Investors target higher yields on TBs as DMBs lose N660bn current account deposits

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By Babajide Komolafe

The Central Bank of Nigeria (CBN) is expected to offer higher yields on treasury bills to be auctioned this week in a bid to mop up N786 billion inflow into the interbank money market this week.

This follows the unsuccessful liquidity mop up efforts of the CBN last week, as the Open Market Operations (OMO) treasury bills auctioned were largely undersubscribed.

For example, the N60 billion worth of OMO bills offered by the apex bank on Tuesday attracted just N10.7 billion subscription, despite the attractive rates on the offer.

The 107-day bills were offered at 11.9 percent, while the 170-day and 317-day bills were offered at 13.5 percent and 15.0 percent respectively.

Also the on Thursday the apex was only able to sell N308.24 billion OMO bills though it offered N400 billion worth of OMO bills comprising 364-day bill, 91-day, and 189-day bills.

While the 364-Day bills recorded 13 percent over-subscription, the 91-day, and 189-day bills recorded 98 percent and 99.08 percent under-subscription.

The outflow however reduced the impact of N375.35 billion inflow from matured OMO bills hence prompting cost of funds to remain in double digits.

According to data from FMDQ, though interest rate on Collateralised lending (Open Buy Back, OBB) closed at 20 percent, same as previous week, interest rate on Overnight lending however dropped by 130 basis points to 22.5 percent at the close of business last week from 23.8 percent the previous week.

Analysts opined that cost of funds may remain high this week, in spite of inflow of N786.37 billion from matured treasury bills.

They projected that the apex bank will try to mop up this inflow by issuing OMO bills at higher yields in order to attract investors’ patronage.

Analysts at Lagos based investment firm, Afrinvest Plc said: “Next week, the apex bank is scheduled to repay N429.6 billion maturing treasury bills with the same sum rolled over.

We expect rates at the auction to remain at attractive levels in line with recent trend while we anticipate a near muted activity in the secondary market.

Also, in line with its tight system liquidity posture, we expect conduct of OMO auctions by the CBN next week to offset maturities worth N560.9 billion.”

Analysts at Lagos based Cowry Assets Management Limited also said: “In the new week, T-bills worth N786.37 billion will mature via the primary and secondary markets which will more than offset T-bills worth N225.45 billion to be auctioned by CBN via the primary market; viz: 91-day bills worth N5.85 billion, 182-day bills worth N26.60 billion and 364-day bills worth N193.00 billion.

Hence, we expect liquidity ease in the finanical system to be sustained with resultant moderation in interbank rates.

We also expect stop rates to increase, especially at the short end as investors continue to tread cautiously ahead of February 16, Presidential election.”

Commercial banks lose N660bn current account deposits in November

The CBN last week disclosed that Deposit Money Banks suffered N660 billion reduction in current account deposit (demand deposit) in November, while credit to the economy fell by N830 billion during the month.

The apex bank disclosed this in its depository corporations survey for November released last week.

The report showed Broad Money supply fell by 0.72 percent month-on-month (m-o-m) to N31.79 trillion in November 2018.

This resulted from a 3.41 percent m-o-m decline in Net Domestic Assets (NDA) to N13.26 trillion which offset a 1.17 percent m-o-m increase in Net Foreign Assets (NFA) to N18.99 trillion.

On domestic asset creation, the decrease in NDA resulted from a faster decline of 3.09 percent in Net Domestic Credit (NDC) to N26.06 trillion which was accompanied by a slower 2.78 percent m-o-m fall in Other Liabilities (net) to N13.26 trillion.

Further breakdown of the NDC showed a 20.66 percent m-o-m fall in Credit to the Government to N2.98 trillion as well as a decline of 0.24 percent in Credit to the Private sector to N23.08 trillion.

On the liabilities side, the 0.72 percent m-o-m fall in Broad Money Supply was driven by 4.92 percent m-o-m drop in Narrow Money to N10.69 trillion, as Demand Deposits which plunged by 6.88 percent to N8.98 trillion was partly offset by a 6.87 percent rise in currency outside banks to N1.71 trillion.

Also, Quasi Money (near maturing short term financial instruments) fell by 0.19 percent m-o-m to N14.77 trillion.

Reserve Money (Base Money) moderated m-o-m by 7.06 percent to N6.81 trillion as Bank reserves fell m-o-m by 13.15 percent to N4.37 trillion; however, currency in circulation rose to N2.10 trillion.

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