Markets

NIGERIA: Reduced Dollar Demand Bolsters Naira

The naira appreciated against the United States dollar across various market segments last week amid decreased demand for the greenback. Also, the market recorded improved dollar inflow.
 
Specifically, at the Central Bank of Nigeria’s (CBN’s) regulated forex market, which opened only on Wednesday due to last Monday’s public holiday, the central bank offered $400 million but sold $382.07 million to end-users.
 
This was 39.03 per cent lower that the amount sold the preceding week. The marginal rate of the naira was N155.73 to a dollar.
 
Also, at the interbank market, the naira strengthened week-on-week against the greenback by N1.21 to N161.20 following dollar sale worth $18 million by Chevron Nigeria to some banks.
 
The naira also appreciated at the Bureau De Change (BDC) and the parallel market segments by N2.50 and N3 respectively.
 
“This week, we expect exchange rate stability against the backdrop of improved external reserves and likely sale by oil companies to fund their month-end activities,” analysts at Cowry Asset Management Limited stated.
 
Nigeria’s external reserves stood at $38.103 billion last Thursday.
 
 
NIBOR
 
The FMDQ OTC Plc last week commenced the restructuring of the Nigerian Inter-bank Offered Rate (NIBOR) in line with the principles for financial benchmarks of the International Organisation of Securities Commissions (IOSCO).
 
The company said  having  taken over as the administrator of the three Nigerian OTC financial market fixings(NIBOR), the Nigerian Inter-bank Foreign Exchange Fixing (NIFEX) and the Nigerian Inter-bank Treasury Bills’ True Yields (NITTY) from the Financial Markets Dealers Association  (FMDA) in 2013, it  was  poised to ensure the benchmarks comply with the new governance expectations.
 
FMDQ OTC said it was reforming the NIBOR  to ensure  that  over phased approaches,  it complies with the 19 principles of IOSCO which have been internationally adopted as the standards for financial benchmarks.
To this end, the Overnight, one month, three months and six months tenors were created.
 
However, interbank rates increased week-on-week for the aforementioned tenors.
While the Overnight tenor closed at 10.56 per cent, the one month at 12.56 per cent, the three months at 13.47 per cent, the six months tenor also closed at 14.39 per cent.
 
Furthermore, Cowry Assets analysts anticipated that this week, the market would record liquidity squeeze and further increase in interbank rates due to outflows for forex purchases and absence of major inflows.
 
Bond Market
Yields across all tenors swayed southwards last week, shedding an average of 0.1 per cent week-on-week on renewed investors’ appetite.
 
The bond market commenced the first trading day on Tuesday after the Easter break on a flat mood but subsequently became volatile on Thursday on the back of the April 2014 FGN Bonds Auction. The Debt Management Office reopened and auctioned two instruments, the 13.05% FGN Aug 2016 (TTM: 2.4years) and 14.20% FGN March 2024 (TTM: 9.11years) instruments.
 
Both auctions were expectedly oversubscribed by 300 per cent and 400 per cent respectively. The instruments were allotted at marginal rates of 13.14 per cent and 13.10 per cent lower than the 14.10 per cent and 14.2 per cent recorded in the March 2014 FGN Bonds auction.
 
The 9.25% FGN SEPT 2014, 15.10% FGN APR 2017 and 9.35% FGN AUG 2017 each declined 0.2 per cent week-on-week, while the 9.20% FGN JUN 2014 appreciated by 0.2 per cent.
 
According to analysts at Afrinvest, the increased participation in the bond market could be associated to the perceived stability in the economy as observed in key macroeconomic themes such as reversals in capital flight, a marginal accretion in the external reserve and improved oil proceeds.
 
“This influx is likely to subside in the coming week delivering a flat mood in yields,” Afrinvest added.
 
Diamond Bank
Shareholders of Diamond Bank Plc last week endorsed the plan by the bank to raise $500 million additional capital in its quest to raise its tier 2 capital by $750 million. The fund would be raised through a rights issue in ratio, terms, conditions and dates to be determined by the directors, subject to regulatory approvals.
 
The bank explained that it had already raised about $250 million out of $750 million.
Its Group Managing Director/Chief Executive Officer, Dr. Alex Otti said the fund would enhance Diamond Bank’s operations as well as its expansion drive.
 
He explained: “The capital raising is actually part of the $750 million we wanted to raise earlier. It is not that we are looking for $750 million; we already have close to $250 million.
 
“So what we are looking for is around $500 million and I don’t think shareholders have anything to worry about because we really took our time and went through the process.  I assure you (shareholders) that it is going to make the bank better, rather than dilute your shares.”
 
World Economic Forum
President Goodluck Jonathan last week reassured the global community of the safety of all participants in next month’s World Economic Forum on Africa in Abuja.
 
The president spoke when he had an audience with China’s new Ambassador to Nigeria, Mr. Gu Xiaojie, who presented his letters of credence to him in Abuja. Jonathan said the security challenges being experienced in some parts of the country would have no adverse effect on the safety of participants in the forum.
 
The president welcomed the confirmation by China that its delegation to the forum, which will bring together regional and global leaders to discuss innovative structural reforms and investments that could sustain the continent’s current growth trajectory and create jobs, will be led by Premier Li Keqiang.
 
 
AMCON
The International Monetary Fund (IMF) last week advised the federal government to extend the period for winding down the Asset Management Corporation of Nigeria (AMCON).
 
In its latest Staff Report, which was presented in Washington DC, the IMF said extending the period for winding down AMCON would enable the country reduce costs if a similar institution is required in the future.
 
AMCON no longer buys non-performing loans (NPLs) and has a financing plan of 10 years.
 
“They expressed a preference, however, for a longer period for winding down AMCON than the proposed sunset of clause of 2017 as recommended in the Financial Sector Assessment Programme (FSAP), and maintaining an inactive ‘shell’.
 
“In principle, this would allow them to reduce future costs in the event of need for a similar institution. The authorities agreed with the need to continue to strengthen the prudential framework and expressed interest in additional Technical Assistance (TA) on Financial Soundness Indicators,” the report stated.
 
According to it, the Nigerian financial system has been resilient to shocks, adding that further actions to implement the key recommendations of its 2012 FSAP update could further strengthen financial stability.
 
AfDB Loan
The Federal Executive Council (FEC) last week gave approval for a loan of $152.12 million and a grant of $385,000 from the African Development Bank (AfDB) to support the agricultural transformation agenda of the federal government.
 
The Minister of Agriculture, Mr. Akinwumi Adesina, said the approval of the loan by the AfDB was as a result of the progress Nigeria had made in the sector.
 
“We promised that we will add 20 million metric tonnes of food to our domestic food supply by 2015. As of now we have done 15 million metric tonnes.
 
Despite the progress made do far, there are a number of challenges that we have seen in the rural areas one of those is the low level of agro processing,” he said.
He added: “We have also poor rural infrastructure which make it difficult for farmers to evacuate their produce.”

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