Market Buzz: Central Bank’s Actions, Auctions Implementations
Prologue
As the first month came to an end, the Central Bank conducted the month’s last OMO auction, featuring various tenors. The FGN Bonds auction had its own twists, with all tenors maintaining the previous stop rates. Behind the scenes, the Central Bank raised concerns about banks’ foreign currency exposures and introduced prudential requirements. In a surprising move, the CBN announced changes to the Cash Reserve Requirement (CRR) framework, discontinuing daily CRR debits. The new two-phase approach involves an incremental element and a 50% CRR levy on banks not meeting the minimum Loan to Deposit Ratio (LDR). As the financial drama unfolds, market players wait with bated breath, mindful of the Central Bank’s influence on sentiments and the crucial role of regulatory clarity in stabilising the Nigerian financial market.
In the last two weeks (between January 22, 2024, and January 26, 2024), both WTI Crude Oil and Brent Oil experienced positive trends, with WTI showing a slightly higher percentage change. However, in the subsequent week (January 29, 2024, and February 02, 2024), both oil variations faced declines, with WTI Crude Oil displaying a more significant negative change when compared to Brent Oil. Various factors, including global economic conditions, geopolitical events, and supply and demand dynamics in the oil market, may have influenced these fluctuations.
The 2nd OMO auction of 2024, conducted on January 29, 2024, saw the CBN mop up a total of N350bn compared to the sum of N300bn conducted on January 15, 2024. Stop rates on the 92-day and 176-day were the same as the 92-day and 183-day in earlier auction. The 365-day bill saw a 50-bps drop-in rate from the last auction with N65bn more sold on tenor, reduced amounts sold on lower tenors. Based on the results, it is clear that the market has an appetite for longer tenured securities.
Likewise, the Federal Government of Nigeria (FGN) Bonds auction was held on the same day where 2027, 2029, 2033 and 2038 bond maturities were offered and closed at a stop rate of 15.00%, 15.50%, 16.00% and 16.50% respectively, maintaining the same stop rates as the previous auction close except for 2027s which were recently added to replace the 2053s. DMO raised a total of N418.2BN at the auction compared to N273.6BN in December 2023.
Market Buzz: Central Bank’s Actions, Auctions Implementations
Moving on, the Central Bank of Nigeria (CBN) has expressed concern over the growth in foreign currency exposures of banks through their Net Open Position (NOP). To manage risks, the CBN has introduced prudential requirements, including a 20% short or 0% long limit for the overall foreign currency assets and liabilities relative to shareholders’ funds. Banks exceeding this limit were expected to adjust their positions by February 1, 2024. Additional requirements involve daily and monthly computation of Net Open Position (NOP) and Foreign Currency Trading Position (FCTP), maintaining high-quality liquid foreign assets, adopting natural hedging, aligning interest rates for borrowing and lending, and obtaining CBN approval for Eurobond early redemptions. The letter signed by Dr Hassan Mahmud, Director, Trade and Exchange, and Ms Rita Ijeoma Sike stated that non-compliance may lead to sanctions or suspension of banks from the foreign exchange market.
Recall that in Volume 74 of our newsletter, we mentioned how the market sentiments will be heavily swayed by the Central Bank’s further communications or actions, and regulatory clarity and consistency which will be pivotal in stabilising market expectations and alleviating the prevailing unease. We equally speculated that the CBN’s adeptness in effectively articulating its policies and furnishing a lucid roadmap for monetary decisions will be instrumental in restoring confidence and stability within the Nigerian financial market. On Saturday, February 3, 2024, some National Dailies published headlines stating that the FG would be converting $30bn of domiciliary deposits to Naira, headlines which the CBN strongly denied. We will continue to monitor headlines as there have been various arguments for and against the adoption of this policy.
In a letter signed by Dr Adetona S. Adedeji, the Acting Director of the Banking Supervision Department, on February 2, 2024, he stated that the CBN is implementing changes to the Cash Reserve Requirement (CRR) framework, discontinuing daily CRR debits. The new mechanism involves a two-phase approach, utilising the incremental approach for the existing ratio (32.5%) applied to increases in banks’ weekly average adjusted deposits in the first phase. In the second phase, a CRR levy of 50% of the lending shortfall will be imposed on banks not meeting the minimum Loan to Deposit Ratio (LDR). Banks will receive details of applied charges and their computation rationale.
Market Highlight: Vol. 92
- Nigeria’s FX reserves dip by over $2 billion in less than one month, hitting the lowest level in over six years.
- BDCs now buying dollars at ₦980/$, naira appreciating faster than expected – ABCON President.
- Customs’ revenue at Tincan Port increases by 139% in Q1 2024.
- UBA seeks shareholders’ approval to issue 10.8 billion shares.
- Nigeria records ₦234 trillion e-payment transactions in Q1 2024.
- NGX urges FG to drive listings to deepen the capital market and boost tax revenue.
- Transcorp Power reports N28.772 billion pre-tax profit in Q1 2024.
- Egypt, Ghana, Nigeria, and others emerge as African countries with the highest T-bill yields in Africa.
- Pension Fund Administrators (PFAs) channelled 72% of investments in fixed-income assets in 2023
Local News
IHS deploys 10,000 kilometres of fibre cables to boost broadband in Nigeria.
Nigerian National Petroleum Company Limited (NNPCL) advances talk with South Korean Consortium for Gas Projects in Nigeria.
Lekki Deep Seaport receives its first LNG-powered (liquefied natural gas) vessel.
MTN Group commits $251 million to infrastructure in Benin.
FG allocates N1.3 trillion, 4.6% of its 2024 fiscal year budget to Nigeria’s health sector.
Nigerian National Petroleum Corporation (NNPC) borrows $1.036 billion to acquire a 20% stake in Dangote Refinery.
Global Developments
Oil prices drop by 2% over rumors of Israel-Hamas truce.
IMF downgrades Nigeria’s economic growth projection for 2024.
Meta shares surge by 17% in premarket trade as investors cheer first-ever dividend.
European stocks climb with earnings, central banks in focus.
Volkswagen investing $1.8bn in Brazil, betting on hybrids.
Korean inflation eases more than expected as concerns linger.
