Finance

Interbank Rates Fall on Matured Treasury Bills

Published

7 years ago

August 21, 2017

Interbank Rates Fall on Matured Treasury Bills

Nigeria’s interbank overnight lending rate fell sharply on Friday to an average of 12 per cent from around 60 percent a week ago after the central bank repaid matured treasury bills and a refund of excess cash deposited by banks to buy dollars.

The central bank sold $100 million at its special intervention auction in the foreign exchange market on Tuesday, which was less than the amount requested by banks, leading to a refund of the excess deposited by banks on Friday, Reuters disclosed.

The regulator also injected about N168 billion in matured open market operation (OMO) treasury bills into the system on Thursday, raising money market liquidity levels.

“The interbank rate is seen climbing again next week as the central bank resumes its aggressive liquidity mop up and sustains its intervention in the forex market,” a currency trader said.

The overnight lending rate jumped last week to as high as 100 percent intraday after the central bank tightened liquidity to support the naira currency.

The central bank has consistently issued OMO treasury bills to reduce excess liquidity in the money market and curb speculation on the local currency.

It sold a total of N68.79 billion worth of treasury bills on Friday in its bid to further tighten liquidity in the banking system. The bank’s sales on Friday amounted to N65.5 billion of 363-day open OMO treasury bills at 18.55 percent, and 3.29 million naira of the 174-day paper at 17.95 percent.

On the other hand, a report by Cowry Asset Management Limited showed that the NITTY moved in mixed directions across the maturities– yields on the 1month and 3 months maturities rose to 17.77% from (14.41%) and 19.45% (from 19.43%) respectively. However, 6 months and 12 months yield fell to 19.79% (from 20.36%) and 22.13% (from 22.30%) respectively.

“This week, we expect maturities via secondary market worth N14.65 billion viz: 167-day bills worth N7.976 billion and 168-day bills worth N6.674 billion. We expect further financial system liquidity ease and stability in interbank rates,” the investment firm added.

Forex Transactions

Meanwhile, the local currency remained stable week-on-week on the interbank segment amid CBN’s intervention of $364 million into the interbank foreign exchange market from which the Retail Secondary Market Intervention Sales (SMIS) received $264.19 million while $100 millon was allocated to authorised dealers in the wholesale window.

According to analysts at Cowry Asset Management Limited, the naira also strengthened at the Investors & Exporters Forex Window (I&E) to N361/$.

However, it depreciated at the Bureau De Change and Parallel market segments by 0.27 per cent each to N365/$ and N368/$ respectively.

“Dated forward contracts at the interbank OTC segment suggests likely appreciation of the naira amid an increase in the foreign exchange reserves – external reserves increased week-to-date by 1.06 per cent to $31.55 billion as at Thursday, August 17, 2017. The 3 months, 6 months and 12 months forward contracts appreciated week-on-week by 1.37 per cent, 1.29 per cent and 2.09 per cent, to N379.04/$, N400.18/$ and N438.59/$ respectively,” Cowry Asset Management added in a note at the weekend.

However, the spot rate of the naira depreciated slightly week-on-week by 0.03 per cent, to N305.65/$”.

“In the coming week, we expect further stability of the naira/dollar exchange rate amid consistent build up in external reserves and continued CBN intervention in the interbank segment.”

Bond Market

In the just concluded week, prices of FGN bonds traded at the OTC segment moved in mixed directions – the 20-year, 10% FGN JUL 2030 paper and the 10-year, 16.39% FGN JAN 2022 debt depreciated w-o-w by N0.44 and N0.06 respectively; corresponding yield rose to 16.47% (from 16.35%) and 16.38% (from 16.36%). However, w-o-w the 7-year, 16.00% FGN JUN 2019 and 5-year, 14.50% FGN JUL 2021 appreciated by N0.14 and N0.42 respectively as their yields fell to 16.80% (from 16.89%) and 16.41% (from 16.57%).

Elsewhere, FGN Eurobonds traded on the London Stock Exchange appreciated in value across all the maturities amid renewed bargain hunting. The 10-year, 6.38% JUL 12, 2023 and 5-year, 5.13% JUL 12, 2018 bonds appreciated by USD0.80 (yield fell to 5.53%) and USD0.20 (yield fell to 3.58%) respectively.

But, this week, the Debt Management Office (DMO) will auction bonds worth N135 billion, viz: the 5-year, 14.50% FGN JUL 2021 worth N35 billion, 10-year, 16.2884% FGN MAR 2027 worth N50 billion and 20-year, 16.2499% FGN APR 2037 worth N50 billion.

“We expect bond prices to appreciate at the OTC market on the back of expected ease in financial system liquidity.”

As part of efforts to further strengthen the value of the Naira on the parallel market segment of the foreign exchange (forex) market, the Central Bank of Nigeria (CBN) has directed that payments for port charges to the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA) by oil marketing companies should henceforth be accommodated in the official forex window.

Easing Dollar Access to Maritime Operators

As part of efforts to further strengthen the value of the Naira on the parallel market segment of the forex market, the CBN last week directed that payments for port charges to the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA) by oil marketing companies should henceforth be accommodated in the official forex window.

The central bank issued the directive Tuesday in a circular titled, “Payment of Ports and Nigerian Maritime Administration and Safety Agency Charges by Oil Marketing Companies,” signed by its Director, Trade and Exchange Department, Mr. W.D. Gotring, a copy of which was obtained by THISDAY. CBN explained that the initiative would help improve forex availability in the market, as well as address the challenges encountered by stakeholders in the maritime sector.

The two-paragraph circular stated: “In the continued effort to improve forex availability in the Nigerian forex market and ameliorate challenges encountered by critical stakeholders, payment for port charges to the NPA, NIMASA, etc, by oil marketing companies can now be accommodated by the CBN using Form ‘A’.

“Therefore, authorised dealers are directed to accept the request for payment of port charges from oil marketing companies and forward same to the CBN forex window.”

National Corruption Report

An estimated N400 billion, or the equivalent of $4.6 billion in purchasing power parity (PPP), representing 39 per cent of the combined federal and state education budgets in 2016, is paid out as bribes to public officials in Nigeria annually, a new report released by the National Bureau of Statistics (NBS), in collaboration with the United Nations Office on Drugs and Crime (UNODC), revealed last week

The National Corruption Report, which covered the period between June 2015 and May 2016 also showed that almost a third of Nigerian adults (32.3 per cent) who had contact with public officials between June 2015 and May 2016 had to pay, or were requested to pay a bribe to such public officials. According to the report, the magnitude of public sector bribes in Nigeria becomes even more palpable when factoring in the frequency of the payments, adding that the majority of those who paid bribes to public officials did so more than once over the course of the year. Bribe-payers, it added, pay an average of some six bribes in one year, or roughly one bribe every two months.

“Roughly 400 billion Nigerian Naira is spent on bribes each year. Taking into account the fact that nine out of every ten bribes paid to public officials in Nigeria are paid in cash and the size of the payments made, it is estimated that the total amount of bribes paid to public officials in Nigeria in the 12 months prior to the survey was around 400 billion Nigerian Naira (NGN), the equivalent of $4.6 billion in purchasing power parity (PPP). This sum is equivalent to 39 per cent of the combined federal and state education budgets in 2016,” the report said.

Up Next

Forex: 700 BDCs Under Threat Over Low Patronage

Don't Miss

Nigerian Stock Index Rises as Bank Shares Gain

Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Comments

Finance

Presidential Committee to Exempt 95% of Informal Sector from Taxes

Published

3 days ago

May 14, 2024

Samed Olukoya

The Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) has unveiled plans to exempt a significant portion of the informal sector from taxation.

Chaired by Taiwo Oyedele, the committee aims to alleviate the burden of multiple taxation on small businesses and low-income individuals while fostering economic growth.

The announcement came following the close-out retreat of the PFPTRC in Abuja, where Oyedele addressed reporters over the weekend.

He said the committee is committed to easing the tax burden, particularly for those operating within the informal sector that constitutes a substantial portion of Nigeria’s economy.

Under the proposed reforms, approximately 95% of the informal sector would be granted tax exemptions, sparing them from obligations such as income tax and value-added tax (VAT).

Oyedele stressed the importance of supporting individuals in the informal sector and recognizing their efforts to earn a legitimate living and their contribution to economic development.

The decision was informed by extensive deliberations and data analysis with the committee advocating for a fairer and more equitable tax system.

Oyedele highlighted that individuals earning up to N25 million annually would be exempted from various taxes, aligning with the committee’s commitment to relieving financial pressure on small businesses and low-income earners.

Moreover, the committee emphasized the need for tax reforms to address the prevailing issue of multiple taxation, which disproportionately affects small businesses and the vulnerable population.

By exempting the majority of the informal sector from taxation, the committee aims to stimulate economic growth and promote entrepreneurship.

The proposal for tax reforms is expected to be submitted to the National Assembly by the third quarter of this year, following consultations with the private sector and internal approvals.

The reforms encompass a broad range of measures, including executive orders, regulations, and constitutional amendments, aimed at creating a more conducive environment for business and investment.

In addition to tax exemptions, the committee plans to introduce executive orders and regulations to streamline tax processes and enhance compliance. This includes a new withholding tax regulation exempting small businesses from certain tax obligations, pending ministerial approval.

Banking Sector

CBN Governor Vows to Tackle High Inflation, Signals Prolonged High Interest Rates

Published

3 days ago

May 14, 2024

Samed Olukoya

Central Bank of Nigeria - Investors King

The Governor of the Central Bank of Nigeria (CBN), Dr. Olayemi Cardoso, has pledged to employ decisive measures, including maintaining high interest rates for as long as necessary.

This announcement comes amidst growing concerns over the country’s soaring inflation rates, which have posed significant economic challenges in recent times.

Speaking in an interview with the Financial Times, Cardoso emphasized the unwavering commitment of the Monetary Policy Committee (MPC) to take whatever steps are essential to rein in inflation.

He underscored the urgency of the situation, stating that there is “every indication” that the MPC is prepared to implement stringent measures to curb the upward trajectory of inflation.

“They will continue to do what has to be done to ensure that inflation comes down,” Cardoso affirmed, highlighting the determination of the CBN to confront the inflationary pressures gripping the economy.

The CBN’s proactive stance on inflation was evident from the outset of the year, with the MPC taking bold steps to tighten monetary policy.

The committee notably raised the benchmark lending rate by 400 basis points during its February meeting, further increasing it to 24.75% in March.

Looking ahead, the next MPC meeting, scheduled for May 20-21, will likely serve as a platform for further deliberations on monetary policy adjustments in response to evolving economic conditions.

Financial analysts have projected continued tightening measures by the MPC in light of stubbornly high inflation rates. Meristem Securities, for instance, anticipates a further uptick in headline inflation for April, underscoring the persistent inflationary pressures facing the economy.

Despite the necessity of maintaining high interest rates to address inflationary concerns, Cardoso acknowledged the potential drawbacks of such measures.

He expressed hope that the prolonged high rates would not dampen investment and production activities in the economy, recognizing the need for a delicate balance in monetary policy decisions.

“Hiking interest rates obviously has had a dampening effect on the foreign exchange market, so that has begun to moderate,” Cardoso remarked, highlighting the multifaceted impacts of monetary policy adjustments.

Addressing recent fluctuations in the value of the naira, Cardoso reassured investors of the central bank’s commitment to market stability.

He emphasized the importance of returning to orthodox monetary policies, signaling a departure from previous unconventional approaches to monetary management.

As the CBN governor charts a course towards stabilizing the economy and combating inflation, his steadfast resolve underscores the gravity of the challenges facing Nigeria’s monetary authorities.

In the face of daunting inflationary pressures, the commitment to decisive action offers a glimmer of hope for achieving stability and sustainable economic growth in the country.

Banking Sector

NDIC Managing Director Reveals: Only 25% of Customers’ Deposits Insured

Published

3 days ago

May 14, 2024

Samed Olukoya

The Managing Director and Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Bello Hassan, has revealed that a mere 25% of customers’ deposits are insured by the corporation.

This revelation has sparked concerns about the vulnerability of depositors’ funds and raised questions about the adequacy of regulatory safeguards in Nigeria’s banking sector.

Speaking on the sidelines of the 2024 Sensitisation Seminar for justices of the court of appeal in Lagos, themed ‘Building Strong Depositors Confidence in Banks and Other Financial Institutions through Adjudication,’ Hassan shed light on the limited coverage of deposit insurance for bank customers.

Hassan addressed recent concerns surrounding the hike in deposit insurance coverage and emphasized the need for periodic reviews to ensure adequacy and credibility.

He explained that the decision to increase deposit insurance limits was based on various factors, including the average deposit size, inflation impact, GDP per capita, and exchange rate fluctuations.

Despite the coverage extending to approximately 98% of depositors, Hassan underscored the critical gap between the number of depositors covered and the value of deposits insured.

He stressed that while nearly all depositors are accounted for, only a quarter of the total value of deposits is protected, leaving a significant portion of funds vulnerable to risk.

“The coverage is just 25% of the total value of the deposits,” Hassan affirmed, highlighting the disparity between the number of depositors covered and the actual value of deposits within the banking system.

Moreover, Hassan addressed concerns about moral hazard, emphasizing that the presence of uninsured deposits would incentivize banks to exercise market discipline and mitigate risks associated with reckless behavior.

“The quantum of deposits not covered will enable banks to exercise market discipline and eliminate the issue of moral hazards,” Hassan stated, suggesting that the lack of full coverage serves as a safeguard against irresponsible banking practices.

However, Hassan’s revelations have prompted calls for greater regulatory oversight and transparency within Nigeria’s financial institutions. Critics argue that the current level of deposit insurance falls short of providing adequate protection for depositors, especially in the event of bank failures or financial crises.

The disclosure comes amid ongoing efforts by regulatory authorities to bolster depositor confidence and strengthen the resilience of the banking sector. With concerns mounting over the stability of Nigeria’s financial system, stakeholders are urging for proactive measures to address vulnerabilities and enhance consumer protection.