Forex Scarcity Pushes Naira Down across Market Segments

MARKET INDICATOR

By Obinna Chima

The naira depreciated against the United States dollars at all foreign exchange (forex) market segments last week following reports of strain in forex supply, mainly at the interbank market segment

As a result of this, the spot rate of the naira dropped week-on-week against the dollar at the interbank market to an all-time low of N292.25 to a dollar. The naira also depreciated at the Bureau de Change and parallel market segments by 2.9 per cent and 3.13 per cent to N355/$1 and N365/$1  respectively as demand at the interbank market spilled over to the alternative market segments.

This week, analysts at Cowry Assets Management Limited predicted an increased upward pressure on the foreign exchange rate as the central bank prepares to settle its obligations on its 1-month (July 2016) tenor futures contract entered on Monday, 27 June 2016 at the rate of N279/$1. The value of the maturing futures contract was put at $697 million.

Also, analysts at Afrinvest West Africa Limited pointed out that the fulfilment of the commitment is expected to stoke investors’ confidence in the operations of the interbank market going forward.

They also disclosed that second futures contract on the FMDQ OTC Futures market was sealed last week. Similar to the $20million Naira-settled Futures contract agreement between Citibank and the CBN, Stanbic IBTC also sealed a $60 million naira-settled 10 months (APR 26 2017) futures contract at N210/$1.00.

CBN Governor, Mr. Godwin Emefiele was said to have flown to Britain and the United States last week to try to lure back investors scared off by the plunge in oil prices and resulting financial turmoil. The central bank last month bowed to foreign pressure to remove the 16-month-old 197-per-dollar peg on the naira it had brought in to try and control its fall as crude prices plummeted.

Investors welcomed the move but many said they were still steering clear until Africa’s biggest economy shows signs of concrete recovery. Trade has been thin and dollar liquidity tight, leaving the central bank as the main supplier of hard currency.

Emefiele and the Deputy Governor (Economic Policy), CBN, Dr. Sarah Alade held meetings with investors in Britain and the United States, a central bank official said.

“It was more like a roadshow to get investors back into the country,” and authorities were particularly keen to boost dollar liquidity, he told Reuters.

Interbank Money Market

In line with expectations, the Nigerian interbank money market trended upwards as financial system liquidity tightened. The Nigerian Interbank Offered Rates (NIBOR) for overnight funds, 1-month, 3-months and 6-months placement tenors week-on-week increased to 22.58 per cent (from 7.79%); 15.30 per cent (from 10.96%); 16.60 per cent (from 13.14%) and 17.96 per cent (from 14.79%) respectively.

Meanwhile, yields on the Nigerian Interbank True Treasury Bills Yield (NITTY) increased for all maturities on sell pressure as yields on the 1-month, 3-months, 6-months and 12-months maturities increased to 11.09 per cent (from 8.06%); 11.86 per cent (from 10.50); 12.58 per cent (from 10.54%) and 16.90 per cent (from 12.46 per cent) respectively.

This week, the CBN will auction treasury bills worth N127.96 billion, viz: 91day bills worth N36.78 billion; 182-day bills worth N39.17 billion; and 364-day bills worth N52 billion on Wednesday, 20 July. Also, treasury bills worth N259.47 billion will mature on Thursday, 21 July, viz: 91-day bills worth N36.78 billion; 182-day bills worth N39.17 billion; 364-day bills worth N52 billion; and 174-day bills worth N131.52 billion.

“We expect NIBOR to moderate as inflows via maturing treasury bills and expected FAAC disbursements, exceed the outflows,” Cowry Assets stated.

Bond Market Review and Outlook

The bonds market sustained its preceding week’s bearish trend last week as sell sentiment persisted.

Last Monday, average yield across benchmark bond instruments rose 0.3 per cent to close at 14.4 per cent following increased activity on JUL 2034 and MAR 2036 instruments as investors tried to free up liquidity ahead of Wednesday’s Debt Management Office’s (DMO) primary bonds auction. This continued on Tuesday as average yield across benchmark bonds rose 0.1 per cent to close at 14.5 per cent.

On Wednesday, the DMO issued N30billion, N35billion and N55billion of the JUL 2021 (New Issue), JAN 2026 and MAR2036 bonds instrument at the Primary Market Auction (PMA) at marginal rates of 14.50 per cent, 14.90 per cent and 14.98 per cent respectively.

According to a report by Afrinvest, similar to recent PMAs, the total amount offered was oversubscribed by close to 2x. The DMO under allotted the JUL 2021 and JAN 2026 instruments by 15 per cent and 12.5 per cent respectively whilst the 10-Year MAR 2036 bond was over allotted by 12.5 per cent.

Also, at the bonds auction, the marginal rate of the JAN 2026 rose 0.5 per cent from the rate the instrument cleared at the June auction. Total subscription at the PMA was N232.1 billion whilst total bids ranged from 10 per cent to 17 per cent. Average yield across benchmark bonds moderated 0.1 per cent to 14.4 per cent as investors with unsuccessful bids at the PMA redirected attention to the secondary market, with increased buying interest in the MAR 2036 bond. Average yield eventually settled at 14.6 per cent week-on-week.

 In the Eurobonds market, the Sub-Saharan Africa sovereigns continued to enjoy buying interests on the back of the low interest rates expectation in the advanced markets. Increasing interest in emerging markets Eurobonds may also be linked to rising commodity prices (Bloomberg commodity index as appreciated 10.6% year-to-date). Yields on the 2023, 2021 and 2018 Nigerian sovereign Eurobonds dropped 0.4%, 0.5% and 0.3% week-on-week respectively.

“We expect yields in the local bonds market to moderate in the week ahead as activities in the secondary market strengthens, considering the number of unsuccessful bids at the bonds auction during the week. Interests in FGN Eurobonds is also foreseen to persist in the week ahead,” the Afrinvest report added.

EFInA Offers Bank $2m Grant to Promote Financial Inclusion

The Enhancing Financial Innovation & Access (EFInA), a financial sector development organisation has announced the release of an innovation grant in the sum of $2 million to support First City Monument Bank (FCMB) Limited with its “Group Lending and Agency Banking” project, which provides financial services and access to credit facilities for the financially excluded population.

FCMB Group Lending project is a digitised credit and savings solution, which facilitates instant account opening with debit card issuance for online real time transactions, driven by point of sale (PoS) and mobile devices.

The EFInA Innovation Grant will enable FCMB extend facilities to prospective customers in twelve states – Bauchi, Kaduna, Sokoto, Niger, Kwara, Lagos, Oyo, Ogun, Akwa Ibom, Rivers, Cross River and Abia States.

Speaking on the grant, the Chief Executive Officer of EFInA, Chidinma Lawanson, disclosed that the EFInA Access to Financial Services in Nigeria 2014 survey had shown that 42.7 per cent of the total female population were financially excluded, compared to 35.8 per cent of the total male population.

“To this effect, the FCMB Group Lending project seeks to drive financial inclusion by targeting low-income women and micro business owners directly through digital financial services and agent banking.

“The project is estimated to impact over 200,000 customers, by providing them with a minimum loan of N30,000 per beneficiary, including a compulsory savings element of the loan which will deepen the savings culture among the financially excluded population. In line with EFInA’s focus to increase access to financial products and services to the low income population, especially women, the project is also designed to empower women by recruiting female agents in the target communities,” she said.

Through the innovation grant, EFInA aims to promote financial inclusion through market development by enabling provision of appropriate financial products and services at an affordable price to micro business owners and those who are currently financially excluded.

According to the Group Managing Director/CEO of FCMB Limited, through the project, the low income population will be provided with access to credit, savings and other value added services such as funds transfers and bill payments.

“The Group lending project will drive financial inclusion by increasing access to financial products and bring financial services closer to the unbanked adult population: through the deployment of agents in communities without financial service providers.

“The project will be highly driven by technology to create a distinct offering from other existing micro lending businesses. The automation of loan processing, disbursement and repayment via POS/Mobile solutions will ensure an efficient and swift loan disbursement and collection process,” he added.