Economic Weekly 02nd April 2013 - Access Bank

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Economic Weekly 02nd April 2013 - Access Bank

VOLUME 3 NO 12 April 02, 2013

Plot 999C Danmole street, Victoria Island Lagos,


VOLUME 3 NO 12 April 02, 2013

CBN Extends Deadline for MFBs, Mortgage Institutions

NEXIM Bank to Execute $60m Regional Sea-link Project.

Update on Commodity Market

Ivory Coast: IMF ups Ivory Coast 2013 growth forecast to 8%

Burundi: Inflation Quickens to Near Double Digits in February

U.K: UK Banks Facing Capital Shortfall of £25 Billion, BoE Says

U.S: U.S. Durable Goods Orders Jump 5.7% amid Surge in Aircraft Demand

China: China and Brazil sign $30bn currency swap agreement

Catch-up effect


VOLUME 3 NO 12 April 02, 2013

CBN Extends Deadline for MFBs,

Mortgage Institutions

The Central Bank of Nigeria extended the deadline for compliance with the revised policy

on regulation and supervisory framework for Microfinance Banks (MFBs) to December

31, 2013. The deadline was initially set at December 31, 2012. The revision allows MFBs

more time to raise capital or decide on the business combination options towards

meeting the capital requirements for each category of MFB. Contained in the revised

framework is capital requirement of N20 million for a unit Microfinance Bank authorized

to operate in only one location. For a State Microfinance Bank authorized to operate in

one State or the Federal Capital Territory (FCT) the capital requirement shall be a

minimum paid-up capital of N100 million while National Microfinance Bank authorized

to operate in more than one State including the FCT will have a minimum paid-up capital

of N2 billion. MFBs are advised to conclude the processes of exercising options to meet

the new capital requirement before the new deadline in order to allow sufficient time for

capital verification and necessary regulatory approvals.


VOLUME 3 NO 12 April 02, 2013

NEXIM Bank to Execute $60m

Regional Sea-link Project.

The Nigerian Export Import (NEXIM) Bank plans to execute a $60 million Regional Sealink

Project for West and Central Africa. The purpose of the Sea-link project is to foster

indigenous participation in the maritime sector. Also, it is expected to help facilitate

intra-regional trade by supporting export diversification and deepening value added to

non-oil exports. The project is expected to become profitable in the third year of

commercial operations. The proposed regional sea-link project has been endorsed by

the ECOWAS Commission with the regional body funding the project's Investors Forum.

The scheme is also to cut across West and Central Africa ameliorating road transport

infrastructure challenges that have slowed African and ECOWAS trade levels by 20%.


VOLUME 3 NO 12 March 25, 2013

Market Analysis

The Stock Market

Performance indicator at the exchange closed on an impressive note for the 4-day

trading period ended March 28, 2013. The last week in Q1 2013 was a bright one for

stocks, supported by increased investor demand as sentiments stayed positive. The

Nigeria Stock Exchange All Share Index (NSE ASI) closed higher by 0.09% at 33,536.24

points while market capitalization gained N11.32billion and finished at N10.73 trillion.

Encouraging financial scorecards released by some blue-chip companies boosted stock

demand and prices. Equities are expected to continue along the upward trajectory on

recent initiatives introduced to sustain interest in the market. The Asset Management

Corporation of Nigeria (AMCON) is set to make some of its shares in banks (for which it

presently manages) available for NSE securities lending. Further upswing is envisaged

this week, as investors opt to lock-in on stocks believed to have strong market

fundamental.

1

Source: NSE & Access Economic Intelligence

Source: NSE & Access Economic Intelligence

Chart 3: Stock Market Trend

Source: NSE & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

Market Analysis contd

FGN Securities

Increased activities at various maturity buckets in the bond market saw average bond

yields moderated downwards for the week ended March 28, 2013. The decline in

average yields, more at the shorter tenor instruments was driven mainly by strong

demand for government securities amid a relatively liquid money market. Increased

investors' appetite for government securities as they sought for low risk assets also

supported the observed trend. The Access Bank Government Bond Index recorded a

further uptrend of 0.54% to close the week at 1,847.00 points. We expect this trend to

continue on more robust demand this week, especially at the shorter end of the yield

curve.

Chart 4: Sovereign Bond Yield

Source: NSE & Access Economic Intelligence

NIBOR

Last week, lending rates at the money market declined across maturities on relatively

high liquidity levels. CBN Treasury bill sales of about N216 billion did little to affect

systemic liquidity position. The market opened with about N503 billion, but closed the

week ended March 28, 2013 with a surplus of about N585 billion. Liquidity boosters

from maturing T-bills amounted to N433 billion but systemic ejections came from T-bill

auctions (N90 billion PMA) and wDAS FX purchases (N93.45 billion). Open Buy Back

(OBB) and overnight rates dropped to 10.15% and 10.25% from 10.25% and 10.75%,

in that order. 90-day inter-bank lending rate also pared 0.83 percentage points to

11.50% compared to last week figure. This week, anticipated outflows include about

N50 billion at wDAS and over N100 billion in T-bills Primary Market Auction (PMA). With

the market still relatively liquid and projected inflows of over N240 billion in maturing T-

bills, rates may slightly stay southwards.

Chart 5:NIBOR

Source: FDHL & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

Market Analysis contd

Chart 6:NIBOR Trend

Source: FDHL & Access Economic Intelligence

Average Deposit and

Lending Rates

Average deposit and lending rates remained stable across all tenors for the week ended

March 28, 2013. The stability in rates can be attributed to the relative ease observed in

market liquidity. This week, we do not anticipate any noticeable change in deposit and

lending rates. Consequently, rates are expected to remain broadly unchanged.

Chart 7:Deposit and Lending Rates

Source: FMDA & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

Market Analysis contd

Foreign Exchange Market

As market closure for the Easter Holiday, the Naira strengthened against the US dollar

at the CBN window gaining 1 kobo to close at N155.75/US$. Interbank FX rate lost 35

kobo to finish at N158.55/US$, even though month end dollar sales by oil majors

temporarily helped Naira fortunes during the week. BDC and parallel FX rates did not

change from levels recorded a week earlier. At the bi-weekly auction, the apex bank

sold $576.6 million. This week, the Naira should appreciate in anticipation for more

dollar sales from oil companies.

Chart 8:N/$ Trend

Source: CBN, FMDA & Access Economic Intelligence

Chart 9:Naira Exchange Rates

Source: CBN, FMDA & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

Ivory Coast

IMF ups Ivory Coast 2013 growth forecast to 8%

The International Monetary Fund (IMF) revised upward Ivory Coast economic growth to

8% in 2013 from previous forecast of 7% on signs of improving economic outlook. Years

of political turmoil impeded growth in the French-speaking West African nation. GDP

growth for 2012 was pegged at 9.8% as against previous estimate of 8.6%. Reforms

embarked on by the government, pushing for heavy investment to revamp crumbling

infrastructure boosted optimism. Ivory Coast defaulted on a 2032 Eurobond in early

2011. It has however, resume payment of coupon after receiving over $4 billion in debt

relief under the IMF-World Bank Heavily Indebted Poor Country (HIPC) scheme. Ivory

Coast has since announced plans to issue $1.2 billion worth of domestic debt in 2013.


VOLUME 3 NO 12 April 02, 2013

Update on Commodity Market

Most commodity prices traded up for the week ended March 28, 2013. Crude oil prices

closed at $106.60 per barrel, gaining 0.86% while natural gas prices rose by 1.66% to

close at $4.05 per million british thermal units (mbtu) due to increased demand. The

increase in oil prices was largely driven by higher demand for heating oil, while rising

crude oil stockpiles in the U.S. and stronger dollar limited gains. Gold and silver prices

added 0.92% and 0.10% to finish at $1,605.85 per ounce and $28.64, respectively. The

recent news on Cyprus bailout plan, which is unlikely to satisfy EU and IMF officials may

have contributed to the rally of safe haven investments and also dragged down the Euro.

This week, the ongoing bearish sentiment towards the Euro may continue. This may

likely boost the appeal for the precious metal as a store of value. Crude oil prices may

further trend northward on increasing demand – winter effect.


VOLUME 3 NO 12 April 02, 2013

U.K

UK Banks Facing Capital Shortfall of £25 Billion, BoE Says

In the United Kingdom, lenders will have to raise £25 billion in extra capital by end-2013

to absorb potential loss from exposure to high-risk loan portfolios, a report released by

the Bank of England (BoE) show. The capital deficit is a child of growing exposure of UK

Banks to the sovereign debt crisis in the Eurozone, the property market and other

financial risks. Growth in Europe's third largest economy was revised downward to 0.6%

in 2013 from previously estimated 1.2%, due to lingering sovereign debt crisis in the

euro area – the country's main export destination. The outlook for 2014 was also

lowered to 1.8% from 2%. Meanwhile, growth is seen expanding 2.3% in 2015, 2.7% in

2016 and 2.8% in 2017, in that order.

U.S

U.S

U.S. Durable Goods Orders Jump 5.7% amid Surge in Aircraft Demand

New orders for manufactured durable goods in U.S. rose to 5.7% in February 2013 from

a 3.8% decline recorded in the previous month. The bigger than expected increase in

durable goods orders was largely due to a 21.7% jump in orders for transportation

equipment. This comes on the heels of a 17.8% drop in January. Also, orders for

commercial aircraft and parts soared by 95.3% after falling 24% the month before. The

encouraging data from the manufacturing sector is a boost to the slow U.S economic

growth and may quicken the pace of global recovery. The U.S. economy is projected to

expand by 2% in 2013. The world's largest economy contributed about 22% to world

output in 2012.

China

China and Brazil sign $30bn currency swap agreement

China and Brazil have signed a currency swap deal to ensure smooth bilateral trade and

guard against upshot of future global financial crises. The pact allows the central banks

of both economies to swap local currencies worth of $30 billion (190 billion Yuan or 60

billion Reals). Aside being the world's second-largest economy, Beijing is also Brasília

biggest trading partner. Trade relations between economies (China & Brazil) have grown

robustly over the past few years, with volumes rising to about $75 billion in 2012 from

$6.7 billion recorded in 2003. It is hoped that, the swap agreement would ensure

increasing trade volumes between nations is sustained, even as financial crisis in the

future hurt global liquidity.


VOLUME 3 NO 12 April 02, 2013

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Chart 10: External Reserves & Crude Oil (Bonny Light) Price

Source: CBN, EIA & Access Economic Intelligence

Chart 11:Average NIBOR

Source: FDHL& Access Economic Intelligence

Chart 12:Average Deposit Rates

Source: FDHL & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

14

Chart 13:Average Prime Lending Rate

Source: FDHL & Access Economic Intelligence

Chart 14: Trends in MPR, Inflation and NIBOR Call

Source: NBS & Access Economic Intelligence

Chart 15: GDP Growth Rate

Source: NBS & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

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Chart 16: Inflation Rate

Source: NBS & Access Economic Intelligence


VOLUME 3 NO 12 April 02, 2013

16

Catch-up effect

In financial economics, the term “catch-up-effect” explains states that poorer

economies' per capita incomes will tend to grow faster than richer

economies. As a result, the national income of poor countries usually

catches up with that of rich nations. Developing countries have the potential

to grow at a faster rate than developed countries as return on capital is

usually stronger in poor countries. Increasing the amount of capital by only a

small amount can produce huge gains in productivity. Furthermore, new

technology may even allow developing countries to leap-frog over

industrialised countries with older technology. This, at least, is the traditional

economic theory.

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