• Banks to get refunds from CRR
• S&P affirms Nigeria’s rating at B+, stable outlook
As commercial banks struggled to comply with the federal government’s directive on the treasury single account (TSA) whose deadline elapsed on Tuesday, the Central Bank of Nigeria moved to ease liquidity in the banking system, in response to a severe liquidity squeeze in the interbank market.
The CBN, THISDAY gathered, moved to make refunds to commercial banks for the equivalent of the amounts they had transferred to the TSA from the cash reserve ratio sterilised with it.
But before the CBN contacted the banks, sources said they made no bids on the interbank money market as they awaited instructions on how to comply with a directive to transfer government revenues into a single account with the CBN.
President Muhammadu Buhari had set a deadline of September 15, 2015, for full compliance with his directive that all revenue due to the federal government or any of its agencies must be paid into the TSA or designated accounts maintained and operated in the CBN, except otherwise expressly approved.
He had directed the MDAs to ensure strict compliance with the deadline to avoid sanctions.
In addition, the central bank last week threatened to impose severe sanctions on any bank that failed to comply with the deadline.
But as commercial banks scrambled to beat the deadline yesterday, the overnight tenor of the Nigerian Interbank Offered Rate (NIBOR) rose significantly by 84 per cent to 91 per cent yesterday, from 6.7083 per cent at which it closed on Monday.
This was clearly a reflection of the illiquidity in the system. Also, while the one-month tenor increased to 16.2805 per cent yesterday from 15.2144 per cent the previous day, the three-month tenor climbed to 16.7992 per cent and the six months tenor also closed higher at 17.8889 per cent.
In response to the liquidity squeeze, the CBN at 8.01 pm yesterday wrote an email to all bank MDs/CEOs, CFOs and treasurers, asking them to confirm the amounts their banks had transferred to the single account to enable it compute the “applicable CRR for immediate refund”.
Speaking to THISDAY, an analyst at Ecobank Nigeria, Mr. Kunle Ezun, confirmed the liquidity squeeze in the market saying: “The market is down liquidity wise. Nobody thought that the effect of the TSA will be this massive. It is seriously affecting the interbank money market.”
Also, the Managing Director of FMDQ, Mr. Bola Onadele, who also confirmed this however stressed that although liquidity was tight in the interbank money market, “the securities market traded seamlessly”.
However, a bank treasurer who pleaded to remain anonymous, said if the liquidity squeeze in the market continues to the next day, it might affect appetite for today’s (Wednesday) bond auction. He said the CBN might need to intervene in the market.
The Managing Director/Chief Executive Officer, Lead Capital Plc, Mr. Abimbola Olashore noted that although banks are not be happy with the TSA, “but it makes sense for us as a nation”.
“It doesn’t make sense for government to put money in one bank and still borrow money from the same bank. So the same monies that are funding government are its monies in the bank. So now, the TSA will eliminate all that.
“All our revenue should go into the TSA and that arbitrage the banks were doing with government’s funds would be eliminated,” he said.
The TSA is aimed at addressing a decades-long lack of oversight in state revenue and is projected to see more than $6 billion (N1.188 trillion) of public funds transferred from banks to the central bank.
But financial analysts, according to the UK-based Financial Times (FT) newspaper, have warned that such rapid outflows will worsen a looming credit crunch facing Nigeria’s financial sector, one of the chief concerns cited by JPMorgan last week when it yanked Nigeria from its influential emerging bonds index.
“If that happens in one day clearly what you’re going to see is significant shock in the system where there is a serious lack of liquidity and interest rates which are already very high will go even higher,” said an executive at one of the larger commercial banks.
“There is very little lending going on in the system and in this type of interest rate environment the economy is starved of credit and this affects the ability of companies to invest.”
Nigeria’s economy, battered by falling oil prices and emerging market turmoil, is also under stress as uncertainty mounts about the country’s fiscal direction under Buhari, who has yet to name a cabinet nearly four months after taking office.
Several bankers in Lagos said the minimum amount that will have to be transferred by the banks holding government funds is more than N1.3 trillion naira or roughly $6.5 billion.
CBN Governor Godwin Emefiele concurred with the estimate, saying the amount “could be something” like 10 per cent of the N12 to N13 trillion in Nigeria’s banking system, reported FT.
“The amount involved is very substantial and this will further tighten liquidity,” said Phillips Oduoza, Chief Executive of United Bank for Africa (UBA) Plc.
Oduoza added that the total amount banks such as UBA would be required to transfer was not yet clear: “Initially we were told it has to do with the government agencies that actually generate revenue, but now we are hearing it will involve all the accounts maintained by various government entities with the banks — not just revenue accounts.”
JPMorgan’s decision to remove Nigeria from its GBI-EM index last week has already triggered heavy outflows from the $2 billion of local bonds the index tracks as well as a broader stock market sell-off.
With implementation of the presidential order, even less money will be in circulation, adding to the upward pressure on domestic bond yields, said Mohammed Garuba, Head of Asset Management at CardinalStone, an investment bank in Lagos.
Even before the JPMorgan decision, Garuba said yields were rising because of “aggressive selling” by Nigerian banks of government securities in anticipation of this directive taking effect.
In spite of the predicted financial fallout, analysts said the move, if fully implemented, was a significant step for Buhari. The 72-year-old former military ruler has pledged to root out deeply embedded corruption in a state that has failed to translate the country’s vast resource wealth into an improved quality of life for Nigeria’s 170 million people.
Razia Khan, Chief Africa Economist at Standard Chartered Bank, said the reform would bring longer-term benefits: “This is a reform that should have taken place ages ago and the fact that it’s finally coming into place now is very important.”
Meanwhile, contrary to reports by market watchers this week predicting a credit ratings downgrade to junk status by Standard & Poor’s (S&P) and Fitch following Nigeria’s eviction from the JPMorgan index, S&P yesterday retained its rating for Nigeria at B+ with a stable outlook.
In its ratings scheduled for release on Friday, September 18 but was obtained exclusively by THISDAY, S&P affirmed its 'B+/B' long- and short-term foreign and local currency sovereign credit ratings on the Federal Republic of Nigeria, stating the outlook was stable.
“At the same time, we affirmed our long-term national scale rating on Nigeria at ‘ngA’ and we affirmed the short-term national scale rating at ‘ngA-1’,” S&P said.
Justifying its rating, S&P noted that the stable outlook “reflects our view that Nigeria’s non-oil economy will continue to support GDP growth and that external and fiscal balances will not increase significantly above our current expectations”.
But it warned that it could lower the rating if Nigeria's external and fiscal positions deteriorate beyond “our current expectations, or if Nigeria's policymaking and institutional stability weaken”.
S&P stated that it could consider an upgrade if external factors improve considerably (for example, due to a sharp or prolonged rebound in the oil price), or if Nigeria's external and fiscal balances perform well above its expectations.
“The low oil price environment continues to impact Nigeria's external and fiscal balances. The poor financial position of many states prompted the federal government and Central Bank of Nigeria to offer them financial support packages.
“The Boko Haram militant group has lost significant territorial control in the northeast, but its guerrilla campaign continues to disrupt the region.
“We are affirming our long-term sovereign credit ratings on Nigeria at 'B+'.
“The stable outlook reflects our view that Nigeria's non-oil economy will continue to support GDP growth and that external and fiscal balances will not increase significantly above our current expectations,” S&P said.
It noted that its ratings on Nigeria were constrained by its view of the country’s low GDP per capita; low level of development outside the oil sector; significant infrastructure shortcomings; internal political tensions; and weak, albeit strengthening, institutions.
“The ratings are supported by relatively low general government and external debt burdens, ample oil reserves, and fairly robust growth,” the ratings firm added. http://www.thisdaylive.com/articles/cbn-eases-liquidity-as-tsa-compliance-rattles-interbank-market/220335/ lalasticlala |
