• The CBN may have opted to signal to banks its intent to dissuade them from the practice in recent times of keeping huge end-of-day balances with it;
  • Doubts remain, however, whether this might suffice to spur a resumption in the creation of assets in the industry;
  • The greater likelihood is that without diminishing the ardour with which banks have warehoused extra liquidity with the apex bank, the drop in the discount rate may further drive down rates in the market.

Central Bank of Nigeria (CBN) to Begin Assessment of Banks’ Board of Directors

The CBN has indicated that the next phase of its current reforms will focus on assessing the performance of banks’ boards of directors. Speaking at the third annual EuroFinance Conference on Treasury, Risk and Cash Management last week, the Deputy Governor, Financial Sector Surveillance also implicated lack of independent directors on the boards of most banks and quoted companies on the Nigerian Stock Exchange (NSE), as a major drawback to the observance of good corporate governance principles in the country.

Comments:

• This development may further promote transparency and compliance with good corporate governance principles in the industry.
  • However, it is difficult to understand why the apex bank would seek to add this extra layer of work, in the light of existing market-bases mechanisms for assessing the extent of banks’ boards of directors’ compliance with the corporate governance code for the industry.
  • Besides, the appointment of independent directors is a necessary but not sufficient condition for guaranteeing the proper functioning of banks’ boards. Additional institutional support from the apex bank, including specifying penalties for default, might be required to strengthen the policy environment.

NSE Seeks To Establish Alternative Investment Market

Indication emerged last week that the Nigerian Stock Exchange (NSE) forwarded an application to the Securities and Exchange Commission (SEC) seeking permission to set up an Alternative Investment Market (AIMS). Because of its low-regulatory burden, especially the absence of strong requirements for capitalisation or number of shares issued, the application if approved will encourage firms, especially those on private placement to be listed on the floor of the NSE. In a related development, the NSE, had earlier in the week, reduced transaction charges for government bonds in a bid to encourage more investment in the market.

Comments:

• The establishment of the AIM should contribute to deepening the market and encourage more firms to list shares on the floors of the exchange.

CBN Unveils 10-year blue print for banks

The CBN Governor at a lecture titled “The Nigerian Banking Industry: What went wrong and way forward in the reviewed week detailed the activities to be involved in the second phase of the banking sector reform.

Top on the apex bank’s list is a grouping of banks’ according to their exposure to markets, i.e. international banks, specialised banks, regional and national banks each with varying capital requirements.

The reform blue-print is built around four pillars namely:

• enhancing the quality of banks
• establishing financial stability
• enabling healthy financial sector; and
• ensuring financial sector contributes to real
economy.

Comment:

There is need to ensure that in the short- to medium-term, a positive correlation exists between the reform in the financial sector and real economic and social development.

Nigeria‘s Oil Output Drops By 4.2 % In February

A report by Bloomberg last week indicated that Nigeria recorded the biggest decline in oil output among OPEC members when its oil production fell by 85,000bpd to an average of 1.94 million bpd in February. The decline is 4.2% less than the January level of 2.025 million bpd. The report attributed the drop to renewed attacks by militants on oil installations in the country. During the same period, OPEC’s output increased 125,000bpd to a 14-month high of around 29.17 million bpd, the highest level since December 2008. Angola, Nigeria’s rival, during the same period increased production by 75,000 barrels to 1.945 million bpd.

Comment:

•Nigeria is one of the few OPEC countries to have recorded a fall in oil production in February.
• There is urgent need to commence the stalled
rehabilitation of the Niger-Delta militants to
forestall negative impacts the attending
dwindling revenues will have on the country’s
fiscal position.

MONEY MARKET

The inter-bank market remained liquid during the week as indicated in the NIBOR rates below:

Opening balances and standing deposit facility of banks and Discount houses with the CBN as at 23rd February was N96.48bn and N605bn respectively.

Comment:

The liquidity overhang in the system indicates that rates may slide further in the coming week.

FOREX MARKET

The foreign exchange market was highly liquid last week due to month-end dollar sale by the oil majors to selected banks just as the CBN offered and sold US$250mn at both the first and second trading of the week at N148.60.

In all, naira appreciated at the parallel market by 50k to close at N152/US$1 while it appreciated by 10k at both the official and inter-bank market to close at N148.61/US$1 and N150.50/US$1 respectively.