CBN denies banning individuals, small firms from T-bills

…investors shun short-term OMO bills in apex bank’s N300bn offer

The Central Bank of Nigeria (CBN) on Thursday denied reports that it has given a directive to banks and other financial insti

tutions to stop the sale of treasury bills to individuals and small businesses with effect from November 29.

“People don’t understand the difference between Open Market Operation (OMO) and Treasury Bills,” Isaac Okorafor, director, corporate communications department of the CBN, told Businessday over the phone.

An online report, quoting “some bank officials”, had on Thursday said only big corporate organisations would be allowed to do treasury bills investments from November 29 and that banks were already notifying their customers of the new directive.

But Okorafor said the only circular issued by the CBN was for OMO and not treasury bills.

The CBN had in a circular dated October 23, 2019 directed deposit money banks to exclude individuals and domestic corporates from participating in its Open Market Operations.

In a statement on its Twitter handle on Thursday titled ‘Differences Between CBN OMO Bills and the Nigerian Treasury Bills’, the CBN explained that it issues Nigerian Treasury Bills “on behalf of Debt Management Office on behalf of the Federal Government”.

Industry analysts say if the CBN stops individuals and small businesses from buying treasury bills, it would have both positive and negative impacts on the economy.

An operator said that the inaccessibility of treasury bills might lead to an increase in savings deposits of the banks, attracting interest rates below what the treasury bills offered.

“Fixed deposit rates will definitely head southwards as individuals try to lock in their funds in other alternatives. This implies cost of funds for banks would decline,” Ayorinde Akinloye, research analyst at Lagosbased CSL, said.

He said boutique stockbroking houses would benefit significantly from the move because individuals who can’t afford to give money to banks at 2-4 percent interest rates would consider investing in T-bills via some of these stockbroking houses who can buy from banks and big corporates depending on volume and size.

“Also, alternatives like bonds etc. would see some bullish sentiments as HNIS attempt to cherry-pick the best available yields,” Akinloye said.

According to another industry analyst who asked not to be identified, the stock market may also be a big beneficiary of this move, “but that is probably going to happen in 2020 as a ‘forced rally’”.

The CBN on Thursday issued N300 billion via OMO but sold a total of N232.45 billion for the three tenor instruments.

The N20 billion offered for 89-day tenor which is expected to mature February 4, 2020 recorded no sales, no subscription, and no stop rate.

Johnson Chukwu, managing director, Cowry Asset Management Limited, and Ayodeji Ebo, managing director, Afrinvest Securities Limited, said investors are locking in on longer-tenor instruments anticipating that rates will come down.

Chukwu further explained that investors are doing so to avoid real investment risks associated with short-term bills.

He also said system liquidity is tight as most of the investments are coming from Foreign Portfolio Investors (FPIS) who are looking for longer-term related instruments.

For 180-day tenor instrument, the CBN offered N30 billion at a stop rate of 11.69 percent, which investors demanded. The OMO bill, which matures on May 5, 2020, recorded only N8 billion subscription/total sales.

The CBN offered N250 billion for 362-day tenor and sold a total of N224.45 billion subscribed by investors at a stop rate of 13.30 percent. Investors earlier demanded a bid range of between 13.24 percent and 13.30 percent for an offer which matures November 3, 2020.