N241bn outflow via Sukuk Bond raises Uncertainty as TB auctions hit interbank market

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LAGOS, SEPTEMBER 18, 2017 – Nigeria’s interbank money market will this week experience outflow of N241 billion through treasury bills (TBs) and FGN Sukuk Bond auctions, prompting uncertainty over the direction of movement in cost of funds.

Last week, cost of funds trended downwards with average short term interest rate falling by 183 basis points (bpts), prompted by inflow of N333 billion from payment of matured TBs.

Data from Financial Market Dealers Quote (FMDQ) showed that interest rate on Collateralised lending (Open Buy Back, OBB) fell by 1780 bpts to 11.33 per cent last week from 29.17 per cent the previous week.

Similarly, interest rate on Overnight lending dropped by 1870 bpts to 12.17 per cent last week from 30.92 per cent the previous week.

Also reflecting the impact of the inflows on market liquidity, treasury bills recorded 16 per cent over-subscription last week. Financial Vanguard analysis showed that the Central Bank of Nigeria (CBN) offered N395 billion worth of bills while public subscription stood at N460 billion. The apex bank however sold bills worth N247 billion.

In the secondary market, where existing bills are re-issued, the apex bank offered bills worth N220 billion while public subscription and amount sold stood at N73 billion. In the primary market, where fresh bills are issued, the CBN offered bills worth N175 billion while public subscription and amount sold stood at N387 billion and N174 billion respectively.

This week the Debt Management Office (DMO) will conclude auction of the first FGN Sukuk Bond worth N100 billion.

The Sukuk is an investment certificate that represents ownership interest of the holder in an asset or pool of assets. The certificate entitles the owner to receive income from the use of the assets. According to the DMO, the bond is issued by FGN Roads Sukuk

Company 1 Plc on behalf of the Federal Government of Nigeria and the proceeds of will be used solely for the construction and rehabilitation of key roads across the six geopolitical zones of the country.

In addition to the Sukuk, the CBN will conduct treasury bills auction worth N141 billion comprising 91-day bills worth N28.12 billion, 182-day bills worth N23.68 billion and 364-day bills worth N89.08 billion.

While the impact of these outflows are expected to be moderated by inflows of N141 billion from payment of maturing bills, there is however uncertainty on how they will impact movement in cost of funds.

Analysts’ projections

In their projections for the week, analysts at Lagos based Afrinvest, stated: “In the coming week, despite the OMO maturity of N140.9 billion expected to hit the system, we expect money market rates to remain at current levels as the apex bank continues with its frequent OMO mop ups.”

Analysts at Lagos based Cowry Assets Management Plc however projected upward movement in cost of funds. They stated: “This week, there will be maturing treasury bills worth N140.88 billion. This will be offset by treasury bills auctions of the same values and tenors. Hence, at the interbank market, we expect financial system liquidity strain with resultant increase in interbank rates.”

Naira depreciates as NAFEX records $703m

The naira last week depreciated against the dollar in the parallel market and in the Investors and Exchange (I&E) window.

Financial Vanguard survey showed that the parallel market exchange rate rose to N369 per dollar last week from N365 per dollar the previous week. This translated to N4 depreciation for the naira. It also represents the largest weekly depreciation of the naira in the parallel market in the last six weeks.

Similarly, data from FMDQ showed that the naira depreciated by N1.86 in the I&E window last week as the indicative exchange rate rose to N360.36 last week from N358.5 per dollar the previous week.

Furthermore, the volume of dollars traded in the market dropped marginally to $703.14 million last week from $705.08 million the previous week.

Meanwhile the CBN sustained its intervention in the foreign exchange market as it injected $250 million into the interbank market.

In a statement announcing the intervention, Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said: “The wholesale sector was offered the sum of $100 million, just as the Small and Medium Enterprises (SMEs) window received a boost of $80 million. Those requiring foreign exchange to address needs such as Business/Personal Travel Allowances, school tuition, medicals, etc. were allotted the total sum of $70 million.”

External reserves hit 31months high of $33bn

In another development, the CBN announced that the nation’s external reserves have risen to $33 billion, the highest in 31 months.

Okorafor disclosed this to journalists in Awka, Anambra State, during a seminar organized by the apex bank for finance correspondents and business editors.

He stated: “In confirmation of the assurance of the CBN Governor, Mr. Godwin Emefiele that the economic situation will continue to improve, I want to inform you that the nation’s external reserve has today risen to $33 billion.”

Sunday Vanguard investigation revealed that this represents the highest level of external reserves since January 2015, 31 months ago, when the reserve fell from to $32.36 billion from $34.24 billion in December 2014.

From January 2015, the external reserves declined steadily to $23.89 billion on October 19th 2016. Further analysis revealed that from October 19th 2016, the reserve commenced a bumpy but steady upward trend, rising by $9.11 billion or 38 per cent to $33 billion yesterday. Also the reserve has risen by $7.19 billion or 28 per cent since the beginning of 2017.

DCSL 90X780

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