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Tag: cbn

  • The Sanusi – CBN years

    The Sanusi – CBN years

    With less than 12 months left for Sanusi Lamido Sanusi to complete his first term of five years as Central Bank of Nigeria (CBN) governor, talks are on in high places on who will succeed him. By now, the desk of President Goodluck Jonathan may be full with the resume of those who feel that they have what it takes to do the job. The CBN governor’s job is not a piece of cake. It is a job with a lot of headache

    At this critical juncture in our country’s life, we need a CBN governor, who is versed in economic matters, and can hold his own among his colleagues globally. What is the worth of a CBN governor who cannot stand head to toe with Britain’s Chancellor of the Exchequer or America’s Chairman of the Federal Reserve?

    Our CBN governor should not feel intimidated by others because they are from the so – called developed economies. No, he should be bold, assertive and daring in the discharge of his duties because on him rests the hope of a nation, talking monetarily, that is. As an international scholar, Sanusi’s predecessor, Prof Chukwuma Soludo, had what it takes to play on the global field. When Soludo spoke while in office, the world listened because he was seen as a man of clout. Despite that, Soludo did not get a second term, which he badly wanted to enable him consolidate on the gains of his first term.

    However, being an international scholar will not automatically translate to success for one as CBN governor. The CBN chief should also understand the terrain in which he operates and do all he can to win the confidence of the people. As CBN governor, has Sanusi been able to do this? In the past four years that he has been in office, what can he point to as his achievements? Can he be said to have enjoyed cordial working relationship with his fellow bankers/economists without breaching the trust reposed in him by the government and the people of this country?

    There is need for us to look at these issues before he leaves so that our leaders will be guided in appointing his successor. Sanusi has already said he is not interested in a second term. Even if he has such an interest, chances are that he may not be considered again, considering his relationship with the present government, Sanusi knows that he is not in the good books of this administration and, as such, it will be implausible to seek a renewal of his tenure under this presidency. He knows that is a dream that will never come true. But should the appointment of a CBN governor be based on relationship with the government in power or on competence?

    Both factors matter because there is no way any president will appoint someone as CBN governor if they cannot work in sync no matter how competent that person may be. Sanusi was lucky because he was appointed by the late President Umaru Yar ‘ Adua, who believed in him. The late president, according to Segun Adeniyi in his book : Power, Politics & Death : A front – row account of Nigeria under the late President Yar ‘ Adua was virtually over the moon following Sanusi’s appearance before the Senate for screening. Segun quoted the late Yar ‘ Adua as saying :

    ‘’I watched some of the exchanges between Sanusi and the senators, and I was impressed. I think the guy is brilliant, but I have also been told about his integrity. I hope I made the right choice’’. Would the late Yar ‘ Adua have said the same thing about Sanusi today if he was alive? The late Yar ‘ Adua gave Sanusi a free hand to run things. Going by Segun’s account in his book, the late president seemed to have more faith in Sanusi than the then Attorney – General of the Federation, Michael Aondoakaa (SAN). This was why he authorised Sanusi to bypass his minister in order to get some bank chiefs.

    Under his banking reform, Sanusi published the list of debtors in newspapers shortly after he took office. We were told the amount these big debtors were owing and they were asked to pay up or face prosecution. For weeks, the alleged debtors and their banks engaged in newspaper battle over the issue. Some debtors denied owing their banks, while those who admitted owing, said they were servicing their debts. Many of the banks rose in support of their customers, saying they were enjoying cordial relationship with them, debt or no debt. The question now is how much of those debts have been defrayed?

    Will it not be good to also publish the list of those who have paid just as the CBN went to town a few years ago with the names of those owing? By far, the most controversial action taken by Sanusi is his removal of the chief executives of Intercontinental Bank, Finbank, Afribank, Oceanic Bank and Union Bank. In one fell swoop, Erastus Akingbola (Intercontinental), Okey Nwosu (Finbank), Sebastian Adigwe (Afribank), Mrs Cecilia Ibru (Oceanic) and Bartholomew Ebong (Union) were sent packing by Sanusi because of alleged mismanagement of funds. He also accused them of stealing. He took the action following the examination of the banks’ books by CBN and the Nigeria Deposit Insurance Corporation (NDIC).

    In law, you don’t punish a

    suspect before his trial. He is

    punished after trial. But in CBN’s handling of this matter, the reverse is the case. In a few days from now, it will be four years that Sanusi removed these bank chiefs and even sold their banks to boot. Many of the things Sanusi claimed to have found out about these banks were for long pepper soup joint gossips during which revellers sat over bottles of beer to give what they consider insider accounts of the rot in our banking system. It is good that Sanusi has unearthed all these as a risk management expert.

    But many find it hard to believe that such a thing could be happening in the sector and yet Soludo, his predecessor, was giving the banks a clean bill of health. By his action, Sanusi is insinuating that Soludo was privy to all the mess. As Segun asked in his book, ‘’the pertinent question therefore was, how could all this have escaped Soludo?” It is a difficult question to answer, but in clearing the ‘mess’ he believed he inherited Sanusi should not be seen doing things to tarnish the reputation of his predecessor and the affected bank chiefs. He should bear in mind that those hailing him today for doing a good job will not hesitate to join others in stoning him if tomorrow they hear that he was involved in one deal or other while in office.

    Some of the questions that will be asked once he leaves are : Is it true that the affected banks were forcefully taken over to discredit Soludo’s banking consolidation? Is it true that two banks were spared similar treatment because of their owners’ connection with the power – that – be? Is it true that BankPHB was seized in order to return the old Habib Bank to the Yar ‘Adua family to reverse the effect of the Soludo banking reform? Was due process followed in the acquisition of the affected banks? How was it possible for smaller banks to acquire some of the banks that were bigger and better than them? Where did the money come from? From Sanusi’s CBN or where?

    Sanusi may believe that he has done well, but I pray that he will not have a successor who will be like him. We can only wish him well after he leaves office next year.

     

  • CRR review: Banks to confront CBN at Bankers’ meeting

    CRR review: Banks to confront CBN at Bankers’ meeting

    •We’re open to dialogue, says apex bank

    Chief executives of banks are set to confront the Central Bank of Nigeria (CBN) next month at the Bankers’Committee meeting over the recent 50 per cent cash reserve requirement (CRR) on public sector deposits.

    The bank chiefs, who spoke to The Nation on Monday, said the new policy would tighten liquidity, slow down credits, increase interest rates and the delinquency of loan defaults.

    But the CBN Deputy Governor in charge of Operations, Mr Tunde Lemo, punctured most of these augments, saying that the banking watchdog was ready for dialogue with the bank chiefs.

    The Monetary Policy Committee (MPC) had stunned the financial markets with a public sector deposit reserve requirement. While the status quo on the key monetary policy instruments was maintained at 12 per cent, the MPC introduced a 50 per cent cash reserve requirement on all public sector deposits but left those of the private sector unchanged.

    CRR is the portion expressed as a percentage of bank’s deposit balances, which banks must have as reserve, in cash, with the CBN. The percentage is usually determined by the Central Bank. The reserve ratio is one of the instruments used to influence the money supply in a country and drain out or add up excessive money from the system.

    If the Central Bank increases the percentage, the available money for the banks to lend and make other transactions will reduce and vice versa.

    Justifying its perceived excess liquidity in the economy, the apex bank, which put the total public sector funds with banks at over N1.3trillion, said 50 per cent the CRR requirement on all public sector deposits, which is expected to implemented on August 7, would mop up N650billion from the system.

    Speaking with the newspaper on this development, the bank chiefs, who opted not to have their names in print, said there is no excess liquidity in the system. They said that what they have on their balance sheets are ‘sterilised Asset Management Corporation of Nigeria (AMCON) N3trillion bonds’, which they cannot convert to cash.

    AMCON had purchased the bad loans of banks and gave them bonds, which counts as the lenders’ liquid assets.

    The bank chiefs said: “The CBN believes that there is excess liquidity but this is not true. The average bank has about 70 per cent liquidity ratio but after you remove AMCON bonds, banks are left with just 35 per cent liquidity.

    “Don’t forget that as banks get government deposits, the CBN mops it up at OMO. CBN cannot just move the CRR from 12 per cent to 50 per cent. It should have been a gradual process because the CBN is not paying any interest on these deposits.

    “The equities market will be impacted. This is already happening. People will be compelled to divest from the capital market and this would cause equity bubble.”.

    But Lemo insisted that these arguments do not hold because 50 per cent CRR is applicable to only the government’s deposits. He also said banks were free to hand over their AMCON bonds to the CBN in exchange for cash when the need arises.

    He said: “Liquidity cannot be tight because the stipulated liquidity ratio is 30 per cent and the average in the industry 68 per cent. So, the excess liquidity should have gone into credits by now. Most of the banks are seating on excess liquidity.

    “In fact, they collect these monies from the government and purchase treasury bills with and lend back to the government. The implication is that the government is spending undue percentage of their revenue to pay for their deposits with bank.

    “Once the government deposits are refunded, the government will have more money to pump into infrastructural development. The bank chiefs don’t have to wait for the Bankers’ Committee meeting, we (the CBN) are open to dialogue because we recognise the intermediation roles banks play in the economy.”

    Analysts had also commented that the new policy would have a negative effect on banks.

    An analyst with Renaissance Capital, an investment bank, Adesoji Solanke, said though it signals the desire to tighten monetary policy, the policy measure adds to the headwinds affecting the Nigerian banking sector this year and is on balance, negative for the sector.

    “We view the impact of this as negative for the banks. This is a new measure in addition to the 12 per cent CRR on all deposits, which we believe signals tightening of monetary policy, most likely to protect the naira,” he said.

  • ‘Public sector deposits hit N2.5t’

    ‘Public sector deposits hit N2.5t’

    Public sector deposits in banks stood at N2.5 trillion, about 20 per cent of total deposits between January and March, Currencies Analyst at Ecobank Nigeria Olakunle Ezun has said.

    Ministries, Departments and Agencies (MDAs) of states and the Federal Government as well as the local governments comprise the public sector.

    In an emailed report titled: “Nigeria: Indirect monetary policy tightening,” Edun said aside the Cash Reserve Ratio (CRR) which rose by N650 billion, after the Central Bank of Nigeria (CBN) increased the ratio to 50 per cent, an additional N955 billion will be removed from the economy.

    Last week, the CBN raised the CRR from 12 to 50 per cent during the Monetary Policy Committee (MPC) meeting.

    The hike, he said, suggested that the tightening effect would be immediate, which in turn could require CBN repost to rebalance liquidity demand and supply.

    The monetary policy, he said, may remain relatively unchanged in the months ahead. “Assuming no significant change to key indicators, we think the Monetary Policy Rate (MRR) will be held at 12 per cent in subsequent MPC meetings, although further indirect tightening may occur if liquidity remains above target,” he said.

    Ezun said oil production remains a key variable and the recent moderate contraction in production to 1.88 million barrel per day in June from 2.1 million barrel per day in December 2012 highlights on-going oil theft/bunkering. It also showed the impact of delayed investment that has been caused by Petroleum Industry Bill uncertainties.

    “If production continues to fall and in combination with a fall in global oil prices below $100 per day, there is a risk that Nigeria’s growth could slow owing to the high level of government spending throughout the economy,” he predicted.

    Ezun said liquidity tightening will push up the short end of the yield curve by around 40 to 50 basis points.

    “We also expect the longer end of the curve to move up, but by a smaller margin. The amount of the rise will be countered by the level of repost the CBN conducts in the days and weeks ahead to rebalance credit demand and supply. Assuming our positive inflation outlook and currency stabilise, we think foreign investors can continue to invest in one year and shorter maturity government securities with confidence that real returns will remain solid and currency risk minimized,” he said.

    He explained that pressure on forex reserves would also rise, leading to currency weakness even as the relatively expansionary fiscal stance is another concern, particularly if fiscal revenues come under strain. He noted that oil revenues account for around 75 per cent of total fiscal revenues.

    “The somewhat low balance of Excess Crude Account of $5.3 billion in May 2013 highlights the limited recourse to supplementary financing should revenue growth slow.

    “Inflation remains comfortable and the MPC estimated that the inflation outlook was good with single digit inflation likely by year-end. Inflation is likely to accelerate to low double digits driven by robust domestic demand and on-going government spending, and despite the recent choking-off of liquidity.”

     

  • Why Discount Houses can’t rival banks, by CBN

    DISCOUNT Houses are finding it difficult to compete with banks as authorised dealers in money market because of poor capital,” the Central Bank of Nigeria (CBN) has said.

    The CBN Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for 2012 to 2013 classified banks and discount houses as authorised dealers in money market instruments.

    CBN Director of Communication, Ugochukwu Okoroafor, told The Nation that Discount Houses, have not been able to compete with banks since 2005 after the capital base of banks increased from N2 billion to N25 billion. The capital base of Discount Houses has remained around N2 billion since then. Discount Houses are meant to facilitate the issuance and sale of short-term government securities and other eligible short-term commercial bills.

    Okoroafor said the consolidation of that era favoured banks against discount houses in their scramble for businesses. He said since many of the banking needs of people provided by discount houses were now done by banks, the operating environment has steadily risen against discount houses.

    But Emmanuel Ebuk, an Executive in Consolidated Discount Limited (CGL), said the problem of discount houses had nothing to do with capitalisation. He said CDL has a capital base of N27 billion, and that many other operators in the sector are well-capitalised.

    On last week’s withdrawal of licence of the Express Discount Limited (EDL), Okoroafor said the CBN does not bail out shareholders but depositors, adding that since the firm only serves about 0.3 per cent of the banking public, it was not wise to deploy public sector funds in its rescue.

    Information obtained from the EDL website showed that the firm was incorporated on November 25, 1992 as a private limited liability company and specialised financial institution.

    It was licensed by the CBN on July 22, 1993 to carry out the functions of a discount house and started operations on Friday, July 23, 1993.

    The EDL was owned by a group of financial institutions namely, Bank of Industry, Keystone Bank, Fin Bank, Omis Investment Limited, NICON Insurance, Niger Insurance, Skye Bank and Enterprise Bank.

    The last financial statement of the firm obtained in its website was published in December 2009 during which it made a loss after tax of N1.93 billion. The last dividend paid to shareholders was in 2008 when it paid N0.9 kobo against N0.34 kobo paid in 2007.

    The CBN had last Friday announced the revocation of the operating licence of EDL over alleged sharp practices and failure to recapitalise.

    CBN Director, Banking Supervision, Mrs. Tokunbo Martins, said in a statement that the discount house had maintained false and misleading books of account and had huge exposure to margin loans. She added that the firm had engaged in activities, which contravened Discount House guidelines. It had also indulged in distressed borrowing by sourcing funds at rates higher than it could earn by investing the funds, she added.

    Mrs Martins said the firm had negative shareholders’ funds and required a minimum capital injection of N21 billion if it were to remain in business.

     

  • Investors worry over CRR impact on banks’ profits

    Investment advisers and fund managers might reconsider their banking stocks portfolios in the light of last week’s decision that increased cash reserve ratio (CRR) for public sector deposits in banks to 50 per cent.

    Market analysts said the decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will continue to have ripple effects on market considerations of banking stocks at the stock market.

    The MPC last week increased the CRR for all public sector deposits from 12 per cent to 50 per cent, citing the need to manage the liquidity in the system in a more cost effective manner. The apex bank stated that the new CRR will be applied on Federal, State and Local Government deposits and all Ministries, Departments and Agencies (MDAs) of government. It however, retained CRR of 12 per cent for non-public sector deposits. Besides, it left unchanged the Monetary Policy Rate (MPR) at 12 per cent with the symmetric corridor of +/-200 basis points around the MPR.

    The implementation of the new CRR for the public sector will take effect from the next CRR maintenance period commencing on August 7, 2013. In a letter to all banks dated July 25, 2013, the apex bank stated that it would discontinue the remuneration on “excess” above the CRR of 8.0 per cent.

    Investment analysts said the 50 per cent CRR could undermine banks’ earnings given the large size of public sector funds.

    Investment advisers at Analysts at Morgan Capital Group said they have placed a hold on all banks under their coverage pending further analyses to determine the extent of impact on banks’ returns.

    According to analysts, it is expected that the new policy will have material impact on the bank’s earnings since most of the top banks have exposure to public sector funds.

    “The reluctance of banks to be more aggressive with loan book growth, which commands higher interest margins and would have been a buffer to mitigate some of the expected revenue losses the new policy would have on the banks income will also be heightened. Also material is the exposure of banks to Government bonds and how much of this public sector funds have been committed to these bonds, particularly as bond yields are going up, which means bond prices are crashing and banks are expected to mark their exposure to market as at December 31, 2013 and any other reporting dates,” Morgan Capital stated.

    Analysts however, said the reaction of the management of each bank will determine the extent of impact of the new CRR on the bank, noting that management with the swiftest and efficient reaction to the policy that will emerge the winner.

    Investment advisers at FSDH Merchant Bank said while they have not been able to ascertain the actual amount of the public sector deposits in the market in order to accurately gauge the impact of the policy on the liquidity in the market; it was safe to assume that public sector funds were large enough to determine market direction.

    “We think the public sector fund is large, as market liquidity and inter-bank rates swing in line with the injections and withdrawals of public sector funds. We expect inter-bank rates and yields on treasury bills to rise immediately the debit hits the system. Banks may also adjust their lending rates upward in line with the realities, while they intensify their efforts in mobilising non-public sector fund,” FSDH stated.

    Analysts underscored that need for banks to continue to grow the risk assets in order to ensure adequate returns on capital employed.

  • CBN takes cashless policy awareness to villages

    The Central Bank of Nigeria yesterday said they have begun arrangements to take the cash-less policy campaign to all villages in Rivers State.

    The apex bank of Nigeria made this declaration when its regional office in Rivers State organised a one-day awareness campaign in Port Harcourt, Rivers State capital.   Addressing the crowd at the awareness campaign, the CBN Deputy Project for Leads and Share Services Office, Mr. Chimeno Eleonu Emenu, said as part of fulfilling Nigeria’s ambition to be one of the best economies before the year 2020, the CBN has decided to change to cash-less economy.

    He said the objective is to reduce physical usage of cash by members of the public, which if accepted will reduce armed robbery, election rigging, political looting, and general fraud in the banking system.

    He said, “For us to succeed in this policy, we need the cooperation of the public. That is why we have designed a programme to educate the villagers on how to move away from cash, to an easier way of transacting money that will reduce risks associated with carrying cash from one place to another.

    “We have started the sensitisation programme, which is part of this one-day awareness campaign on cash-less policy of the CBN. The policy will help us to reduce the huge cost of providing banking services and the money saved will be used to lend credit to Nigerians.

    “It will also help the CBN and commercial banks to better manage our economy and ensure that our monetary policy works. So there is no going back in taking the campaign to villages in Rivers State and Nigeria as whole.”

  • CBN directs banks to segment public sector funds

    CBN directs banks to segment public sector funds

    The Central Bank of Nigeria (CBN) yesterday mandated banks to report seperately, the public sector funds in their monthly and daily bank returns.

    In a circular to lenders, CBN Director, Banking Supervision, Benjamin Fakunle said the banks will from August 7, categorise their deposits under the Federal, State and Local Government deposits, with the reports included as additional memorandum items.

    He said the policy was fallout of a review of recent development in the economy during the last Monetary Policy Committee (MPC) meeting.

    He said the reporting format requires that banks group their deposits under a specified code. He said Federal Government Ministries, Departments and Agencies (MDAs) and companies’ naira deposits will be reported under Federal Government Demand Deposits.

    All Federal Government MDAs and companies’ domiciliary accounts deposits will come under Federal Government Time Deposits while all state government’s MDAs and companies’ naira deposits fall within State Government Demand Deposits.

    Also, all state government MDAs and companies’ domiciliary accounts deposits in naira will fall under State Government time deposits while local government’s MDAs and companies’ naira deposits will be reported under Local Government demand deposits category.

    Fakunle said local governments’ MDAs and companies’ domiciliary accounts deposits in naira will fall under local government time deposits.

    He said the banking watchdog would closely monitor the implementation of these decisions, while banks were advised to ensure strict compliance with this directive and render their reports transparently and accurately or be sanctioned.

    Meanwhile, the apex bank has extended by one year, contract for pre-shipment inspection agents (PIAs) for oil and gas export under the Nigeria Export Supervision Scheme (NESS) from June 7, 2013.

    Government had on May 4, appointed three pre-shipment agents namely Globalscan Systems Technology Limited; JBIS Integrated Resources Limited and Robinson International Energy Limited.

    Others are Trobel International Nigeria Limited, Candid Oil Services Limited and Gulf Inspection Services Limited. Also, Messers Arlington Securities Limied and Swede Control Intertek Limited. They were appointed to oversee the PIAs.

  • Automatic agent licences for banks, MfBs, says CBN

    Automatic agent licences for banks, MfBs, says CBN

    Commercial banks and microfinance banks (MfBs) will get automatic licences to run agent banking when the guideline is reviewed soon, Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, has said.

    He spoke in Lagos during the launch of the Geospatial mapping of financial institutions in Nigeria in conjunction with the Bill and Melinda Gates Foundation (BMGF).

    He said it was important to do the review and make it clearer because of initial challenges in banking.

    Sanusi said agent banking is part of the CBN’s determination to enhance financial inclusion in the country and that the target is 80 per cent adults, with about 70 per cent from in the formal sector.

    According to him, there will be specific targets for services, such as payments, savings, credit, insurance and pensions outlined.

    Sanusi said: “Achieving these targets will require the collaborative efforts of stakeholders in the financial industry. And with this in mind, the Central Bank of Nigeria has approved a number initiatives centered on improving inclusion some of which include the development of Agent Banking Guidelines, and tiered Know-Your-Customer (KYC) requirements to encourage financial institutions to reach underserved segments, the development of a Consumer Protection Framework under a newly set up Consumer Protection Department and a National campaign to promote Financial Literacy.”

    According to the CBN, the agent banking guideline is in line with the powers conferred on the banking watchdog by Section 2 (d) of the CBN Act, 2007 and Section 57 (2) of the Banks and Other Financial Institutions Act (BOFIA), Laws of the Federation of Nigeria, 2004.

    The law empowers the CBN to issue guidelines for the maintenance of adequate and provision of reasonable financial services to the public.

    The objective of agent banking, it said, is to provide for its minimum standards and requirements, enhance financial inclusion and provide for this special banking as a channel for offering banking cost effectively.

    Agent banking is the provision of financial services to customers by a third party (agent) for licensed deposit taking financial institution and/or mobile money operator (principal).

    The agent banks are expected to receive cash deposit and withdrawal, carry out bills payment (utilities, taxes, tenament rates, subscription etc.), payment of salaries and funds transfer services (local money value transfer). They are also expected to check balance enquiries, generate and issue mini-statements, collect and submit account opening and other related documentation, among others.

    They are also to carry out cash disbursement and repayment of loans, payment of retirement benefits, cheque book request and collection, collection of bank mail/correspondence for customers, other activities assigned by the apex bank.

    The applications for licence will be accompanied by board’s approval. The document will outline the strategy of the financial institution, including current and potential engagements, geographical spread and benefits to be derived among other factors.

    Under the guideline, super-agents are agent networks that will establish a collection of outlets or franchise in its wide network of outlets that will be under its supervision and control.

    The sole agent is expected to be an agent, who does not delegate powers to other agents, but will assume the agent banking relationship/responsibility by himself while the sub-Aawill be under the control of a super agent as may be provided in the agent banking contract.

    Also, licensed institutions are advised to renew agent agreements biennially except otherwise required while the CBN will, at least, yearly, monitor financial institutions/agent relationships, compliance with laid down guidelines and regulations.

     

    The approach for monitoring super-agent would differ from other agent types in view of the probable higher risk, liquidity management and consequences of failure. In the case of super agents the CBN shall require full disclosure on persons or entities that control more than 10 per cent or more of the share capital or has powers to exercise significant influence over the management.

     

  • CBN retains 12% interest rates

    CBN retains 12% interest rates

    The Central Bank of Nigeria (CBN) has once again pegged the interest rates at 12 per cent.

    Addressing journalists after the Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, the CBN governor, Mallam Sanusi Lamido Sanusi, disclosed that the MPC decided to hold the Monetary Policy Rate (MPR) at 12 per cent and maintain the symmetric corridors round MPR at +\- 200 basis points.

    A new twist was introduced at the last MPC meeting when the CBN governor disclosed that the committee has also decided to retain the Cash Reserve Ratio (CRR) at 12 per cent for private sector deposit and introduce 50 per cent CRR for public sector deposits.

    Speaking on what informed the apex bank’s decisions, Sanusi stated that “at the time when government is borrowing more and saving less you don’t expect monetary authorities to lower interest rates.”

    He said two concerns informed the MPC’s decision.

  • CBN may review naira exchange rate

    CBN may review naira exchange rate

    The Central Bank of Nigeria (CBN) may lower its targeted trading range for the naira as dwindling foreign-exchange reserves and falling oil prices undermine its ability to halt the currency’s slide, FBN Capital Limited has said.

    Policy makers may adjust the exchange rate to within a three percentage-point band of N160 per dollar from N155 over the next six to nine months, Gregory Kronsten, an analyst at the Lagos-based FBN Capital, said in an e-mailed response to questions over the weekend. Lower crude prices are making “it more difficult for the CBN to hold the lin on the naira exchange rate,” he said.

    FBN Capital is Nigeria’s fourth-biggest broker by trading value on the Nigerian Stock Exchange (NSE), according to the bourse.

    The naira traded above the band for the first time on a closing basis on June 7 on the interbank market and has ended trading above the peg each day since June 25. The apex bank, which sells dollars at auctions on Mondays and Wednesdays to support the naira, sold $700 million last week, compared with $600 million the previous week, at 155.76 to 155.79 per dollar.

    CBN Governor Lamido Sanusi Lamido, in November 2011, devalued the midpoint of the bank’s exchange-rate range at its twice-weekly auctions from N150 The nation’s foreign reserves have declined more than two per cent this month to $46.9 billion on July 18 as the apex bank boosted sales to meet demand amid declining oil prices, the source of more than 95 per cent of Nigeria’s foreign exchange income.

    The naira strengthened less than 0.1 per cent to N161.18 per dollar yesterday. The currency has weakened three per cent this year compared with a 0.5 per cent decrease in the currency of Angola, which vies with Nigeria as Africa’s top oil producer.

     

     

     

     

    Bonny Light crude, Nigeria’s main export, rose 0.1 per cent to $109.98 per barrel last week. The grade climbed to as high as $120.54 early in the year and fell as low as $100.31. Nigeria’s oil output slid for a third month in June, dropping by 70,000 barrels a day to 1.88 million barrels amid theft and damage to infrastructure, the International Energy Agency, said July 11.

    “The oil price has rebounded lately and looks more supported” even though “crude oil production reached new lows in June,” Samir Gadio, an emerging-markets strategist with Standard Bank Group Limited’s London-based unit, said in e-mailed comments. “In the absence of capital inflows over the past two months, the CBN has had to step up its foreign currency auction and direct sales to banks to address the dollar demand-supply mismatch.”

    Sanusi held the benchmark interest rate at a record 12 per cent for the 10th consecutive meeting on May 21, to check inflation and stabilise the naira. The Monetary Policy Committee will probably hold the rate when it announces the outcome of its latest decision today, according to all 14 economists surveyed by Bloomberg News.

    “Despite the recent moderate decline in foreign exchange reserves, the CBN still has enough ammunition to defend the naira for some time,” said Gadio. “The risk is also that the apex bank may be tempted to tighten liquidity conditions further at the MPC, or in coming weeks, although the surprisingly low June inflation rate probably reduces the possibility of a formal hike in the interest rate for now.”

    The nation’s inflation rate fell to 8.4 per cent in June from nine per cent in May, the National Bureau of Statistics said. Yields on the country’s $500 million of Eurobonds due July 2023 fell one basis point, or 0.01 percentage point, to 5.89 per cent.

    The CBN may increase its exchange-rate band to N160 per dollar to increase costs for importers, Sewa Wusu, analyst at Lagos-based Sterling Capital Limited, said by phone. This step “can serve as a check on dollar demand, thereby reducing pressure on reserves,” he added.