External Reserves Rise by $595m as Offshore Investors Stake $327m on Bonds

•  No reprieve yet for eight banks banned from FX market
• Oil prices fall on glut, Nigerian rebels

Obinna Chima with agency report

Nigeria’s external reserves, which have plummeted for about two months, pared some of the losses in recent weeks when they rose by $595 million in just five days to $26.196 billion monday.

The marginal accretion represented an increase of 2.26 per cent, compared with $25.601 billion as of August 24.

The development was attributed to the inflow of funds into the country’s fixed income market. THISDAY reported yesterday that there had been renewed interest by both foreign and local investors in the fixed income market given the attractive yields.

This was largely buoyed by a single $270 million transaction at N345 per dollar by Citibank Nigeria which bought 11-months treasury bills on behalf of offshore investors.
But other transactions were carried out at between N314.50 to N317.34 to the dollar.
The FX market registered $327 million worth of trades yesterday, about six times more than its usual volume, the Chief Executive Officer of FMDQ OTC Securities Exchange, Mr. Bola Onadele, disclosed.

Average trading is around $50 million a day on normal days, but might reach $100 million on days the Central Bank of Nigeria (CBN) intervenes in the currency market.
Traders told Reuters that the central bank sold an undisclosed amount of dollars close to the end of market session, to help prop up the naira.

Yesterday’s surge in trading came after the central bank said on Friday that it planned to offer N212.85 billion treasury bills maturing between 91-days and 1-year this week.
The central bank said it would sell N45.85 billion worth of the 91-day bills, N62 billion of the 182-day paper and N105 billion of the 1-year debt. Payment for the purchase will be effected on Thursday.

The CBN has been selling short-dated open market bills at yields as high as 18 per cent in an effort to attract offshore funds, most of whom fled Nigeria’s bond and equity markets during a financial crisis that began when oil prices plunged.

The crisis ultimately led the central bank to let the naira’s value float in June.
Yet, despite the intervention by the banking sector regulator, the spot rate of the naira fell to N318.83 to the dollar on the interbank forex market yesterday, down from the N314.95 last Friday.
On the parallel market, the naira also fell to N413 to the dollar monday, down from the N412 to the dollar last Friday.

The central bank ditched its 16-month-old peg on the naira in June and introduced a flexible exchange rate regime to allow the currency to trade freely on the interbank market.
But dollar liquidity has remained a concern in the system with periodic interventions by the central bank. The situation was exacerbated by the suspension of eight banks from the FX market last week due to their failure to return the Nigerian National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas (NLNG) Company dollar deposits to the Treasury Single Account (TSA) domiciled with the CBN.

However, at the end of the meeting monday between the Body of Bank CEOs that met with the CBN on the suspension of the eight banks, the central bank still did not readmit the financial institutions into the FX market.

“The ban has not been lifted, but the central bank is looking at it positively and we expect that in the coming days the matter would be resolved,” a source told THISDAY.
A bank CEO, who was at the meeting, also confirmed that the meeting was positive and also dwelt on measures to improve liquidity in the FX market.

He said: “I can confirm that we met and it went very well. We discussed the situation in the forex market and the speculative pressure that persists due to insufficient dollar supply.
“On the eight banks suspended from the market, we all agreed that the ban will in itself make it impossible for the affected banks to repay the dollar deposits belonging to NNPC and NLNG, could further hamper the efforts they were already making to raise the funds from offshore sources, and could cause a run on the banks.

“So we are hopeful that the CBN will consider the plea we made so as to prevent a systemic crisis and unintended consequences on the entire economy.”
The bank CEO, who preferred not to be named, expressed optimism that the matter would be resolved soon.

Oil Prices Fall

In the oil market, prices settled down more than one per cent yesterday, snapping two consecutive days of gains, on caution over galloping Middle East crude output and a firmer dollar boosted by speculation of a U.S. rate hike by year-end.
A pledge by Nigerian militants to end hostilities against the oil industry also appeared to have paved the way for more crude exports from Africa’s No. 1 producer, which experienced numerous pipeline blow-ups and other disruptions to output earlier this year.

Key Middle East oil producer Iraq, which has exported more crude from its southern ports in August, will continue ramping up output, its oil minister said on Saturday.
The world’s top crude exporter Saudi Arabia has also kept output at around record levels this month, reported Reuters.

The dollar hit a three-week high against the yen after Federal Reserve Chair Janet Yellen bolstered expectations in a speech on Friday that the central bank would raise interest rates soon.
A stronger dollar makes commodities denominated in the greenback less affordable for holders of other currencies.

The focus on production and the strengthening dollar offset data from energy monitoring service Genscape, showing a drawdown of 287,444 barrels at the Cushing, Oklahoma delivery point for U.S. crude futures during the week ended August 26, traders who saw the Genscape report said.
Brent crude LCOc1 settled down 66 cents, or 1.3 per cent, at $49.26 a barrel.
U.S. West Texas Intermediate (WTI) crude CLc1 also finished down 66 cents, or 1.4 per cent, at $46.98.

Oil rallied with few stops from early August until mid last week after hints by Saudi Arabia and fellow members of the Organisation of the Petroleum Exporting Countries (OPEC) that they might agree to an output freeze with non-OPEC oil producers at a meeting in Algeria on September 26-28.
“The market is increasingly likely to discount the outcome of the event, given, even in the instance of a freeze being agreed, compliance will be an issue,” Barclays said in a report.
Despite that, some analysts cautioned investors against taking an outright short position on oil, as OPEC was likely to counteract with production freeze talk.

“While we see high probability of some 80 to 90 per cent of a return to $39 WTI, we also feel that achievement of this objective could still be some four to five weeks away,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Despite a rebound this year, oil has continued to trade at less than half of mid-2014 peaks above $100 due to glut fears. Senior officials at Shell and ConocoPhillips told an industry conference in Norway the oversupply could extend into 2017.