News Column

Mixed Fortunes Trail Money Market Activities

August 18, 2014

Chijioke Nelson

INDICATIONS emerged that activities in the money, last week, were characterised by mixed fortunes, as the interbank and securities' rates maintained unsteady movements.

The development, which may be attributable to monetary policy outcomes last week and expected fiscal policy decision this week, impacted on the Call and Open Buy Back (OBB) rates.

Specifically, the week started with liquidity tightening at the Nigerian interbank money market due to provisions required for Wednesday's Retail Dutch Auction System of the Central Bank of Nigeria (CBN).

Meanwhile, the civil society organisations have faulted the re-introduction of charges on customers from fourth withdrawals from the Automated Teller Machines that are not owned by the issuing bank in a month.

The Lead Director, Centre for Social Justice (CSJ), Eze Onyekpere and Ikenna Ofoegbu, said they noted with regret the issuance of this circular, which reintroduces the charge of N65 as from the fourth remote-on-us ATM cash withdrawal transaction in a month.

Additionally, liquidity was further compressed as the CBN mopped N221.5 billion through the Open Market Operation (OMO) on Monday, raising the benchmark Call and OBB rates by 104 basis points (bps) and 100bps to 11.8 per cent and 11.5 per cent respectively on the first trading day of the week.

However, rates at the interbank money market were flat on Tuesday before dwindling significantly on Wednesday after CBN released the balances of the interbank market, the first time in four weeks, following a technical glitch, which provided more clarity for traders.

According to Afrinvest Securities Limited, Call and OBB rates dropped by four bps and eight bps respectively on Wednesday, and dipped further by 88 bps and 96 bps respectively on Thursday.

However, on Friday, liquidity was drained from the system on account of the Nigerian National Petroleum Corporation's Cash call and RDAS provisions, pushing rates higher by 130bps and 150bps respectively.

"This week, we anticipate rates at the money market will inch higher in view of Treasury-bills auction scheduled for Wednesday, while the expected meeting of the Federal Accounts Allocation Committee for the month of July, which would hit the system, as well as maturing OMO and T-bills worth N146 billion and N70 billion respectively would ease liquidity concerns.

"We expect that the T-bills auction yields will nudge higher in the coming week due to the tight liquidity in the system," the securities company said.

CBN had increased its volume of dollar supply at the primary market last week by $100 million to offer support for the Naira, against the backdrop of the N1.49 and N1.50 week-on-week depreciation of the Naira at the Inter-bank and BDC respectively the previous week.

CBN auctioned $400 million and $350 million on Monday and Wednesday, and sold $381.4 million and $349.4 million respectively, at the sticky marginal rate of N157.73/$1.

The strong demand for the dollar was however reduced during the week as a result of the substantial volume of dollars auctioned by CBN and sales from the oil majors, coupled with the DMO bond auction on Wednesday, which attracted inflows from Foreign Portfolio Inflows.

The Naira appreciated 22 kobo and 42 kobo on Monday and Wednesday respectively at the interbank segment of the forex market. However, the trend reversed on Thursday, with the Naira shedding 39 kobo due to demand-supply mismatch, paring the week-on-week gains to 41 kobo at the interbank market.

At the BDC segment, the Naira shed 200 kobo on Tuesday, following the revocation of the licenses' of over 500 BDCs, while CBN further announced plans to liaise with banks in order to lessen infractions at the BDCs.

However, there was an anticipation that the Naira will appreciate marginally this week at the BDC segment as the effect of the recent BDCs licenses withdrawals would wane.

The bond market commenced the weak on a slightly bearish note, with yields increasing marginally across tenors on the back of lower demand among investors.

At the DMO auction on Wednesday, the 13.05 per cent FGN AUG 2016; 14.20 per cent FGN MAR 2024; and 12.15 per cent FGN JUL 2034, instruments were reopened with a total offer of N100 billion. Despite the excess subscription recorded- 51.0 per cent, 51.5 per cent and 73.4 per cent respectively, yields inched higher to 11.1 per cent, 12.2 per cent, and 12.4 per cent in that order, representing a 12bps, three bps and 24bps increase respectively, relative to July auction.

Additionally, N11.2 billion of the 14.20 per cent FGN MAR 2024 was allotted on non-competitive basis to the market markers, while the short term 9.25 per cent FGN SEP 2014 and four per cent FGN APR 2015 instruments, declined by 40bps and 30bps week-on-week respectively. All the other benchmarked bonds experienced selloffs, driving yields higher by average 20bps to 11.7 per cent. The seven per cent FGN OCT 2019 bond appreciated the most, adding 30bps week-on-week to 11.7 per cent. The long-term dated 15 per cent FGN NOV 2028 and 12.49 per cent FGN MAY 2029 bond added 20bps week-on-week apiece.

However, Afrinvest noted that there was a bearish sentiment, which may also persist this week at the longer end of the spectrum as portfolio investors realign their portfolios to take advantage of shorter term instruments at the Treasury-bills auction scheduled for next week.

Ahead of the inflation scorecard for July scheduled for release by the National Bureau Statistics (NBS) next week, we forecast an inflation rate of 8.3 per cent, 10bps higher than June. This is premised on expected increases in food (end of planting season) and core inflation (higher electricity tariff).

The global equity indices within our coverage were broadly bullish premised on President Vladimir Putin pledge to end the deadly conflict with Ukraine. Within the BRICS, the India BSE Sens led with 3.1 per cent gain, followed by Brazil Bovespa with 1.5 per cent.

The Russia RTS (1.5 per cent) followed the uptrend, advancing for the first time in a long stretch owing to Putin's statement.

Additionally, the second biggest natural gas ÓAO Lukoil' producer price surged, thereby enhancing the rise in the Russian index. Although speculations were made that Barack Obama's authorization of the airstrikes against militants in Iraq and the crises in Ukraine would disrupt world trade, European and Asian stocks advanced.

In that regard, the Japan Nikkei 225, Germany Dax and Hong Kong Seng added 3.7 per cent, 3.4 per cent and 2.6 per cent in that order. In tandem with global trend, the UK FTSE and the US S&P 500 indices garnered 2.7 per cent and 1.2 per cent apiece.

Performances within the African region were in line with its global counterparts with the Egypt EGX 30 and Kenya NSE 20 indices appreciating 2.6 per cent and 0.8 per cent apiece. Divergent from global trend, the Nigerian ASI closed on a negative note (2.9 per cent) on the back of unimpressive H1:2014 earnings releases.

The bearish mood last week was sustained as the NSE All-Share Index dipped a significant 290bps W-o-W on the back of uninspiring half year 2014 earnings published by quoted companies on the Nigerian Bourse.

Average volume and value followed a similar trend shedding 4.4 per cent and 34.1 per cent W-o-W to close at 273.4 million units and N2.7 billion respectively.

All the sector indices across board this week closed in the red zone. The Banking Sector index declined the most, recording 4.8 per cent week-on-week. The Oil and Gas sector Index followed, shedding (4.0 per cent) week-on-week. Others include the Consumer Goods, Industrial Goods, and Insurance indices, which slid 3.7 per cent, 1.5 per cent and 0.3 per cent respectively.

Top gainers for the week include Premier Brew (37.5 per cent), PharmDeko (14.7 per cent), PaintCom (9.5 per cent) and Ikeja Hotel (6.8 per cent), while the top losers were ABC Trans (17.7 per cent), Conoil (14.0 per cent), Union Bank (10.0 per cent) and Cadbury (10.0 per cent).

The recent moderation in the stock market decline this week suggest a rebound is imminent as the NSE-ASI RSI crossed the oversold region (21.7), presenting opportunities for short term investors.

Moreover, prices of Nigerian equities presents compelling opportunities premised on its current P/E of 13.4x relative to its peers- MSCI Frontiers (16.1x) and JSE Africa (18.5x).

The market may however, close positive this week, albeit marginal as bargain hunters take short term positions, while earnings releases of GTBank and Access this week as investors' position ahead of its interim dividend are highly expected.

The re-introduction of ATM charges by CBN last week through its circular to all Nigerian banks on "Remote-on-Us" ATM Cash withdrawal transactions, effective September 1, 2014, may have rasied a new indicators as well. ATM users will be charged a flat fee of N65 for every withdrawal made from other banks' ATMs from the fourth withdrawal in a month to the cardholder, thereby making the first three withdrawals from other banks free. In December 2012, CBN had transferred the N100 charge from third party withdrawals by customers to the issuing banks.

With the development, there would be a significant decline in the banks' net fee and commission growth from 11.2 per cent in financial year 2012 to -1.4 per cent in financial year 2013.

This would also be a big sigh of relief for the banks regarding the incessant fee of ATM transactions that have accrued to a record high on banks within the last two years.

There is also a speculation that the measure would result to improved ATM services as customers switch accounts to banks with efficient ATMs (less downtime). That said, this may be counterproductive to the ongoing financial inclusion agenda as customers may prefer to hold cash to evade the charges. This may lead to increased competition for private deposits.

"There is no reasonable justification for this development; a reversal of the policy should have addressed the premises and the rationale for the removal of the charges in the first place. Pray, if the removal was to support and encourage the cashless or cash-lite policy and to ensure that bank customers get value for their patronage, what has changed to warrant the removal? Is the CBN now about to reverse the cashless and cash-lite policy.

"The CBN Governor in unveiling his agenda a few months vowed to mainstream poverty reduction, job creation and the development agenda in monetary policy. How will this new step further the foregoing goals? Clearly, this is a retrogressive step that will unduly burden bank customers, discourage the unbanked from using the banking system and also negate the cash-lite policy.

"It negates Nigeria's international and domestic economic and social rights obligations (especially as provided in Chapter 2 of the 1999 Constitution and the obligations under article 2 (1) of the Covenant on Economic, Social and Cultural Rights) to respect already guaranteed rights and not to take steps to repeal or call back existing rights. The obligation is "forward ever" for the continuous improvement of existing conditions rather than the backward steps taken by the CBN.

"This CBN policy questions the basis and concept of regulation in an economy. What should regulators take cognizance of in arriving at policy decisions? Should regulation simply be for the benefit of the strong, the rich and the accentuation of inequality? The regulator from our understanding should consider the interest of all the parties that will be affected by regulation and try to balance out any conflicts by apportioning obligations on those best positioned to bear them. We are living witnesses to the fantastic profits being declared by banks since 2012 and there is no credible suggestion backed by empirical evidence that banks balance sheets have been unduly impaired by their bearing the charges," they said.

They alleged that the new policy is an apparent evidence of regulatory capture.

"Essentially, the regulator has been captured by the core institutions it is supposed to regulate. It is regrettable that the banks, which collect deposits from customers with little or no interest on saving, charge double digit interest rates on lending, will come around to force the arms of CBN into ensuring extra charges from ATM withdrawals alongside the bank charges and commissions placed on customers, such as ATM issuance and maintenance fees, N50 charges on SMS alerts, emails, print of account statements, among others. It will therefore not be out of place to ask; what services do the banks specifically render to customers aside the safe keeping of customer's cash?

"It appears that in this instance, the appointment of a former director of a mainstream bank is leading to a policy in favour of his former constituency and colleagues in the industry without taking cognizance of the bigger picture of the rights of the Nigerian people who are ultimately his employer. It is imperative to remind the CBN that it has a legal and moral duty to protect the banking public from the extortion of deposit money banks. If ATMs have become the personal purse of the banking public as claimed by CBN, it means that the cashless policy is working," they said.

However, they said the CBN policy should not be reversed simply for the fact that the author of the policy has left office.

"Whatever that is positive from the Sanusi era should not be rubbished simply because Sanusi has left office. Take the positives and leave the negatives; the removal of the charge was surely one of the positive signals that came out of the Sanusi era and should be continued.

"CSJ calls for the urgent reconsideration of the new policy to allow the status quo to remain- removing the newly introduced ATM charges. This will give a good signal to the Nigerian banking public of the sincerity of the new CBN governor to walk the talk, thereby achieving credibility through policy consistency. If the CBN cannot use its policy to facilitate the improvement of living conditions, it has no obligation to increase the burden on the people. For now, let the status quo remain," they noted.

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Source: AllAfrica

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