ECONOMY: Investors Optimism Wanes amid CBN’s Controversial LDR Policy…

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In the local economy, the September 2019 Business Expectations Survey (BES), conducted by staff of Central Bank of Nigeria’s (CBN) on a sample of 1,050 businesses nationwide from September 9-13, 2019, revealed that respondents expressed weaker optimism on the macroeconomy for the month of September 2019 as the overall confidence index (CI) registered 26.7 index points (lower than 28.6 registered in August). Business outlook for October 2019 showed even weaker confidence on the macro economy at 59.0 index points (compared to 64.7).

All the sampled sub-sectors expressed paled optimism, especially the construction sector where operators’ optimism was the weakest; its index moderated to 52.9 points (from 61.3 points).

Business owners in wholesale & retail trade, services and industrial sectors were also less optimistic in their outlook on the macro economy in October as their respective indicies moderated to 56.3 points (from 65.9 points), 60.3 points (66.7 points) and 58.4 points (61.3 points) respectively.

Businesses optimism in their outlook on financial conditions (working capital) waned as the index dropped to 10.3 points (from 11.1 points). However, their optimism on average capacity utilization remained strong as the index rose further to 17.0 points (15.9 points).

Similarly, outlook on the volume of total order and business activity in September 2019 remained positive, but relatively marginal at 12.8 points and weaker at 12.9 points compared to 12.7 and 14.3 respectively in the preceding month.

The overall weaker optimism expressed by business owners on the macro economy partly resulted from perenial businesses constraints of insufficient power supply, unfavourable economic climate, high interest rate and financial problem (access to credit index fell to 1.9 points from 2.9 points); in addition to unclear economic laws and unfavourable political climate amongst other things.

In the monetary sector, CBN depository corporations survey showed a 1.23% month-on-month (m-o-m) decline in Broad Money Supply (M3 money) to N35.25 trillion in August 2019.

This resulted from a 11.10% decrease in Net Foreign Assets (NFA) to N15.70 trillion which offset partly a 8.45% increase in Net Domestic Assets (NDA) to N19.45 trillion.

On domestic asset creation, the increase in NDA resulted from a 2.57% m-o-m increase in Net Domestic Credit (NDC) to N34.29 trillion, accompanied by a 4.31% m-o-m decline in Other Liabilities (net) to N14.75 trillion.

Further breakdown of the NDC showed a 3.43% m-o-m increase in Credit to the Government to N9.46 trillion and a 0.13% rise in Credit to the Private sector to N24.84 trillion.

On the liabilities side, the 1.23% m-o-m decline in M3 Money was driven by the 2.44% m-o-m increase in M2 Money to N27.57 trillion, which was partly offset by a 3.37% increase in treasury bills held by money holding sector to N7.66 trillion.

The decline in M2 was driven by a 2.90% fall in Quasi Money (near maturing short term financial instruments) to N16.34 trillion and a 1.77% decline in Narrow Money (M1) to N11.25 trillion (of which Demand Deposits fell by 2.50% to N9.59 trillion while currency outside banks rose by 2.65% to N1.65 trillion).

Reserve Money (Base Money) plunged m-o-m by 6.70% to N6.98 trillion as Bank reserves nosedived m-o-m by 10.02% to N4.64 trillion, partly offset by a 0.79% rise in currency in circulation to N2.02 trillion.

Analysts tell Naija247news that the waned optimism of business owners on the macro economy in the last month of Q3 2019, could have a negative impact on the country’s Q3 GDP figure (see our Cowry Weekly Report dated July 5, 2019, where we expected a relatively slower GDP figure in Q2 2019 amid weaker businesses optimism).

Nevetheless, given concerns about access to credit expressed by most businesses, we expect the recent CBN’s monery expansionary drive – 65% minimum loan to deposit ratio (LDR) for the deposit money banks – to boost real sector financing even at a reduced interest rate as banks compete with each other to lend to businesses with good credit ratings.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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