FSDH Expects Firms to Issue More Commercial Papers

• FSDH Expects Firms to Issue More Commercial Papers

Financial analysts at FSDH Research, an arm of FSDH Merchant Bank Limited, have said the issuance of commercial papers by firms in the country will increase in the second half of the year.

A commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities.

The analysts, in their latest monthly economic and financial market report, noted that the Monetary Policy Committee of the Central Bank of Nigeria maintained rates at the end of its July 2018 meeting, including the Monetary Policy Rate, also known as the benchmark interest rate, at 14 per cent.

They, however, said the MPC intended to deploy unconventional strategies to boost credit creation and economic growth.

“The MPC is encouraging large corporations to issue commercial papers, which may be bought by the CBN if necessary. FSDH Research believes this measure will increase the issuance of CPs in Nigeria in HY2 2018,” the Head of Research and Strategy, FSDH Merchant Bank, Mr Ayodele Akinwunmi, said.

He said the yields on the CP might also drop or trail the yields on the Nigerian Treasury Bills, adding, that the measure would reduce the finance cost for large corporates and increase their profitability.

The report noted that the CBN planned to implement measures to direct Cash Reserve Requirement funds to the manufacturing and agriculture sectors of the economy at nine per cent interest rate with a minimum tenure of seven years and moratorium period of two years.

It said, “Meanwhile, the data from the CBN show that net domestic credit decreased marginally by 0.57 per cent to N25.72tn in May 2018, from N25.86tn in December 2017. The net credit to the private sector shrank marginally by 0.37 per cent to N22.21tn during the same period.

“FSDH Research believes that these measures may increase credit creation and business expansion to stimulate growth. However, complementary fiscal measures are required to de-risk the economy.

The FSDH Research predicted a further drop in nation’s inflation rate to 11.01 per cent in July, adding that the prevailing crisis in the food-producing states in the country was putting an upward pressure on food prices.

“This is a major risk to the achievement of a single digit inflation rate in 2018,” the analysts said.

The FSDH Research said its analysis of the nation’s balance of payments position as of the first quarter of 2018 confirmed its view that the external position remained strong but vulnerable to developments in the crude oil and gas market.

It said, “The provisional BOP figures for Q1 2018 published by the CBN indicates that the overall BOP for Nigeria shows a surplus of $7.32bn in Q1 2018, an increase from a surplus of $2.98bn in Q1 2017. The overall BOP as a percentage of Gross Domestic Product grew to 7.85 per cent in Q1 2018 from 3.49 per cent in Q1 2017.”