Banks deposit with CBN sheds 24.5% to N1.59trn

.As equities market declines by 11.8% in 7 months

Motolani Oseni

Commercial Banks deposit with the Central Bank of Nigeria (CBN) dropped by 24.5 per cent to N1.19 trillion in July, as against N1.59 trillion stood in June, The Daily Times checks revealed.

This is even as the equities market segment of the Nigerian Stock Exchange (NSE) declined by 11.8 per cent in seven months of 2019.

The drop in banks deposit with the apex was said to have a strong link with the CBN new policy on its Standing Deposit Facility (SDF) that the remunerable daily placements by banks at the SDF should not exceed N2 billion.

Further checks, however, showed that lenders deposited a total sum of N2.13 trillion with the central bank in May, and borrowed N1.55 trillion from CBN in July from N628.8 billion recorded in June through the Standing Lending Facility.

It is worthy of note that the applicable rates for the SLF and SDF is fixed at 15.50 per cent and 8.50 per cent respectively.

The apex bank in its economic report for April disclosed that total SLF granted during the review period was N1.76trillion, (inclusive intra-day lending facility (ILF) converted to overnight repo). The daily average was N103.43 billion in 17 transaction days in April.”

It would be recalled that CBN in a circular, titled ‘Guidelines on accessing the CBN Standing Deposit Facility’, signed by the Director, Financial Markets Department, Angela Sere-Ejembi stated, “With reference to the circular to all banks and discount houses, Re: Guidelines on accessing the CBN Standing Deposit Facility, Ref: FMD/DIR/GEN/CIR/05/020 and dated November 6, 2014, after further review, the remunerable daily placements by banks at the SDF shall not exceed N2 billion.

“The SDF deposit of N2 billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time.

On November 6, 2014, circular, the CBN observed that banks and discount houses had a preference for keeping their idle balances at the CBN in the SDF, thereby constraining the process of financial intermediation.

In order to encourage the banks to increase lending to the productive sector of the economy, the guidelines for the operations of the SDF were reviewed.

The review stated that the remunerated daily placements by banks and discount houses at the SDF should not exceed N7.5 billion, which should be remunerated at the SDF rate at 10 per cent per annum.

Any deposit by a bank or discount house in excess of N7.5 billion must not be remunerated, it added.

Meanwhile, the NSE All-Share Index, which tracks the performance of the equities market in terms of equity price movement, closed trading on July 31, 2019, at 27,718.26 basis points, 11.8 per cent decline from 31,430.50 basis points the equities market opened for trading this year.

Fact gathered showed that, as at this time last year, the equities market was also recording a 7 per cent decline when compared against the same period of 2017, suggesting performance is dwindling at a faster pace.

On the contrary, the market capitalization, which represents the total value of investors’ assets, appreciated by N1.8 trillion to N13.508 trillion as at July 2019 from N11.731 trillion it opened for trading this year, attributable to MTN Nigeria, Skyway Aviation Handling Company Limited (SAHCOL) and Airtel Africa Plc listing on the Exchange in the period under review.

In fact, the NSE 30 Index depreciated by 19.6 per cent to 1,139.33 basis points from 1,417.15 basis points while NSE Banking Index in seven months dropped by 16.5 per cent to 333.14 basis points as at July 31, 2019, from 398.94 basis points the market opened this year.

Other key indices revealed that NSE Industrial Index thus decreased by 13.3 per cent to 1,073.70 basis points from 1,237.88 basis points while NSE Oil/Gas Index down significantly by 25.3 per cent to 225.86 basis points from 302.23 basis points the equities market closed in 2018.

An overview of the recently released half-year financial results on the Exchange indicated that about a dozen of the companies reported great performances, but Capital market analysts said that, a larger portion of the released results shows slow growth in earnings of some companies and negative returns in others.

The companies’ poor performances are largely affected by a difficult operating environment and slow policy implementations.

Analysts noted that “If we are going anywhere as a nation economically, this is the time the fiscal and monetary authorities should work together to actualise the much talked about the double-digit growth potential of Nigeria’s economy.”

On the market outlook, the Chief Operating Officer of InvestData Consulting Limited, Mr. Ambrose Omordion, stated that as bargain hunters are likely to hit the market any moment from now, while discerning investors are taking advantage of low valuation to position ahead of March year-end numbers and second half interim dividend stocks.

He noted that investors may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as plans by the Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities is expected to boost private-sector lending to drive economic activities and investment.

He advised that investors should go for equities with intrinsic value and allowing numbers to guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of mixed company numbers, weak economic and market fundamentals.

The Executive Vice Chairman, Highcap Securities, Mr. David Adonri, said the build-up to 2019 general election had negative effect on the capital market, stressing that post-election activities of the current administration worsened the situation, coupled with weak economic indicators.

Reacting also, Managing Director/Chief Executive Officer, APT Securities Limited, Mr. Kasimu Garba Kurfi, attributed equities market weak performance to an election year, budget delay, and absence of fiscal policy, among others.

According to him, “election year is such year the equities market experience a low performance of the index.

“The non-passing of the 2019 budget on time by the National Assembly, as it is tagged to capital expenditures also contributed to the poor performance of the equities market.”

He explained further that other factors contributing to weak performance to the equities market include, “The absence of fiscal policy in moving the economy affect market, lack of statement or comprehensive economy policy statement which could have to attract foreign Investors into our market and non-release of the federal government ministerial list.”

He added that Airtel Africa listing and the announcement of ministers are expected to boost the equities market in the second half of the year.

“The listing of Airtel may push the ASI index into positive or recovery. Besides, the release of Federal Government ministerial list this month will help the capital markets positive performance”, he explained.