Economic Scorecard Spotlights Money Market Developments in Nigeria

Federal Republic of Nigeria Minister of Finance, Dr. Ngozi Okonjo-Iweala, has addressed the Nigerian press saying that the level of domestic debt needs to be curbed. She is a former official of the World Bank., a photo by Pan-African News Wire File Photos on Flickr.

Economic scorecard spotlights money market developments

WEDNESDAY, 01 MAY 2013 00:00 CHIJIOKE NELSON BUSINESS SERVICES - MONEY WATCH
Nigerian Guardian

Recently, the apex bank released the nation’s economic scorecard for the month of February. How did the financial system fare? CHIJIOKE NELSON presents an extract from the report.

THE state of health of any given economy cannot be separated from its financial system. For many economies that have experienced economic “shipwreck”, from America to Europe, it all started from the financial sector and sometimes, accentuated by the unbridled bogus lifestyle of leadership in the sector, as well as the political class.

The financial system policy and activities of any nation directly affect the key ingredients of micro and macro economic factors, like the interest rates, quantity of money in circulation, employment and ultimately, inflation level. The real sector development, public and private sector contribution to the nation’s Gross Domestic Product and individuals’ spending power are also directly derived from the financial system and/or a derivation of the multiplier effect. In Nigeria, all these factors have been playing out in a dangerous pattern for sometime now, as they have all been linked to the cause of the existence of each other at various points, while the economy continues to record “one leg in, two legs out” trend. The nation’s economic report for the month of February was a mixed grill in the money market sector, which forms a major aspect of the financial system.

Interest rates

Available data indicated that most banks’ deposit and lending rates fell during the review month. With the exception of the inter-bank and average savings deposit rates, all other bank deposit rates of various maturities trended downward. The prime lending rate declined marginally, while the maximum lending rate increased during the review month. The spread between the weighted average term deposit and maximum lending rates widened by 0.84 percentage point to 17.72 per cent in February 2013. Similarly, the margin between the average savings deposit and maximum lending rates widened by 0.03 percentage point to 22.88 per cent at the end of the review month. The weighted average inter- bank call rate rose to 11.98 per cent from 11.67 per cent in the preceding month, reflecting the liquidity condition in the market.

Money Market Developments

Financial market indicators were relatively stable during the review period. The CBN intervened periodically in the market to mop up excess liquidity at the Open Market Operation (OMO). In addition to other monetary policy tools deployed, FGN Bonds and NTBs were issued at the primary market on behalf of the Debt Management Office (DMO) for the fiscal operations of the Federal Government of Nigeria (FGN). Subscription to the FGN bonds remained impressive as a result of the sustained interest of foreign portfolio investors due to its attractive yield and the global acceptance of its international index and the elevated liquidity levels.

Provisional data indicated that the value of money market assets outstanding at end-February 2013 was N5,943.37 billion, indicating a decrease of 4.9 per cent, in contrast to the increase of 0.5 per cent at the end of the preceding month. The development was attributed to the 9.4 and 11.3 per cent decline in FGN Bonds and commercial paper outstanding, respectively.

Total federally-collected revenue in February 2013 was estimated at N856.52 billion. This was above the provisional monthly budget estimate and the receipt in the preceding month by 6.0 and 10.0 per cent, respectively.

At N655.25 billion, gross oil receipts was above the provisional monthly budget estimate and the level in the preceding month. This was attributed largely, to the increase in the price of crude oil in the international market.

Deposit Money Banks’ Activities

Available data indicated that total assets and liabilities of the deposit money banks (DMBs) amounted to N22,057.4 billion, showing an increase of 1.4 per cent above the level at the end of the preceding month. Funds were sourced mainly from increased mobilisation of time, savings and foreign currency deposits. The funds were used, largely, in the extension of credit to the Federal Government, and increase in foreign and unclassified assets.

At N13,643.8 billion, DMBs’ credit to the domestic economy rose by 1.2 per cent over the level in the preceding month. The breakdown showed that relative to the level at the end of the preceding month, credit to the Federal Government and private sector rose by 1.1 and 10.7 per cent, respectively.

Total specified liquid assets of the DMBs stood at N6,780.0 billion, representing 45.0 per cent of their total current liabilities. At that level, the liquidity ratio rose by 0.2 percentage point above the level in the preceding month, and was 15.0 percentage points above the stipulated minimum ratio of 30.0 per cent. The loans-to- deposit ratio, at 40.6 per cent, was 1.1 percentage point below the level at the end of the preceding month, and 39.4 percentage points below the prescribed maximum ratio of 80.0 per cent.

Monetary and Credit Developments

Growth in the major monetary aggregate was moderate at the end of first two months of the year. Available data indicated mixed developments in banks’ deposit and lending rates during the review month. The value of money market assets outstanding decreased, owing, largely, to the decline in FGN Bonds and Commercial Paper outstanding. Transactions on the Nigerian Stock Exchange (NSE) recorded mixed development during the review month.

Provisional data indicated that growth in the major monetary aggregate was moderate at end-February 2013. Broad money supply (M2) at N15,561.72 billion, rose by 2.0 per cent, on month-on-month basis, above the level at the end of the preceding month and 18.0 per cent at the end of the corresponding month of 2012. The development reflected the 6.0 and 3.0 per cent increase in domestic credit (net) and foreign asset (net) of the banking system, respectively, which more than off-set the 9.0 per cent decline in other asset (net) of the banking system. Over the level at end-December 2012, (M2) grew by 2.9 per cent.

Narrow money supply (M1), at N6,928.5 billion, however, declined by 1.0 per cent, on month-on-month basis, below the level at the end of the preceding month but rose by 7.0 per cent above the level at the end of the corresponding period of 2012. The development was attributed to the 1.0 per cent decline in its demand deposit component. Over the level at end-December 2012, (M1) fell by 2.0 per cent.

Quasi-money grew by 4.0 per cent, on month-on- month basis, to N8,633.2 billion, compared with the growth of 2.0 per cent at the end of the preceding month. The development reflected the increase in time and savings deposits with the deposit money banks (DMBs). Relative to the level at end-December 2012, quasi-money grew by 2.1 per cent.

At N15,377.1 billion, aggregate banking system credit (net) to the domestic economy, at end-February 2013, rose by 6.0 per cent, on month-on-month basis, compared with the growth of 3.9 per cent at the end of the preceding month. The development reflected, wholly, the 117.0 per cent increase in (net) claims on the Federal Government. Over the level at end-December 2012, aggregate banking system credit (net) to the domestic economy rose by 10.2 per cent due to significant increase of 108.2 per cent in (net) claims on Federal Government.

Banking system’s credit (net) to the Federal Government, on month-on-month basis, rose by 117.0 per cent to N108.6 billion, compared with the growth of 52.0 and 21.2 per cent at the end of the preceding month and the corresponding month of 2012, respectively. The development was attributed, wholly, to the 12.2 per cent increase in the banking system’s holdings of the Nigerian Treasury Bills. Over the level at the end- December 2012, banking system credit (net) to Federal Government rose by 108.2 per cent.

Banking system’s credit to the private sector relative to the level at the end of the preceding month, grew by 0.9 per cent to N15,268.4 billion, in contrast to the decline of 1.0 per cent a month earlier. Similarly, banking system’s claims on the core private sector increased by 1.1 per cent to N14,618.8 billion in contrast to the 1.1 per cent decline at the end of the preceding month. The development reflected, largely, the 0.8 per cent rise in bank’s claims on the core private sector. Relative to the level at end-December 2012, banking system’s credit to the private sector fell by 0.1 per cent due to 1.5 per cent decline in DMBs claims on private sector. (Fig. 2, Table 1).

At N9,630.1 billion, foreign assets (net) of the banking system rose by 3.5 per cent, on month-on-month basis, at end-February 2013, compared with the increase of 2.2 per cent at the end of the preceding month and a decline of 3.9 per cent at the end of the corresponding period of 2012. The development was attributed to the 2.7 and 7.1 per cent increase in foreign assets holdings of CBN and deposit money banks, respectively. Over the level at end-December 2012, foreign assets (net) of the banking system rose by 5.8 per cent owing to the 7.9 per cent rise in foreign assets holdings of the DMBs.

Other assets (net) of the banking system, on a month- on-month basis, fell by 9.4 per cent to negative N9,445.4 billion, compared with 8.9 per cent decline at the end of the preceding month. The decline reflected, largely, the fall in unclassified assets of both the CBN and the DMBs. Over the level at end-December 2012, other assets (net) of the banking system fell 19.1 per cent for the same reason above.

Discount Houses’ Activities

Available data indicated that total assets and liabilities of the discount houses stood at N340.0 billion at end- February 2013, showing a decrease of 6.3 per cent below the level at end-January 2013. The development was accounted for, largely, by the 9.0 per cent decrease in claims on Federal Government.

Correspondingly, the decrease in total liabilities was attributed, largely, to the 12.7 per cent fall in money-at- call.

Discount houses’ investment in Federal Government securities of less than 91-day maturity decreased to N154.8 billion and accounted for 54.6 per cent of their total deposit liabilities. Thus, investment in Federal Government Securities was 5.4 percentage points below the prescribed minimum level of 60.0 per cent. At that level, discount houses’ investment in NTBs fell by 6.0 per cent below the level at the end of the preceding month. Total borrowing by the discount houses was N75.7 billion, while their capital and reserves amounted to N16.9 billion. This resulted in a gearing ratio of 4.5:1, compared with the stipulated maximum target of 50:1 for fiscal 2013.

Non-Oil receipts

Non-oil receipts, at N201.28 billion (23.5 per cent of the gross federally collected revenue), was 21.0 per cent lower than the provisional monthly budget estimate but 11.9 per cent higher than receipts in the preceding month. The decline relative to the provisional budget estimate reflected, largely, the drop in independent revenue of the federal government and National Information Technology Development Fund (NITDF).

Federal Government estimated retained revenue in February 2013 was N249.74 billion, while total estimated expenditure was N444.17 billion. Thus, the fiscal operations of the Federal Government resulted in an estimated deficit of N194.43 billion, compared with the estimated monthly budget deficit of N94.68 billion.

The dominant agricultural activities in February 2013 included tending of irrigation-fed vegetable and cereal crop; harvesting of tree crops; and clearing of land for 2013 wet season farming. In the livestock sector, farmers were involved in the raising of livestock to replace stock sold during the past festivities. Crude oil production was estimated at 2.06 million barrels per day (mbd) or 57.68 million barrels during the month. Crude oil export was estimated at 1.61 million barrels per day (mbd) or 45.08 million barrels during the month. The average price of Nigeria’s reference crude, the Bonny Light (370 API), was estimated at US$115.58 per barrel, indicating an increase of 2.7 per cent above the level in the preceding month.

The end-period inflation rate for February 2013, on a year-on-year basis, was 9.5 per cent, 0.5 percentage point above the level in the preceding month. The inflation rate on a 12-month moving average basis was 11.7 per cent, compared with the preceding month’s level of 11.9 per cent.

Foreign exchange inflow and outflow through the CBN in February 2013 were US$3.42 billion and US$1.88 billion, respectively, and resulted in a net inflow of US$1.54 billion.

Foreign exchange sales by the CBN to the authorized dealers amounted to US$1.46 billion, showing an increase of 42.9 per cent above the level in the preceding month.

Relative to the level in the previous month, the average Naira exchange rate vis-à-vis the US dollar remained on changed at N157.30/US$ at the WDAS segment of the market, it however, appreciated at the interbank and depreciated at the bureaux-de-change segment of the foreign exchange market.

Non-oil export receipts increased significantly by 22.3 per cent above the level in the preceding month, this was attributed, largely, to the 148.7 and 73.9 per cent rise in receipts from industrial and agricultural sectors, respectively.