”

According to other bankers, the CBN forces the special OMOs on banks, which have refused to lend to others and buy the TBs.

Industry analysts said the development had reduced the purchasing power of most households with many consumers no longer able to afford high-value goods.

They added that high-ticket transactions like yearly house rents were now being settled in instalments.

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “The policy measures may be counter-productive, because it may slow down the rate of economic recovery due to low purchasing power and slow economic activities.

“Due to the cash crunch we are now experiencing in the country, banks are not able to lend to firms to expand their business. This is going to affect growth and economic recovery.”

According to the analyst, low purchasing power of consumers will reduce the demand for products and services, thereby affecting the rate of economic activities, which will in turn affect growth.

The chief executive officer of a commercial bank, who spoke on condition of anonymity, said the cash crunch had been made worse by the regulator’s tactical move to make the Cash Reserve Ratio higher than the official figure of 27.5 per cent.

The bank CEO said, “Since March this year, what the CBN has been doing is that whenever there is an increase in the deposit reserves of banks, the CBN debits the banks in line with the CRR figure of 27.5 per cent of the marginal amount.

“This effectively increases the CRR. But whenever there is a decrease in the deposit reserves of banks, the CBN fails to credit them. This way, the apex bank has made the CRR higher than the official figure of 27.5 per cent.”

It is unclear if the CBN intends to review its strategy in the near future. Its spokesperson, Mr. Isaac Okorafor, could not be reached for immediate comments. Calls and text messages sent to his telephone line were not responded to.

An economist and industry expert, Mr. Amoo Abegunde, said the CBN should not have sacrificed the need to maintain a stronger naira for economic growth, noting that growth was key to the country.

Corroborating other economists, he said the current rate of N365/dollar might not be sustainable if the CBN continued to deny the economy of the needed naira in order to achieve a stronger currency.

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

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

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Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

The Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has pledged to adopt accommodative monetary policy stance in 2021 in order to support economic growth in the country.

Emefiele, said this on Friday, while speaking at a CBN/Bankers’ Committee’s initiative for economic growth, which is a one-day special summit on the economy by bank chief executive officers.

The theme of the summit is: “How to Overcome the Pitfalls of Recession.”

Nigeria’s economy recently came out of recession, according to the Gross Domestic Product report for fourth quarter 2020 released by the National Bureau of Statistics.

Owing to the slump GDP growth of 0.11 per cent that lifted the economy out of recession, Emefiele said it was imperative that, “we do all we can in 2021 and beyond to ensure that we build on the positive momentum and strengthen our efforts at stimulating growth.”

He expressed optimism that with the discovery and deployment of vaccines worldwide, 2021 would be a year of massive global recovery and Nigeria must not be left out.

“The banks CEOs are here, whether by moral suasion or by force, they will have to participate in this journey. In order to drive and sustain this recovery therefore, we need to sustain the accommodative fiscal and monetary policy measures aimed at improving access to finance for households and businesses.

“Secondly, we must prevent a resurgence in Covid-19 related cases. Thirdly, we must ensure that a significant number of our population is significantly vaccinated and also improve foreign exchange inflows into our country,” he added.

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Banking Sector

CIT Microfinance Bank Disburses Over N16bn Loans

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CIT Microfinance Bank Disburses Over N16bn Loans

CIT Microfinance Bank Limited says it has disbursed about N16bn loans since it commenced operations as part of its contributions to the financial sector and empowerment of businesses.

The Managing Director of the microfinance bank, Mr Kingsley Eremionkhale, disclosed this during the company’s 10th anniversary in Lagos recently.

He reiterated that the bank was committed to supporting the growth of small and medium-scale enterprises in the country.

“Since inception, we have disbursed loans worth about N16bn. Our operation is not just about profit-making, but we have impacted many lives, empowered many businesses, and done a lot in terms of our core mandate as a microfinance bank.”

While appreciating its customers who had been loyal to it for years, he said it was concerned about their business success.

The managing director said, “We are part of our customers’ businesses. We provide services beyond lending and savings products and we also give financial advisory services.”

He appreciated the customers who had stayed with the financial institution for many years.

The managing director noted that the MfB is a state-licensed bank operating in Lagos, and a subsidiary of Capitalfield Investment Group.

He also attributed the success of the MfB to the board of directors which it said had been supportive, the management team and its workforce in the past 10 years.

While saying that the bank could lay claims to exponential growth, he said the public should expect more from it.

He also said that it was driving its operations through its digital offerings and our e-channels, to improve its services to our customers.

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Finance

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

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FMDQ

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

FMDQ Securities Exchange Limited has announced the approval of the quotation of the Valency Agro Nigeria Limited N5.12bn Series 1 Commercial Paper under its N20bn CP Programme on its platform.

The Exchange said in fostering the development of the Nigerian debt capital markets, it had continued to avail its credible and efficient platform as well as tailor its listings and quotations services to suit the needs of issuers and registration members through innovative and uninterrupted service delivery.

It said in a statement on Thursday that the Valency Agro Nigeria CP debut issue came at a time when the Nigerian economy was bedeviled with soaring food prices, amidst compounding challenges of insecurity.

It said the agricultural sector and its attendant transformation agenda had never been more important in driving increased and sustainable production of agricultural products as well as the derived foreign earnings through exports.

The Exchange said the proceeds from the issue of the CP would be applied by Valency Agro towards meeting the mid-term working capital requirements of the various agricultural produce under its portfolio such as cashew, sesame, cocoa and in value addition prior to export.

The Executive Director, Valency Agro Nigeria Limited, Mr Sumit Jain, was quoted as saying, “We are thankful to our investors towards showing their faith in our agenda to grow the agriculture-focused business with a clear aim to maximise value addition and create employment opportunities in Nigeria.

“We would also like to commend the efforts made by FBNQuest Merchant Bank Limited’s team to build the reach and FMDQ for their unconditional support for the industry”.

The Head, Capital Markets, FBNQuest Merchant Bank, Mr Oluseun Olatidoye, said, “FBNQuest Merchant Bank Limited is delighted with the successful debut of the N5.12bn Series 1 CP issued by Valency Agro Nigeria Limited. This reiterates our effort to enable underserved sectors access the debt markets, optimise their capital structure and further deepen the domestic capital markets.

“We are proud of the instrumental role FBNQuest Merchant Bank played in this transaction and appreciate the trust the management of Valency Agro placed in us to assist them. Our clients remain our priority, and we strongly believe their success is our success.”

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