docadams:



You just aired my mind. Can somebody break this news down to a level 'mama put' can understand? Last check at the bank today shows interest rate is still 25% at Ecobank.

manny4life:


Okay.. To explain some things better

The CRR has impact on the MPR

Both are policies set by the Apex bank ("CBN"

The Currency Reserve Ratio is the minimum capital a bank MUST set aside that cannot be used in banking operations. Example,

A bank has total deposits worth $100, per the CRR policy of 20%, the bank can only lend out $80 (liabilities) and hold the other $20 (asset) in their reserve vaults and or/lodge it with the CBN. Now when the bank has $80 to lend, the bank set their interest rate at whatever they feel like (or depending on CBN policy), so there's liquidity with the bank. If the CRR goes up to say 25%, then liquidity reduces which means the bank can only lend $75. So this is GOOD NEWS for the banks because riskier banks will lend more money.

However, due to the fact that this is also a liability whichever way you look at it, the CBN will sell/buy bonds (market operation) in exchange of that liability on the bank to reduce/increase money circulation. I am heading to lunch, but I will explain more when I get back.

manny4life:


He asked respectfully and you seem to know much about your economics, how about you enlighten him?

manny4life:


Okay.. To explain some things better

The CRR has impact on the MPR

Both are policies set by the Apex bank ("CBN"

The Currency Reserve Ratio is the minimum capital a bank MUST set aside that cannot be used in banking operations. Example,

A bank has total deposits worth $100, per the CRR policy of 20%, the bank can only lend out $80 (liabilities) and hold the other $20 (asset) in their reserve vaults and or/lodge it with the CBN. Now when the bank has $80 to lend, the bank set their interest rate at whatever they feel like (or depending on CBN policy), so there's liquidity with the bank. If the CRR goes up to say 25%, then liquidity reduces which means the bank can only lend $75. So this is GOOD NEWS for the banks because riskier banks will lend more money.

However, due to the fact that this is also a liability whichever way you look at it, the CBN will sell/buy bonds (market operation) in exchange of that liability on the bank to reduce/increase money circulation. Now, when the CBN sells Bonds (an asset instrument), it's absorbing the liquidity from the banks but at a rate which in this case is 11%


Gracias!
But I am still going to Ecobank mane to see if the interest rate on my loan has dropped as a result of this monetary policy. Na that one concern me now.

manny4life:


Okay.. To explain some things better

The CRR has impact on the MPR

Both are policies set by the Apex bank ("CBN"

The Currency Reserve Ratio is the minimum capital a bank MUST set aside that cannot be used in banking operations. Example,

A bank has total deposits worth $100, per the CRR policy of 20%, the bank can only lend out $80 (liabilities) and hold the other $20 (asset) in their reserve vaults and or/lodge it with the CBN. Now when the bank has $80 to lend, the bank set their interest rate at whatever they feel like (or depending on CBN policy), so there's liquidity with the bank. If the CRR goes up to say 25%, then liquidity reduces which means the bank can only lend $75. So this is GOOD NEWS for the banks because riskier banks will lend more money.

However, due to the fact that this is also a liability whichever way you look at it, the CBN will sell/buy bonds (market operation) in exchange of that liability on the bank to reduce/increase money circulation. Now, when the CBN sells Bonds (an asset instrument), it's absorbing the liquidity from the banks but at a rate which in this case is 11%

excellence44:


Do you mean "launch" or lunch?

you can't possibly be going for lunch at this time 6:30! Your analysis though is the bomb

sharpman1:


LOL......MPR @ 11% does not mean banks will lend @ 11%.

Also, TBill rate for 91days has dropped to about 5.6%

teeowl:
2% reduction? economists in the house, does that really make a difference?

sonnie10:

Educate me more.

docadams:
.


Gracias!
But I am still going to Ecobank mane to see if the interest rate on my loan has dropped as a result of this monetary policy. Na that one concern me now.

sonnie10:
Now people would be able to borrow at 11% to buy Tb at 13% or even mutual funds. I see a lot of internal lending deals in the banks.

A situation were a manager would lend himself #500M and make 2% of that right away. Cool #10M!

Favolly:

Lol! I honestly doubt that this policy would be applied retrospectively. It's more of a going forward thing. Wasn't a term sheet drawn for your transaction?

oghenebiko:
The decrease in MPR is a welcome development. Bit me thinks dey should hv left d CRR the way it was (@25%). I dont think these banks hv liquidity issues as dey are not really interested in taking FDs these days. With d decrease in CRR, i may not be able rollover my FD as d rate will definitely drop further.

sharpman1:


LOL......MPR @ 11% does not mean banks will lend @ 11%.

Also, TBill rate for 91days has dropped to about 5.6%

docadams:
.


Gracias!
But I am still going to Ecobank mane to see if the interest rate on my loan has dropped as a result of this monetary policy. Na that one concern me now.

DONSMITH123:

from 13 per cent to 11 per cent, i think its a welcome development.

INTROVERT:
Counting down Emefiele's days as governor.

Johnrake69:


You can do the ARM money market. . Since the money market and the capital market share an inverse relationship. We should expect the capital market performance to improve.

ikbnice:
If it won't help strenghen the naira against the dollar,

If it won't help us in the fight against terrorism,

If it won't help eradicate poverty,

If it won't help bring stable electricity,

If it won't help bring down the price of petrol,


then ... It doesn't benefit me.

Angelstartups:
For a developing country like Nigeria, reducing MPR from 13% by 200 basis points to 11% is a positive move and a welcome development. MPR is a benchmark rate at which commercial banks can borrow from the Central Bank of Nigeria, with a corridor set at +/- 200/700 basis points. Which means the CBN can borrow banks at between 4%-13% interest rate. These are the implications:

Short-term consequence/ market reaction:
Further impact on short-term borrowings like the T-bills which may likely fall further, thereby reducing investments in short-term financial assets. Here, you will see more foreign portfolio investors (FPIs) pulling their funds out of Nigeria
Impact: Short-term
Our Verdict: No worries for Nigeria

With the FPIs pulling their funds out of Nigeria, there will be serious pressure on the Nigerian currency- Naira which will impact the exchange rate. This will however be in the short-term.
Impact: Short-term
Our Verdict: No worries for Nigeria, except for importers which then will have serious inflationary pull (cost-push) on Nigerian consumers. Because Nigeria is still highly import-dependent, the CBN must watch the pressure on inflation closely

Banks will now be able to borrow at a reduced rate which will impact positively on their bottom-line in the short-term, as they continue to lend at existing rates in the short term, thereby able to generate more income, more profits for shareholders till they begin to align their lending rate to a reduced MPR.
Impact: Short-term
Our Verdict: No worries for Nigeria

With the reduction in CRR from 25% to 20%, it means the banking system is now more liquid that ever before and therefore they can only do two things with the funds with them:
Either place it in short-term financial assets like Treasury bills or long-term assets like Bonds
or begin to take some more risks and lend to the real sector to earn more returns
Implication/ reactions:
If the banks take the funds to purchase T-bills, the pressure of demand on T-bills will go up which will inadvertently pull down the rates CBN will offer. Similar effect will be seen with the Bond market, where the more the demand, the lower the yields expected. And gradually, in the short-term, rates, yields from T-bills and Bonds will further crash than we are witnessing today.
Our Verdict: A good one for the Nigerian economy as banks will rather take real sector risk that is well-calculated and earn around 20% interest per annum, rather than fix the money in T-bills at 2-4% per annum risk-free. We will see more funds beginning to go towards the real sector.

On Foreign Investments in Nigeria:
Reaction: There will be less and less of Foreign Portfolio Investments in Nigeria however, there will be more Foreign Direct Investments (FDI) since these FDIs prefer a lower cost of borrowing in Nigeria, to set up their companies/ factories and employ Nigerians to grow and make profit. Foreign Direct Investments like those of Procter and Gamble (P n G), Guinness, Heineken, MTN, Airtel, and so on, will certainly be able to also borrow at a reduced rate from Nigerian banks and grow their businesses to expand their factories, create more jobs for Nigerians, make more profit and expand further.
Impact: More profits lead to expansion which leads to job creation for Nigerians
Verdict: More Direct Investments will follow this reduction, with both local and foreign direct investors taking positions to set-up, expand and grow their businesses

With a potential increase in interest rate in the United States by the Federal Reserve, then we should expect more "hot money" will flow out of emerging economies towards a highly stable economy like U.S. FPIs is what hot money is. Nigerians should not panic, but begin to look towards Entrepreneurship, micro, small and medium businesses, as the Federal Government continue to show more drive towards bridging the huge infrastructural deficit especially in areas of Power, Transport, Housing.

The train of change is just about to kick-start and launch out, Nigerians are you ready?

The jury is out.

Regards.

cecegorz:


It's a mixed bag.
MPR reduction from 13% to 11% ordinarily means banks will get their funding at a cheaper rate and consequently lend at lower rates to customer too - ceteris paribus, like the economists say. But that's as simple as it gets.
Currently, most banks loan book is bursting at the seems, so many non-performing loans in the hands of customers who can't pay back mostly because the economy is on a downward spin, businesses are failing and some are closing shop.
It then goes that if banks has so much funds out there that are not being repaid already, they will be unwilling to lend further to avoid more bad loans.
On the other hand, you also need money to stimulate a drowning economy. So with CRR down from 25% to 20%, it means extra liquidity for the banks, and some with greater risk appetite may still stick out their necks and lend to some specific markets.
So if the banks can consequently open the taps, 'the average Nigerian suffering in the streets' will get some extra cash to hold body.

ohenhen1:
The rate should be 8 percent not 11 percent. Small progress, thank you CBN governor.

A true patriot.

Angelstartups:
For a developing country like Nigeria, reducing MPR from 13% by 200 basis points to 11% is a positive move and a welcome development. MPR is a benchmark rate at which commercial banks can borrow from the Central Bank of Nigeria, with a corridor set at +/- 200/700 basis points. Which means the CBN can borrow banks at between 4%-13% interest rate. These are the implications:

Short-term consequence/ market reaction:
Further impact on short-term borrowings like the T-bills which may likely fall further, thereby reducing investments in short-term financial assets. Here, you will see more foreign portfolio investors (FPIs) pulling their funds out of Nigeria
Impact: Short-term
Our Verdict: No worries for Nigeria

With the FPIs pulling their funds out of Nigeria, there will be serious pressure on the Nigerian currency- Naira which will impact the exchange rate. This will however be in the short-term.
Impact: Short-term
Our Verdict: No worries for Nigeria, except for importers which then will have serious inflationary pull (cost-push) on Nigerian consumers. Because Nigeria is still highly import-dependent, the CBN must watch the pressure on inflation closely

Banks will now be able to borrow at a reduced rate which will impact positively on their bottom-line in the short-term, as they continue to lend at existing rates in the short term, thereby able to generate more income, more profits for shareholders till they begin to align their lending rate to a reduced MPR.
Impact: Short-term
Our Verdict: No worries for Nigeria

With the reduction in CRR from 25% to 20%, it means the banking system is now more liquid that ever before and therefore they can only do two things with the funds with them:
Either place it in short-term financial assets like Treasury bills or long-term assets like Bonds
or begin to take some more risks and lend to the real sector to earn more returns
Implication/ reactions:
If the banks take the funds to purchase T-bills, the pressure of demand on T-bills will go up which will inadvertently pull down the rates CBN will offer. Similar effect will be seen with the Bond market, where the more the demand, the lower the yields expected. And gradually, in the short-term, rates, yields from T-bills and Bonds will further crash than we are witnessing today.
Our Verdict: A good one for the Nigerian economy as banks will rather take real sector risk that is well-calculated and earn around 20% interest per annum, rather than fix the money in T-bills at 2-4% per annum risk-free. We will see more funds beginning to go towards the real sector.

On Foreign Investments in Nigeria:
Reaction: There will be less and less of Foreign Portfolio Investments in Nigeria however, there will be more Foreign Direct Investments (FDI) since these FDIs prefer a lower cost of borrowing in Nigeria, to set up their companies/ factories and employ Nigerians to grow and make profit. Foreign Direct Investments like those of Procter and Gamble (P n G), Guinness, Heineken, MTN, Airtel, and so on, will certainly be able to also borrow at a reduced rate from Nigerian banks and grow their businesses to expand their factories, create more jobs for Nigerians, make more profit and expand further.
Impact: More profits lead to expansion which leads to job creation for Nigerians
Verdict: More Direct Investments will follow this reduction, with both local and foreign direct investors taking positions to set-up, expand and grow their businesses

With a potential increase in interest rate in the United States by the Federal Reserve, then we should expect more "hot money" will flow out of emerging economies towards a highly stable economy like U.S. FPIs is what hot money is. Nigerians should not panic, but begin to look towards Entrepreneurship, micro, small and medium businesses, as the Federal Government continue to show more drive towards bridging the huge infrastructural deficit especially in areas of Power, Transport, Housing.

The train of change is just about to kick-start and launch out, Nigerians are you ready?

The jury is out.

Regards.

sonnie10:
Now people would be able to borrow at 11% to buy Tb at 13% or even mutual funds. I see a lot of internal lending deals in the banks.

A situation were a manager would lend himself #500M and make 2% of that right away. Cool #10M!

oghenebiko:

wats d ARM money market rate?

Favolly:

Johnrake69 Please kindly answer this question.
Some of us are looking for 'greener' pastures in this money market

Johnrake69:


Actually the ARM money market fund goes with a floating rate. And since inception it hasn't done below 10% per annum. The idea is that your money yields something each day it stays with us; and the rate varies daily. The rate as at yesterday was 11.87%.

You can send me an email at kelvin.chiejine@arm.com.ng.