Interbank Rates Rise as CBN Enforces Monetary Policy
Obinna Chima
The overnight tenor of the Nigerian Interbank Offered Rates (NIBOR) rose sharply to 27 per cent last Friday, from 10.25 per cent the preceding Friday as lenders scramble for funds to meet the Central Bank of Nigeria’s (CBN’s) cash reserve requirement (CRR).
The central bank, was expected to withdraw about N72 billion from commercial lenders to enforce its CRR, triggering a surge in demand for funds on the interbank market.
The development, according to analysts at Afrinvest West Africa Limited made money market and interbank rates to trend higher. This was also influenced by treasury bills Primary Market Auction (PMA).
The central bank requires commercial lenders to set aside 75 per cent of public sector and 15 per cent of private sector deposits in cash in their respective accounts with the regulator.
“Demand for funds was very high ... in anticipation of the CRR debit on Thursday,” Reuters quoted a dealer to have said.
Traders said the liquidity shortage was compounded by lack of cash flow to the banking system because there were no treasury bills maturing during the past week.
“We expect the market to be tight next week, while rates should hover around 25 per cent until central bank repays some matured Treasury bills,” another dealer said.
Meanwhile, the money market liquidity level opened the week higher last Tuesday (after Easter Monday holiday) relative to the preceding week, as opening balance of banks and discount houses rose to N220 billion on Tuesday while Net Standing Lending Facility (SLF) accessed from the CBN by the deposit money banks (DMBs) reduced to zero.
Liquidity remained robust all week with opening balances averaging N197 billion between Tuesday and Thursday, relative to the preceding week’s average of N172.1 billion.
The Open Buy Back (OBB) and NIBOR (average) rates rose successively from 12.7 per cent and 14.7 per cent on Tuesday to close at 27.2 per cent and 19.3 per cent respectively on Friday when the PMA auction was held and CRR debiting conducted.
In addition, N183.7 billion treasury bills instrument matured into the system last Thursday, but a commensurate amount was re-issued by the CBN via the 91 days (N20.2 billion), 182 days (N43.5 billion) and 1-year (N120 billion) instruments. The 91 days, 182 days and 1 year T-bills were issued at equivalent yields of 10.5 per cent, 14.1 per cent and 14.2 per cent.
With no treasury bills maturity expected this week and a Debt Management Office auction of N70 billion, analysts anticipate liquidity to tighten this week, hence there would be pressure on rates. Forex Market
The demand for the greenback witnessed a significant decline as speculators who were hoarding the naira ahead of unforeseen postelections unrest resolved to further loosen their grasp and continued to trade dollars for the naira.
To this end, the naira at the interbank market closed at N199.13/$1, having depreciated last Thursday by 1 kobo to close at N199.12/$1. At the parallel market, the dollar exchanged below N200/$1 after the Easter Holiday till date.
But the external reserves declined by over $177 million, representing a year to date loss of 14.1 per cent as it closed at $29.6 billion. Bond Market Review and Outlook
Following the moderation in the yield environment last week post-presidential election result announcement, a subtle surge in yields across instruments characterised trading during the week. In the four trading sessions of the week, while further moderation occurred on Tuesday as average yield settled at 13.9 per cent (compared to the previous week’s close of 14.1%), systematic rise in yields branded the remaining trading days of the week. Instruments across tenors particularly towards the short end of the bond yield curve experienced profit taking as prices generally declined. At the medium and long end of the curve however, there were mixed bags of profit taking and bargain hunting. Chronic Bank Debtors
In an effort to forestall another build-up of non-performing loans (NPLs) in the banking industry, the Central Bank of Nigeria (CBN) and deposit money banks (DMBs) in the country last week disclosed plans to publish names of new bank debtors. In addition, the central bank said it might be compelled to stop such loan defaulters from accessing forex through the interbank market. The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, who disclosed this while briefing journalists at the end of the 321st Bankers’ Committee meeting in Lagos, said the names of those she described as “chronic debtors” would be published alongside the companies they represent, their directors, subsidiaries and other associates.
Martins who declined to give a specific date or period when the names would be published as well as the total amount owed by the debtors, said banks are currently compiling the names. She said that the decision was aimed at preventing another banking crisis.
The central bank director explained: “The CBN has managed to keep the banking industry safe and sound in collaboration with all members of the Bankers’ Committee. But some data shows that it is increasingly becoming difficult for some debtors to pay up their loans. So it was decided that going forward, one thing that we may do is to stop them from getting access to foreign exchange.
“Another thing that we also considered going forward is to publish the names of the borrowers that refuse to pay up. This is to ensure the continuous safety and soundness of the banking industry.”