Financial analysts have predicted a stable capital market condition this week as a result of the decisions of the Monetary Policy Committee of the Central Bank of Nigeria last week.
Yields in the fixed income market are expected to see little or no deviations, while the equities market is expected to remain pressured as has been the case for the period.
“Bearing in mind the decision arrived at by the MPC, we predict yields to hover around the current levels in the short to medium-term. Also, we expect that given the prior direction of investors towards the fixed income market, the equities market may remain pressured,” analysts at Meristem Securities Limited said in the firm’s weekend report.
The analysts also believe that the prevailing high lending rate may discourage loan writing as banks increase participation in the fixed income market.
The Nigerian equities market’s All-Share Index appreciated on three out of the five trading days of last week, accumulating gains of 1.4 per cent week-on-week to push the year-to-date return to -1.38 per cent. Thirty-three stocks appreciated in value as against 26 decliners during the week.
The volume and value of transactions advanced by 608.16 per cent and 205.79 per cent week-on-week, respectively, as a result of a combination of reduced number of trading days in the prior week (two-day public holiday), and an extraordinary trade on Great Nigerian Insurance Plc (2.87 billion shares).
The fixed income market opened the week bullish amidst strong offshore demand as investors geared up for the MPC meeting. After the committee’s decision to keep rates unchanged, the fixed income market turned mixed as yields advanced in the Treasury bills segment on the back of liquidity outflow. However, the market closed the week on a bearish note following further liquidity tightening via Open Market Operation auctions. Overall, yields in the T-bills segment advanced by 37 basis points, while yields in the bond market declined 15 basis points.
The banking sector closed negative for the third successive week, declining by -0.91 per cent week-on-week to peg the year-to-date return at 12.41 per cent. There were 11 gainers, while only two stocks declined in value.
The Meristem analysts noted, “The week-on-week loss may be attributed to the loss recorded on Guaranty Trust Bank Plc. Although, we expect mixed investors’ sentiments this week, we anticipate that the index could record slight gains.
“We attribute the weak consumer goods sector performance to profit-taking activities on counters that witnessed rallies in previous weeks. In the absence of any news to sway market movement, we expect this current trend to subsist this week.
“The industrial goods sector’s performance was driven by continuous bargain- hunting activities on Cutix Plc and Dangote Cement Plc. Barring any news inflow this week, we expect some level of profit-taking on counters with accumulated gains over the past few weeks.”
Analysts at Vetiva Capital Management Limited, in the firm’s weekend report, said, “Notwithstanding the weekly positive return for the ASI, we note that sector performances were mixed across board amidst varied investor sentiments. We expect the mixed sentiment with a bullish bias to persist in the week ahead.
“For the fixed income market, this week, we expect the market to open on a cautious note as the market anticipates further liquidity mop up from the CBN.”
The naira was sold at the parallel market for 440 per dollar on Sunday, as the lingering foreign exchange scarcity increased to a new level.
The local currency, which closed at 436/dollar on Thursday, eased to 435 in the early hours of Friday. It closed at 439/dollar.
The naira had closed at 428 to the greenback on Wednesday, down from 424 on Tuesday, as lingering foreign exchange shortage weighed on the economy.
The latest declines in the naira value started on Wednesday, a day after the Central Bank of Nigeria’s Monetary Policy Committee retained the benchmark lending rate at 14 per cent.
The MPC had after its two-day bi-monthly meeting left the Monetary Policy Rate unchanged, rebuffing calls for rates cut by analysts, stakeholders and some government officials, including the Minister of Finance, Mrs. Kemi Adeosun.
However, economic and currency analysts have said the decline in the value of the local currency against the dollar has nothing to do with the MPC decision.
At the interbank market, the naira closed at 307.79 on Friday. It closed at 307.25, 311 and 312 on Tuesday, Wednesday and Thursday respectively, according to data posted on the FMDQ OTC platform.
“There is shortage of dollar supply. Diaspora remittances have dropped. This is why you can see the rate dropping at the parallel market,” an economic analyst and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said.
The development came amid depleting external reserves, which stood at $24.8bn last Monday.
The latest data posted on the CBN website showed that the foreign exchange reserves were down by 3.4 per cent from a month ago to its lowest level in more than 11 years, as the apex bank sells the greenback at the interbank market to support the naira.
Economic and currency analysts had said there had been no significant policy response to the fall in the reserves, further fuelling the concerns.
The Association of Bureau De Change Operators of Nigeria had said the naira would recover by Monday due to the introduction of Travelex, a licensed forex dealer.
Travelex, an international money transfer organisation, would begin to distribute forex to the BDC operators on Monday (today).
The President, ABCON, Alhaji Aminu Gwadabe, said the forex distribution would be efficient and uniform across ABCON members, unlike what was obtainable in the past.
According to him, Travelex has the technology to sell forex to about 1,000 BDCs in a couple of hours, which is a major advantage.
The Nigeria Stock Exchange closed flat on Wednesday after a 0.02 per cent gain. Market capitalisation rose marginally by N1bn to close at N9.691tn from N9.690tn recorded on Tuesday.
The All-Share Index also closed at 28,214.57 basis points from 28,209.93 basis points.
A total of 3.095 billion stocks valued at N6.24bn exchanged hands in 2,815 deals.
The highest index point attained in the course of trading was 28,214.57 basis points, while the lowest and average index points were 27,725.40 and 27,969.66 basis points respectively.
Conoil Plc, PZ Cussons Plc, Oando Plc, Wema Bank Plc and May and Baker Nigeria Plc emerged as the top five gainers. Conoil shares appreciated by N3.91 (10.11 per cent) to close at N42.60 from N38.69.
The share price of PZ Cussons appreciated by N0.90 (4.98 per cent) to close at N18.97 from 18.07, while that of Oando posted a N0.26 (4.87 per cent) gain to close at N5.60 from N5.34.
The shares of Wema Bank Plc closed at N0.65 from N0.62, appreciating by N0.03 (4.84 per cent), while May and Baker recorded a gain of N0.04 (4.30 per cent) on its share price to close at N0.97 from N0.93.
Other gainers were Cutix Plc, Cadbury Nigeria Plc, MRS Plc, Diamond Bank Plc, Stanbic IBTC Holdings Plc, Zenith Bank Plc, Continental Reinsurance Plc, Eterna Plc, Champion Breweries Plc, FBN Holdings Plc and Custodian and Allied Plc.
Total Nigeria Plc, African Prudential Registrars Plc, Union Bank of Nigeria Plc, United Bank of Africa Plc, Unilever Nigeria Plc and Nestle Nigeria Plc also emerged as gainers.
From the NSE data, 22 stocks recorded gains, while 13 stocks depreciated.
Leading the losers’ chart were Neimeth International Pharmaceutical Plc, Guinness Nigeria Plc, ETranzact International Plc, Paints and Coatings Manufacturers Nigeria Plc and Skye Bank Plc.
The shares of Neimeth depreciated by N0.10 (9.26 per cent) to close at N0.98 from N1.08, while the share price of Guinness plunged to N93 from N100, losing N7 (seven per cent).
An unprecedented increased demand for the shares of Conoil Plc has lifted the shares of company by 97 per cent following the impressive 2015 full year and 2016 half year results. Despite the economic headwinds that led to poor results by some companies, Conoil Plc posted a performance that beat market expectations.
In reaction to the impressive results, investors have raised their demand for the equity at the stock market, a development that has lifted the stock by a record 97 per cent within seven trading days.
The stock, which was N21.59 before the full year results were released on September 9, soared to close at N42.60 per share yesterday. Conoil Plc has led the price gainers’ table consistently since the announcement of the results.
“I am not surprised at the way the stock is rising given the better-than-expected performance despite the challenging operating environment. But I think profit taking may set in soon as some investors may want to lock part of the gains recorded by the stock,” a stockbroker, Mr. Ayo Oguntayo said.
Conoil Plc posted a profit before tax of N3.448 billion for the year ended December 31, 2015, up by 125 per cent fromN1.532 billion in 2014. The petroleum products marketing firm rode on the back of cost containment strategy to record a higher growth in profit after tax to N2.307 billion, which is 176 per cent above the N834 million in 2014.
As a result of the improved results, Conoil Plc proposed a dividend of N2.08 billion, translating to 300 kobo per share compared with the 100 kobo paid in 2014. The company followed the full year performance with similarly impressive results for the half year ended June 30, 2016. Conoil Plc grew its profit before tax by 196 per cent to N1.566 billion, from N548 million in 2015, while profit after tax rose by 190 per cent to N1.04 billion.
. “The result shows that we out-performed our previous year both in the top-line and should exceed our bottom-line performance at the current run-rate.
The impressive performance followed the company’s innovative means of manufacturing and distributing products, huge financial investments in developing high-performance products and in the provision of services that matched and surpassed international standards,” the company said.
Crude oil prices rose by two per cent yesterday after Venezuela reportedly hinted that the Organisation of Petroleum Exporting Countries (OPEC) and other major oil producers could agree to output cuts and as clashes in Libya disrupted the country’s attempts to boost crude exports.
While global benchmark, Brent crude futures were up 2.1 per cent, at $46.75 a barrel, the United States West Texas Intermediate (WTI) crude futures rose by 2.2 percent, to $44 per barrel.
Reuters reported that Brent had hit a two-week low last week and WTI fell to a five-week low on concerns about oversupply with more deliveries from Libya and Nigeria.
Clashes in Libya on Sunday, however, halted the loading of the first oil cargo from the port of Ras Lanuf as the state-run National Oil Corporation prepared to restart exports from the ports blockaded for several years.
Oil prices also rose after Venezuelan President Nicolas Maduro said on Sunday that OPEC and other major oil producers were close to reaching a deal on price stability that could be announced later this month.
OPEC and non-OPEC members are to meet on the sidelines of an industry conference in Algeria next week for talks on the potentially freezing oil production. OPEC members may call an extraordinary meeting to discuss oil prices if they reach consensus, OPEC Secretary-General Mohammed Barkindo said on Sunday.
OPEC’s all-important policy meeting is due in November. Analysts had persistently discounted the possibility that OPEC members such as Saudi Arabia, Iran, Nigeria and Libya would agree to production curbs as they ramped up output to protect market share.
But with the Algiers talks approaching, some opinions were shifting. During a visit to Algiers at the weekend, Barkindo had stated that OPEC members might call an extraordinary meeting to discuss oil prices if they reach consensus at an informal gathering in Algiers this month,
Barkindo said he was optimistic about the meeting in Algeria on Sept. 26-28 but added that the group is not seeking a definite price range for oil but stability for the market. He had previously hinted that discussions in Algiers would be consultations and no major decisions would be made during talks with OPEC and non-OPEC producers.
“The informal gathering was proposed as a move to having an extraordinary meeting with the aim of taking decisions to stabilise the market,” Barkindo said.
Algeria’s Energy Minister Noureddine Bouterfa last week said there was a consensus among OPEC and non-OPEC members about the need to stabilise the oil market, and has been pushing for a price around $50 to $60 a barrel.
“Algeria has a proposal for participants in the Algiers meeting. Consultations with our partners show there is a consensus around the need to stabilise the market. That is already a positive,” Bouterfa said.
Russia, Iran and other major oil producers are due to take part in the Algiers meeting. Meanwhile, militant group, Niger Delta Greenland Justice Mandate (NDGJM) on Sunday night claimed it has breached the Afiesere-Ekiugbo delivery line in Ughelli, Delta State operated by NPDC-Shoreline.
It claimed that its Opudo Strike Force attacked the pipeline on Sunday at about 11.30 p.m, maintaining that the group’s Operation Crocodile Tears was not slowing down. According to a statement signed by its Spokesperson, Aldo Agbalaja, the militant group said “the song will continue to play” and achieved its target until the Federal Government takes the proper steps.
“The Opudo strike force, at about 11:30 pm on Sunday, September 18, 2016, struck the Afiesere – Ekiugbo delivery line in Ughelli, operated by NPDC/Shoreline.
“The Operation Crocodile Tears is not slowing down, but determined to achieve target. Until the federal government takes the proper steps, this song will continue to play”, it said. THISDAY checks within the security circles confirmed that the trunkline was indeed breached and that efforts were on to apprehend the masterminds.
NDGJM emphasised that Operation Crocodile Smile was nothing but a scam, some jumbled job, sewn together to retire some recently embezzled military budget adding “were it a serious endeavour, as the entire military system has sought to bamboozle Nigerians and the entire world to believe, the half-baked operation would have at least been reaping marginal results, asides those wrong arrests, lacking in intelligence, that it had realised.
“This is to you, Gen Buratai, let your crocodile continue to smile, your time for reconning is at hand, probably by the time the smiley crocodile finally sinks, you will see its tears and blood. Under your nose, the very task of guarding oil assets (which we consider a waste of time, resources and a failure of priorities) will fail because you are both insincere and incompetent”, it stated.
NDGJM said its mandate was just starting, noting that the Army Chief would soon see what it has in stock for further destruction of oil facilities in the region.
It declared: “The Niger Delta Greenland Justice Mandate is just starting, you are yet to see what we are about, by the time the alpha operations are initiated, you will need more than these fighter jets to keep your troops safe in any part of the Niger Delta”.
The militant group warned oil companies not to place their trusts in the guns and fighter jets of the Nigerian armed forces, stressing that it was a reflection of their mindset towards the people of the region.
“To the oil and gas companies. We have observed that you have placed your trust in the guns and fighter jets of the Nigerian armed forces, our words for you are few: keep at it and wait for your rewards, which have almost come upon you.
“It is a reflection of your minds towards our people, you obviously don’t believe that the people of these part are undeserving of good lives. You hide behind the guns of the oppressors to pillage our lands and our people, leaving us despoiled and our lands raped. You do all manners of things you will dare not imagine in other parts of the world where you operate.
“Here you have failed all basic corporate social responsibilities, leaving the people to languish in lack and ruins. Continue with your insolence against our people, but we will vow to you today that we shall uproot every asset and facility you think you have secured with soldiers and their guns. SHORELINES, First Hydrocarbon, NPDC, Seplat, Total E&P, Shell, Agip, Saipem, Mobil and co wait for us, we are just coming out for you”, it added.
In the town of Bali there is a market, Yelwa, where yams are sold. The chief in Bali decides who can enter the market to buy or sell. In the beginning, the chief did not really care who came or went. Across the river in Bali is another yam market, Ebba, where the chief has no authority. In Ebba anyone can come to buy or sell. Since anyone in Bali can go to whichever market they like with ease, the price of yams in the two markets is about the same.
One Tuesday the chief in Bali decides, for reasons unknown, that all the descendants of Suntai can no longer come to Yelwa market to buy yams. The Suntai family is big in Bali making up about 20 percent of the population. The Suntais vent their anger at the rules but eventually decide that it is not worth the fight. They also have the option of crossing the river to Ebba market where the chief has no authority. And so they cross in their droves.
The people selling yams in Ebba market see the new crowd coming and say to themselves, “See crowd oooo. This yam we are selling no dey enough. We must increase price now and make money from these people.” At the same time the yam sellers in Yelwa look around their market and see a crowd that is not as big as it used to be. The Suntais have been banned and they used to be big customers. They say to themselves, “If we want this yam to sell today, we have to reduce the price. If not, nobody go buy am.” Suddenly yams in Yelwa are cheaper than in Ebba. The yam sellers in Yelwa are still loyal to their chief so they stick around and continue selling.
The next Thursday the chief in Bali again decides to ban the Wakils from Yelwa market. The Wakils, also a big family, complain but have already heard what happened to the Suntais. They decide not to bother about the ban and just go to Ebba market across the river. The people selling yam in Ebba market see an even bigger crowd coming to buy their yams. They rejoice again and increase the price again. “If all of you want this yam you must pay o. If you no wan pay give chance, another person dey your back wey go pay”. Meanwhile, at Yelwa market the crowd is even thinner. One of the yam sellers in Yelwa gets a call from his friend across the river. Yams are selling in Ebba for double the price. The seller decides that loyalty to the chief is not that important. “Na loyalty we go chop?” The seller packs up and carries his yams. “Where are you going?” other yam sellers ask. The seller says he is taking his yams to Ebba where people are paying double. Many other sellers follow suit.
On Sunday the chief of Bali is at it again. The chief decides to ban all the Lugujas from Yelwa market. The Lugujas do not bother debating. They just go across the river to Ebba. At this point the few yam sellers in Yelwa who were loyal to the chief get fed up. Almost all of them decide to carry their yams and go to Ebba to sell there. Even the few yam sellers who are afraid to cross the river instead decide to stay at home. The Yelwa market has become a barren wasteland. The only person left selling yams is the chief’s cousin who is selling yams from the chief’s own farm. The chief finally notices that Yelwa market is dead and calls his adviser to explain what happened. The adviser says “But chief, you are the one that stopped the Suntais, Wakils and Lugujas from coming to the market. You drove them across the river and all the sellers have gone there too.” The chief replies, “But I had very valid reasons for sending them away.
Honestly, the reasons were valid”. “Chief”, says the adviser, “the reason you sent them away does not matter. All that matters is that where the buyers go, the sellers will go as well. If you want the market to come back to Yelwa then you must let the buyers come back as well.” This story is an allegory of the Nigerian foreign exchange market. The Central Bank of Nigeria, in its quest to fix the exchange rate implemented rule after rule restricting who could buy forex officially. The rules pushed buyers to the black market and resulted in the black market rate moving far away from the “official” rate. The more rules the CBN implemented, the further away the black market moved. The reasons behind the rules are irrelevant. All that matter is more rules lead to a bigger gap between the official and black market, and the gap is a major factor behind the economic instability the country is currently going through. As we think about the road out of recession, the CBN has to focus on getting back to macroeconomic stability. We cannot come back if there are two exchange rates for the same currency. The road back to recovery requires closing the gap between the two markets, and closing the gap is all about relaxing the rules on who can participate freely in the official market. The restrictions on BDC’s participating need to be removed. The restrictions on bank trading need to be relaxed. Finally, the 41 items on the exclusion list also needs to go.
A number of Deposit Money Banks in the country will close many of what they described as unprofitable branches as the economic recession continues to bite harder, investigation by our correspondent has shown.
It was similarly gathered that most of the banks would lay off hundreds of workers between now and December.
The revelation came barely 24 hours after Unity Bank Plc laid off about 300 workers, more than the 220 that was mentioned last week.
Diamond Bank Plc, Ecobank and Skye Bank Plc had earlier in the year sacked over 3,000 members of their workforce.
It was learnt that following the economic downturn in the country, a number of bank branches could no longer justify their existence as cost analysis had shown that the financial institutions were spending more on salaries and overheads than the income from the branches.
Some top bank executives, who confirmed the development to our correspondent under the condition of anonymity on Monday, said some lenders might be forced to relieve more workers of their duties before the end of this year.
An executive director in one of the banks that recently asked some of its workers to go said, “We have laid off some of our staff members but that it still not enough. Many branches are just existing for the sake of being there. They are not generating enough income. What they are bringing in is far less than what the bank is incurring as costs on them.
“We may have to close such branches before the year ends. I know a number of other banks that are planning something similar.”
Commenting on the development, an ex-banker and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, described branch closure as an ongoing action in the banking sector, especially in times of economic downturn.
He, however, noted that banks were required to notify the Central Bank of Nigeria before closing any branch.
“It is an ongoing administrative thing in the banking industry. Banks will want to rationalise branches, especially in a difficult economy. Banks are planning to cut costs. Branch rationalisation is normal but the CBN has to be notified,” Chukwu explained.
The banking sector has been facing a number of challenges following the downturn in economic activities.
The slowdown in the economy, which has led to a high rate of non-performing loans in the banking system, made four lenders to lose at least N17bn in profits in the first quarter of this year.
Specifically, Ecobank Transnational Incorporated, Guaranty Trust Bank Plc, Unity Bank Plc and Diamond Bank Plc recorded a combined decline of N17bn in their profits before tax for the three months ended March 31, 2016, when compared with the corresponding period of 2015, according to the results of the financial institutions posted on the website of the Nigerian Stock Exchange.
When compared with the PBT of N30.52bn, N32.65bn, N4.26bn and N7.94bn recorded by the banks in the first quarter of 2015, the combined PBT of the four banks dropped by N17bn from N75.4bn in the first quarter of last year to N58.4bn in the same period of this year.
While Ecobank’s PBT fell from N30.52bn in the first quarter of 2015 to N20.63bn in a similar period of this year, GTBank’s dropped from N32.65bn to N30.68bn. That of Unity Bank dropped from N4.26bn to N1.05bn, while Diamond Bank’s came down from N7.94bn to N6.04bn.
In terms of their profit after tax, the four banks recorded a decline of N14bn.
Banks in the country had been posting sharp increases in profits before tax and profits after tax since 2011 after the establishment of the Asset Management of Corporation of Nigeria in 2010 following the banking sector crisis in 2009.
However, consistent drop in the global prices of crude oil, Nigeria’s main foreign exchange earner, since June 2014, caused banks’ profits to start declining at the end of 2015.
Majority of the 15 banks listed on the NSE recorded declines in their full-year profits in the 2015 financial year. However, a few ones such as Access Bank Plc, Zenith Bank Plc, United Bank for Africa Plc and GTBank outperformed the market despite sizeable volume of bad loans.
In the first quarter of 2016, 13 out of the 15 banks posted a combined PBT of N135.36bn, compared to N148bn in the corresponding period of last year.
Similarly, the 13 banks posted profits after tax of N116.6bn in the first quarter of 2016, compared to N126.4bn in the first quarter of 2015.
The 13 banks are Access Bank Plc, Diamond Bank Plc, Ecobank Transnational Incorporated, First Bank of Nigeria Limited, GTBank, FCMB Limited, Sterling Bank Plc, Fidelity Bank Plc, UBA Plc, Unity Bank, Wema Bank Plc, Union Bank Plc and Zenith Bank Plc.
Skye Bank Plc and Stanbic IBTC Bank have yet to release their full-year 2015 and first-quarter 2016 financial results.
An economic analyst and Head, Investment Advisory, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said the declining profit in the financial services sector was a reflection of the challenges facing the Nigerian economy.
The National Bureau of Statistics on Sunday released a revised version of the capital importation report for the second quarter, with estimated investment inflow of $1.04bn.
The investment inflow represents an increase of 46.58 per cent over the amount recorded in the first quarter of this year.
This contrasts with the preliminary estimate of $647.1m for the second quarter that was based on the first two months of the quarter, which indicated a quarter-on-quarter decrease of 8.98 per cent.
However, a sharp increase in June outweighed the low values recorded in April ($305.82m) and May ($125.58m).
The statement from the NBS read in part, “The total value of capital imported into Nigeria in the second quarter of 2016 was estimated to be $1.04bn, which represents an increase of 46.58 per cent relative to the first quarter, and a fall of 60.91 per cent relative to the second quarter of 2015.
“This contrasts with the preliminary estimate for Q2 2016 of ($647.1m), which was based on the first two months of the quarter, which indicated a quarter-on-quarter on decrease of 8.98 per cent.
“We had estimated June at $215.7m. The actual level of capital imported in June ($610.77m) was, however, the highest monthly value in 2016 so far.”
The Central Bank of Nigeria’s Monetary Policy Committee will today (Monday) begin its two-day bi-monthly meeting to review the state of the economy.
It is expected to take key policy decisions that will influence the direction of the economy.
Top on the agenda of the meeting is the need to tackle the biting recession occasioned by slow growth in the economy, rising inflation, and the volatility in the foreign exchange market.
In a notice posted on its website, the CBN stated that 252nd meeting of the MPC would hold at 10am on Monday and Tuesday at the corporate headquarters of the apex bank in Abuja.
Economic experts expect the 12-member MPC to begin an expansionary monetary policy by reducing the Monetary Policy Rate (the benchmark interest rate), and lower the Cash Reserve Ratio.
According to the economists, the MPC will need to reduce the liquidity ratio and take measures to address the lingering volatility in the foreign exchange market.
The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the MPC might have no other choice than to purse an expansionary monetary policy considering the state of the economy and the recent stimulus package announced by the fiscal authority.
He said, “We expect an accommodative monetary policy as against a contractionary one. The CBN will want to complement the effort of the fiscal authority, especially as regards the stimulus package that was recently announced.”
In an economic bulletin released on Friday, Rewane added, “The divergence between the year-on-year headline inflation and the annualised monthly rate of 6.17 per cent poses a major dilemma to the apex bank. Even though the monthly measure is more relevant to inflation expectations, it may need to maintain consistency with the previous measure.
“The clamour for a stimulus package and lower interest rates by the government and the public will force a more accommodative stance by the committee in spite of other considerations.
“The high inflation environment has reduced consumer spending, real returns and corporate profitability margins. The markets have reacted accordingly.”
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, was also of the view that the MPC would begin an accommodative monetary policy.
He said, “It is clear that we have not been able to control inflation with the tightening policy. If the overriding consideration is to reflate the economy, the MPC will need to reverse the last increase made in the MPR by reducing it from 14 to 12 per cent. The committee may need to cut the Cash Reserve Ratio from 22.5 per cent to 20 per cent and then to 15 per cent later.
A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, also said he expected the committee to reduce the MPR in order to lower interest rate on bank loans and subsequently boost credit in the economy.
He said, “This is a time to begin an expansionary monetary policy. The MPC must reduce the MPR, reduce the liquidity ratio or maintain the status quo. We have seen that the inflation we are experiencing is cost-push, i.e caused by increase in cost of capital and not by demand pull. So we need to reduce the cost of capital in the economy.
“There is also a need for the committee to tell us how they intend to tackle the volatility in the exchange rate. They need to tell us whether the volatility is being caused by speculators or real demand. If it is caused by real demand, there is nothing they can do about it. However, if it is activities of speculators, then they must state how they intend to deal with it.”
The MPC had during its July meeting hiked the MPR by 200 basis points to 14 per cent.
The 14 per cent MPR announced by the CBN is the highest in over a decade.
However, the committee left the CRR and the liquidity ratio unchanged at 22.5 per cent and 30 per cent, respectively.
The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee after a two-day meeting held at the apex bank’s headquarters in Abuja, said eight out of the 12 members of the committee attended the meeting.
Out of the eight, he said five members voted in favour of monetary tightening, while the other three voted to hold the MPR at 12 per cent.
In taking the decision to increase the MPR, the CBN governor said the committee was faced with two policy choices – whether to hold or reduce the rate to stimulate growth, or increase it in order to curb inflation.
Emefiele, however, said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.
The governor explained that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.
The committee, he said, noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging down growth.
The CBN governor said the high inflationary trend had culminated in negative real interest rates in the economy, noting that this was discouraging savings.
According to him, members of the committee also noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors’ attitude had remained lukewarm, showing unwillingness to bring in new capital under the circumstance.
He said the decision to raise interest rate would give impetus to improving the liquidity of the foreign exchange market and the urgent need to deepen the market to ensure self-sustainability.
The governor said members were of the opinion that the liquidity of the foreign exchange market would boost manufacturing and industrial output, thereby stimulating the much needed growth.
Over-The-Counter (OTC) market, last month, recorded a turnover ₦9.75 trillion. This figure, according to FMDQ OTC Securities report was 23.49 per cent (₦2.99trn) lower than the value recorded in the month July. 2016.
A breakdown of activities in OTC last month showed that Treasury Bills (T.bills) transactions accounting for 33.02 per cent of the total value while turnover in the Foreign Exchange (FX) market, accounting for 23.29 per cent of total turnover, settled at $7.12 billion. In the month of August, liquidity in the banking system was low as open-buy-back and overnight rates closed the month at 16.00 per cent and 17.67 per cent respectively, with the turnover in the Money market settling at ₦3.97trn.
The 2nd OTC FX Futures contract, ‘NGUS AUG 24 2016’, with notional amount $152.48mm at $/N 310, matured and settled on FMDQ in platform last month.
In line with the OTC FX Futures Market framework and the FMDQ OTC FX Futures market operational standards, trading on the NGUS AUG 24 2016 contract ceased on Tuesday, August 16, 2016, and was valued by FMDQ OTC Securities Exchange (FMDQ) against the Nigerian Inter-Bank Foreign Exchange Fixing (NIFEX) Spot rate. Clearing operations and settlement for the final amounts, were effected through the Nigeria Inter-Bank Settlement System PLC (NIBSS), in its capacity as the FMDQ-designated Clearing Agent for the margining and settlement of the OTC FX Futures contract.
The August 24, 2016 matured contract was replaced by the Central Bank of Nigeria (CBN) with a new 12-month contract, NGUS AUG 16 2017, with a notional amount on offer of $1.00bn at $/₦241.
In addition, the CBN refreshed its quotes and published new rates on the existing 1-month to 11-month contracts as shown on the FMDQ websit.
Over $2.40 billion worth of the OTC FX futures contracts offered by the CBN, across all the tenors, with the profile of the contract buyers including authorised dealers, foreign portfolio investors and importers, among others, have been traded.
The significant increase in turnover clearly showed the receptiveness of the transaction counterparties and end-users to the product
The Naira-settled OTC FX Futures product has continued to pave the way for corporates to enhance business planning whilst effectively hedging their FX risk, even as the CBN continues to position and empower stakeholders towards a vibrant FX marke.
The Chief Executive Officer of FMDQ, Bola Onadele, at the launch of the product, in collaboration with the Central Bank of Nigeria (CBN) held in Lagos, assured stakeholders that there is no longer the need to front-load FX requirements, which puts immense pressure on and distorts the Spot FX rate.
According to him, with the kick off of the Naira-settled OTC FX Futures market, and the CBN selling OTC FX Futures contracts of non-standardised amounts for different tenors from one month through to 12 months which will settle on bespoke maturity dates, providing liquidity in the product that will enable corporate treasurers effectively and efficiently manage their FX risk, the market has been positioned for a successful operation.
To ensure credibility of the contracts, especially at maturity, onadele explained that the Spot FX rate would be the FMDQ Spot FX Rate Benchmark. “Futures product is a major milestone development in the evolution of the Nigerian financial markets. The Futures market is an opportunity to transform risk into certainty – a major paradigm shift in the financial markets landscape. This innovation provides opportunities for government, businesses, pension fund administrators, investors, individuals etc. to hedge (not speculate) to cope with exchange rate risk.
“ It also affords the CBN a greater opportunity to manage exchange rate volatility, thus achieving greater market confidence, liquidity, improvement in business planning, job security, employment, better allocation of resources, global competitiveness of the Nigerian financial markets, and all in all, a thriving economy,” he added.
