Commercial banks borrow N21trn from CBN in 2017

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N32.9trn sold at Inter-bank Funds Market

By Kayode Tokede

The Central Bank of Nigeria (CBN) has disclosed that Merchant and Deposit Money Banks (M&DMBs) borrowed N21 trillion through its Standing Lending Facility (SLF) in 2017.

Commercial banks in 2016 had borrowed N10.72 trillion, the 2017 annual activity report by the apex bank disclosed.

The Standing Deposit Facility (SDF) by Merchant and Deposit Money Banks (M&DMBs) dropped to N9.8 trillion in 2017 from N18.4 trillion in 2016.

The report by CBN disclosed that M&DMBs requested the standing facilities to square-up their positions by borrowing from the CBN (SLF) or depositing excess funds (SDF) at the end of each business day.

According to the report, the trend at the window showed more frequent recourse to the SLF, than in 2016 due to the tight monetary policy stance.

“Meanwhile, the threshold for daily deposits per institution at the SDF remained N7.5 billion in the CBN thrust to curtail unbridled requests by market participants and encourage lending to the economy. Applicable rates for the SLF and SDF also remained 16 per cent and nine per cent, respectively, same as in 2016. The rates were anchored to the MPR.”

The 2017 report by CBN stated that the average daily request for SLF was N216.34 billion in 246 days, out of which ILF conversion was N130.63 billion, amounting to 60.38 per cent of the total request.

“The average daily interest charged was N159.96 million. In 2016, the average daily request for SLF was N130.47 billion in 207 days, out of which ILF conversion was N84.62 billion, while average daily interest income was N94.76 million. The higher patronage at the window in 2017 reflected the effect of the tight monetary policy stance.”

“Patronage at the SDF window declined to an average daily amount of N41.90 billion for the 230 days in 2017, from N76.11 billion for the 246 days in 2016. Similarly, the average daily interest payments on the deposits decreased to N14.86 million in the review period, from N20.01 million in 2016. The reduced volume of transactions in the year was due to tight monetary operations and the sale of foreign exchange to authorized dealers.

 

N32.9trn sold at Inter-bank Funds Market

At the inter-bank funds market, the report by CBN disclosed that the value of transactions increased significantly by over 5-fold to N32,910.37 billion in 2017, from N5,343.22 billion in 2016.

“OBB transactions accounted for 94.83 per cent of the total value of inter-bank deals, while transactions at the unsecured inter-bank segment accounted for the balance of 5.17 per cent, compared with 80.62 and 19.38 per cent, respectively in 2016.

“A breakdown of the transactions at the inter-bank market showed an increase in call placements by 76.87 per cent to N1,603.94 billion, from N906.84 billion in 2016. At the OBB segment, transactions increased significantly by over six-fold to N31,207.68 billion, from N4,307.62 billion in 2016.

“The sharp increase in the volume of transactions in 2017 was attributable largely to the liquidity squeeze in the banking system occasioned by the frequent OMO auctions and the sale of foreign exchange.”

 

Developments in the Foreign Exchange Market

According to the report, the increase in the price of crude oil at the international market impacted positively on the foreign exchange earnings and accretion to the reserves. However, the demand pressures in the foreign exchange market persisted, dampening the potential for rapid accretion and leading the Bank to adopt various measures to address the challenge.

The report explained further that these included foreign exchange intervention in critical sectors, vis-a-vis manufacturing – raw materials and machinery, agriculture, airline and petroleum; as well as sale of foreign exchange to authorized dealers to meet the demand for invisible transactions, such as personal and business travel, medical bills and school fees. Special windows were created to enable SMEs and oil companies, etc. to access foreign exchange. An I & E window also served to provide easy access to foreign exchange by relevant economic agents. To complement these, the CBN resumed the sale of foreign exchange to BDCs and continued its active participation in the Naira-Settled OTC Futures Market.

 

Sold $15.8bn at the inter-bank segment in 2017

“In 2017, the CBN maintained its direct intervention in the inter-bank foreign exchange market to cushion the demand pressure and ensure exchange rate stability.

“Consequently, a total of $15,816.06 million was sold at the inter-bank segment. This comprised $1,532.36 million at the inter-bank spot, $1,393.26 million for invisibles, $1,069.50 million for SMEs, $622.00 million at the I & E, while forwards sales were $11,198.94 million.

“On the other hand, the Bank purchased $6,090.30 million at the inter-bank market. Thus, net sales by the Bank amounted to $9,725.76 million.

“The sum of $10,731.27 million matured at the forwards segment, while $1,921.00 million remained outstanding at end-December 2017 .

“In the preceding year, $12,155.56 million was sold at the inter-bank market, comprising $6,303.36 million spot and $5,852.20 million at the forwards. In the same vein, the Bank purchased $130.98 million, resulting in a net sale of $12,024.58 million.

“The sum of $4,288.83 million matured at the forwards, while $1,560.00 million remained outstanding at end-December 2016 .

“The increased transactions in 2017 were attributable to the Bank’s foreign exchange management strategy.

 

$5.49bn settled Over the Counter Foreign Exchange Futures

According to the report, “In 2017, $5,487.24 million was traded at the futures market, $5,823.55 million matured, while $3,318.87 million remained outstanding as at end-December. In 2016, after its introduction in June, $5,184.10 million was traded at the futures market, $1,528.94 million matured, while $3,655.16 million remained outstanding at end-December 2016.

“The modest volume traded throughout 2017 was attributable to the increased supply in the spot market, occasioned by the introduction of the I&E window and sustained intervention by the CBN.

 

Inter-bank Foreign Exchange Rate

“At the inter-bank segment, the rate opened at N305.00/$ in January and closed at N306.00/$ at end-December 2017.

“On a monthly basis, the average exchange rate opened at N305.20/$ in January, depreciated to N306.40/$ in March but appreciated to N305.71/$ in June.

“Then, it depreciated to N305.89/$ and N306.31/$ in September and December, respectively. The exchange rate was relatively stable during the year as a result of the increased liquidity in the market.”

CBN auctions N13.7 at Open Market Operations (OMO)

The report added that , a total CBN Bills offered at the OMO was N13,762.94 billion, while public subscription and sale amounted to N12,344.90 billion and N11,346.48 billion, respectively, compared with N6,726.67 billion, N10,294.41 billion and N7,859.62 billion offered, subscribed and sold, respectively, in 2016

“The high level of activity during the review period was attributable to the increased number of auctions to moderate the excess banking system liquidity, occasioned by the payments of statutory revenue to the three tiers of government, other fiscal disbursements and maturing CBN Bills, amongst others. Consequently, the cost of liquidity management in 2017 increased to N1,488.68 billion, from N922.31 billion in 2016.”

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