Increased demand for Nigerian government bonds from local pension funds last week buoyed debt note prices after four weeks when falling global oil prices and a rapid decline in the value of the naira currency had forced offshore investors to gradually exit.
Traders said most offshore investors stayed on the sidelines last week, while the pension funds took the front seat in the local debt market of Africa’s biggest economy.
“The offshore investors might further cut back on their bond holdings as we gradually approach the year end, but this will depend on the broader outlook for the local economy and the performance of global oil prices,” a dealer told Reuters.
The naira weakened to N166.15 to a dollar on Thursday, hovering around a 7-month low before the central bank intervened by selling an undisclosed amount of dollars in the market, strengthening it to N164.70 to a dollar on Friday.
Yields on the benchmark 2024 bond fell 19 basis points to 12.62 percent on Friday, against 12.81 percent last week. The 2022 paper traded at 12.66 percent, down from 12.88 percent last Friday.
“The market experienced increase in local demand for bonds this week, due largely to improved liquidity and a slowdown in the sell-off of offshore investors,” another dealer said.
Meanwhile, the Central Bank of Nigeria (CBN) has in a new rule stated that the amount banks can pay in dividends would depend on their capital levels, statutory reserve requirements and the proportion of non-performing loans.
In the past, lenders paid out a high proportion of net profit as dividends, despite their risk profiles and capital levels.
But the CBN said it wanted to correct this situation with the new rules.
“There shall be no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a cash reserve requirement of ‘low’ or ‘moderate’ and a non-performing loan ratio of not more than five percent,” the regulator said in the circular cited by Reuters.
The central bank has vowed to prevent a repeat of the circumstances that led to a bailout in 2009 and has moved towards strengthening rules and tightening capital requirements.