As Nigerian banks continue to tread cautiously, preferring rather to lend within the inter-bank market and venturing only into secured government investments, have led to false impression of improved liquidity in the banking sector. The inter-bank market became a safe haven for banks to lend after the Central Bank of Nigeria (CBN) guaranteed all lending in the inter-bank market with the hope that the same gesture would be extended to lending to the economy. Also, investments in government secured instruments have some kind of guarantee that gives investors in the Federal Government of Nigeria (FGN) Bonds confidence that their money would be safe under any condition.
According to FSDH Weekly, “we reiterate that the fact that banks are unwilling to lend money outside the inter-bank market and their preference for secured government investments, even at low yields, will ensure that the liquidity in the system persists.”
It therefore foresees stable inter-bank rates, while demand for FGN Bonds continues. Even trading on FGN Bonds at the Over-The-Counter (OTC) Bond market remains active, though with a slight decline last week.
At the OTC market, turnover of 300.34 million units worth N341.71 billion in 3,171 deals was recorded last week, in contrast to a total of 359.1 million units valued at N402.78 billion exchanged in 4,467 deals during the week ended Thursday, January 21, 2010.
The most active bond (measured by turnover volume) was the fifth FGN Bond 2013 Series 1, with a traded volume of 62.81million units valued at N67, 941.95 billion in 452 deals. This was followed by the sixth FGN Bond 2029 Series 3, with a traded volume of 47.9 million units valued at N64.82 billion in 475 deals. A total of 23 of the available 41 FGN Bonds were traded during the week, compared to 20 in the preceding week; thus the inter-bank rates moderated to end the week.
Available data showed that the 7-day Nigerian Inter-Bank Offer Rate (NIBOR) closed the week at 6 percent, an eight basis point increase from the previous week’s figure of 5.92 percent. The 90-day NIBOR closed the week at 14.29 percent, a 24 basis point decrease from the previous week’s figure of 14.53 percent. At the 91-day Treasury Bill (TB) auction, a total of N10 billion worth of securities was offered and sold. The bill was 584.36 percent subscribed as N58.44 billion worth of bid was received. The bill was issued at a discount rate of 3.1985 percent. A total of N15 billion worth of matured bills was repaid into the system, resulting in a net inflow of N5 billion from this segment of the market.
At the 182-day TB auction, a total of N30 billion worth of securities was offered and sold, while it was 356.79 percent subscribed as N107.04 billion worth of bid was received. The bill was issued at a discount rate of 4.73 percent. A total of N10 billion worth of matured bills was repaid into the system, resulting in a net outflow of N20 billion from this segment of the market.
In all, there was a net total outflow of N15 billion from the primary segment of the government securities market. At the foreign exchange auction held on Monday, January 25, 2010, the CBN offered and sold a total of $150 million, compared to $350 million it offered and sold in the previous week. On Wednesday, January 27, 2010, the CBN offered and sold a total of $250 million, compared to the $150 million it offered and sold in the previous week. Over all, last week, a total of $400 million was offered and sold, compared to $500 million in the previous week. The value of naira appreciated at the parallel market, while it depreciated at the inter-bank and official markets segment of the foreign exchange market during the week.
At the parallel market the value of the naira appreciated by 50 kobo to close at N152.50/$1 compared with the previous week’s figure of N153/$1.
At the inter-bank market, the value of the naira depreciated by 71 kobo to close at N150.98/$1, compared to the previous week’s figure of N120.27/$1; also at the official market, the value of the naira depreciated by 70 kobo to close at N148.83/$1, compared to the previous week’s figure of N148.13/$1. At the foreign exchange market, we expect foreign exchange rate to remain stable, even as CBN meets all genuine bids.