Banks’ Profit to Suffer as CBN Bars Lenders from Bills’ Market

  • Banks’ Profit to Suffer as CBN Bars Lenders from Bills’ Market

In a bid to further compel lenders to increase credit facility to the private sector, the Central Bank of Nigeria has barred Nigerian banks from buying treasury bills for their own accounts at an open market auction.

The new move, expected by experts as reported by Investors King on Monday, was officially announced on Thursday. Making it the third directive aimed at forcing lenders to play their main role of lending and supporting businesses.

Last week, the apex bank cut the size of banks’ Standing Deposit Facility to N2 billion after announcing a 60 percent Loan-to-deposit ratio the previous week.

While experts have said the new measures will hurt banks’ profitability and open them up to more risk through high bad loans given current economic headwinds, it will also help stimulate growth and boost new job creation in a period when the unemployment rate is 23.1 percent or 20.9 million.

Again, because foreign investors are likely to abandon Nigerian assets for less risky regions with a better growth rate, stimulating growth from within through job creation and improved government spending is the only key to economic growth.

Despite the measures, CBN received N475 billion bid for N75 billion bills offered on Thursday. One year bills were sold at 12.25 percent.

The auction was aimed at non-bank investors, according to a trader, saying the central bank is now looking to sell bills directly to foreign investors to support the local currency.

Banking stocks continued to drop this month and expected to dip even further going forward as more investors are expected to dump their stocks amid a widely predicted fall in profitability.

Nigerian Stock Exchange year-to-date loss rose slightly above 11 percent on Thursday, another indication of weak sentiment and investors playing wait and see approach without a national economic team.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

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