19082019 - Nigeria to spend N2.53bn on 43 ministers

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20 — Vanguard, MONDAY, AUGUST 19, 2019 FINANCIAL VANGUARD Banks’ borrowings from CBN <strong>to</strong> hit N23tr by year end COVER Continued from page 19 paid by the banks also shot up by 86 percent <strong>to</strong> N7.32 billion during the five months period ending May 2019, from N3.94 trillion in the corresponding period of 2018. The CBN monthly economic reports also showed that banks’ deposit placement with the CBN through its Standing Deposit Facility (SDF) dropped by 31 percent <strong>to</strong> N5.59 trillion during the period under review from N8.1 trillion in the corresponding period of 2018, while the interest earned by banks rose slightly by N2.85 billion from N2.69 billion in the corresponding period of 2018. The above trend is expected <strong>to</strong> persist till the end of the year driven by two fac<strong>to</strong>rs, namely, the recent reduction in the remunerable limit on banks’ deposit placement through the SDF, and scarcity of funds in the interbank money market, due <strong>to</strong> increased liquidity mop up by the CBN. The mop up, Financial Vanguard learnt, became compelling <strong>to</strong> address increasing pressure on the Naira due <strong>to</strong> sharp decline in foreign portfolio investment (FPI) inflows and increased dollar demand on the CBN. Pressure on the Naira F i n a n c i a l Vanguard analysis showed that the Naira lost 0.7 percent or N2.87 against the dollar between July 1 and August 9 in the I&E window, where the indicative exchange rate rose <strong>to</strong> N363.57 per dollar on August 9 from N360.57 per dollar on July 1. This is in sharp contrast <strong>to</strong> the relative stability of the currency in the first half of the year (H1’19) when the indicative exchange rate for the I&E hovered between N360 per dollar and N361 per dollar. F i n a n c i a l Vanguard analysis shows that FPI inflow in the I&E dropped by 28 percent <strong>to</strong> $780 million in July, the lowest since December 2018. The figure was $1.09 billion in June 2019. The $780 million FPI inflow for July represented 60 percent decline when compared with average monthly inflow of $1.94 billion in H1’19. This development forced the CBN <strong>to</strong> intervene in the I&E window for the first time since April this year, injecting $540 million. Furthermore, the apex bank •Godwin Emefiele, CBN Governor increased liquidity mop up in the interbank money market by 36 percent, as it sold N739 billion worth of secondary market Treasury Bills, TBs, (Open Market Operations, OMO) in July, up from N476 billion sold in June. This action resulted <strong>to</strong> net outflow of N438 billion through OMO bills from the interbank money market in July, up from net outflow of N4 billion in June. Analysts’ comments Financial analysts have been busy tracking these developments recently. According <strong>to</strong> Nnamdi Olisaeloka, a Fixed Income Analysts with Lagos based The trend of higher SDF may not continue because of the huge liquidity in excess of N9.6trillion that is coming <strong>to</strong> the interbank market from August <strong>to</strong> December 2019 in form of maturities of government securities investment firm, Zedcrest Capital Limited, the development will be repeated in the remaining period of 2019, especially in the face of N9.6 trillion worth of TBs which will mature between August and December this year, hence increased borrowing by banks from the apex bank. He said: “We expect the trend of higher SLF figures <strong>to</strong> persist in the remaining months of 2019, as the CBN is expected <strong>to</strong> increase its spate of Open Market Operations (OMO) issuance and foreign exchange interventions in the interbank market, <strong>to</strong> combat the higher OMO maturity profile in September <strong>to</strong> December 2019 and <strong>to</strong> sustain the stability of the naira, given the recent pressures from capital flow reversals by offshore inves<strong>to</strong>rs. Banking system liquidity Also the CBN policy on sterilizing excess funds of banks operating below its 60 percent Loan <strong>to</strong> Deposit (LDR) benchmark ratio, would also impact on banking system liquidity and could pressure the SLF volumes higher.” However, Ayo Akinwunmi, Head of Research, FSDH Merchant Bank, though attributed the sharp increase in SLF <strong>to</strong> increase in banks’ lending <strong>to</strong> the economy, argued that the trend might not persist in the remaining part of the year. He said: “I am aware that banks are expanding lending <strong>to</strong> the real sec<strong>to</strong>r of the economy and they are mobilising fund from various sources, including borrowing money from the Central Bank of <strong>Nigeria</strong>, <strong>to</strong> meet the increasing lending requirements. “The trend of higher SDF may not continue because of the huge liquidity in excess of N9.6 trillion that is coming <strong>to</strong> the inter-bank market from August <strong>to</strong> December 2019 in form of maturities of government securities.” Both analysts, however, agree that the sharp decline in SDF will persist for the remaining part of the year due <strong>to</strong> the decision of the CBN <strong>to</strong> reduced the remunerable limit on banks’ deposit placement through the SDF <strong>to</strong> N2 billion per day from N7 billion per day. According <strong>to</strong> Olisaeloka, “The SDF figure is expected <strong>to</strong> sustain a decline as banks would prefer <strong>to</strong> invest their surplus funds in short term treasury bills, given the decline in the remunerable SDF amount <strong>to</strong> N2 billion per institution.” Akinwunmi on his part said: “Since the amount that will qualify for interest rate at the Standing Deposit Facility has dropped from N7. 5 billion <strong>to</strong> N2 billion in the face of an increase in minimum loan <strong>to</strong> deposit ratio, less fund will be available for SDF. This is because banks are now required <strong>to</strong> channel more fund <strong>to</strong> lending than before, <strong>to</strong> stimulate economic growth in <strong>Nigeria</strong>.”
Vanguard, MONDAY, AUGUST 19, 2019 — 21 FINANCIAL VANGUARD Offshore inves<strong>to</strong>rs <strong>to</strong> sustain dumping of fixed income assets Continues on page 20 volatile energy prices will increasingly weigh on inves<strong>to</strong>rs’ sentiment with regards <strong>to</strong> the federal government’s ability <strong>to</strong> generate sufficient fiscal revenues. As such, we foresee a mixed session with a bearish tilt at the start of next week.” DMO <strong>to</strong> offer N145bn bond Meanwhile the DMO will this week conduct its monthly bond auction by offering N145 billion worth of FGN Bond. The auction comprise N40 billion worth of 5-year bonds, N50 billion worth of 10-year bonds and N55 billion worth of 30-year bonds. Analysts at Lagos based Cowry Asset Management Limited projected that the outcome of the auction will be influenced by inves<strong>to</strong>rs’ quest for yields higher than the inflation rate of 11.08 percent. “We expect the bonds <strong>to</strong> be issued at higher s<strong>to</strong>p rates as inves<strong>to</strong>rs’ demand for positive real returns on fixed income assets intensify amid declining crude oil prices,” they said. This expectation follows results of the treasury bills auctions conducted by the CBN last week where the apex bank bowed <strong>to</strong> inves<strong>to</strong>rs demand for higher rates, by raising the s<strong>to</strong>p rates on the 182-Days and the 364-Days bills offered in the primary market <strong>to</strong> 11.35 percent and 12 percent from 10.60 percent and 11.18 percent respectively from the previous auction. Also due <strong>to</strong> strong appetite for higher yields, inves<strong>to</strong>rs shunned the short dated TBs offered by the CBN in the secondary market auction conducted on Thursday. As a result, the 20 billion worth of 84-Days OMO bills offered by the CBN recorded N5.9 billion subscription, while the N30 billion worth of 175-Days OMO bills on offer recorded subscription of N3.7 billion indicating undersubscription of 70 percent and 87 percent respectively for the two instruments. However, the N100 billion worth of 364-Days bills recorded over subscription of 6.3 percent as <strong>to</strong>tal subscription s<strong>to</strong>od at N106.3 billion. External reserve drops On the foreign exchange scene, the nation’s external reserve fell by $478 million in the first two weeks of August, thus maintaining the downward trend, which commenced in July. Data from the CBN showed that the external reserve fell <strong>to</strong> $44.425 billion on August 15th, from $44.903 billion on July 31st. Driven by sharp decline in dollar supply from offshore inves<strong>to</strong>rs as well as increased dollar sales by the CBN <strong>to</strong> meet increased demand by offshore inves<strong>to</strong>rs exiting the nation’s fixed income, the reserves have been on a downward trend since July 5thwhen it peaked at $45.149 billion, following six months steady rise which commenced on February 28th, 2019. Naira stable However, Naira was relatively stable in the I&E window and in the parallel market last week. In the I&E window, the naira appreciated marginally by two kobo last week, the first time since July, as the indicative exchange rate for the window fell slightly <strong>to</strong> N363.42 per dollar last week from N363.44 per dollar the previous week. But the naira depreciated by 10 kobo in the parallel market as the exchange rate for the market rose <strong>to</strong> N358.3 per dollar last week from N358.2 per dollar the previous week.
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19082019 - Nigeria to spend N2.53bn on 43 ministers

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