A Review of the Nigerian Energy Industry

Financial market update

finance28 November 2013, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Increased lending by banks to the power and oil sectors of the economy may portend concentration risk for financial operators, according to industry watchers. To this end, there is a stir of anxiety among the banking public as failure in the sectors may adversely affect the fortunes of lender banks. Analysts say the current growing exposure to the power and oil sectors is at variance with extant regulations guiding loans and credit, which calls for urgent attention from the Central Bank of Nigeria.

BONDS: Yields Increased across the curve except for two maturities – April 15s and June 19s. 4y yields led the way trading higher by 8bps to 12.82%. Average yield closed higher by 3bps to 12.83% as the selling bias in the market persists.

BILLS: The average T-Bill yield rose marginally by 1bps to 11.78% as the market consolidated following the sharp increase in average yield seen on Tuesday. We opened yesterday morning with the CBN offering 30/1 64D OMO bills and 6/2 71D OMO bills with cut off rate same as Tuesday’s cut-off of 11.55% and 11.65% respectively. Yield changes were generally muted although there was selling pressure in the 78D and 85day maturities which saw yield increase by 19bps and 23bps respectively. We expect OMO auction today at the back of the liquidity flush expected from the bonds and bills maturing into the system.

MONEY MARKET: OBB and ON rates closed at 10.50% and 10.75% respectively. Money market liquidity opened at around N353bn and closed lower at about N306bn. We expect market to be very liquid today considering the N200bn Bond and around N131bn T-bills maturing into the system.

CBN RDAS AUCTION: CBN offered $300 million and sold $299.9 million. Marginal rate was N155.72/US$ (excluding CBN 1% Commission). 21 banks bid.

US: Treasury seven-year notes attracted the least demand since May 2009 after solid two- and five-year sales on speculation the Federal Reserve is moving closer to reducing bond purchases next month. Demand at yesterday’s $29 billion auction, as measured by the bid-to-cover ratio that compares total bids with the amount of securities offered, was 2.36 compared with average for the past 10 auctions of 2.59. A $32 billion offering of two-year notes Nov. 25 attracted a 3.54 ratio, the most since April, while the Fed’s 21 primary dealers retained the smallest share of the Nov. 26 offering of $35 billion five-year debt since July. Stronger demand at the shorter-maturity auctions reflected the central bank’s statements that it will keep short-term interest rates at almost zero beyond reports of stronger economic growth.

EUROPE: Britain’s consumer and housing- driven recovery, the fastest among Group-of-Seven nations, risks losing steam unless export growth picks up, economists said. While the economy grew the fastest in more than two years in the three months through September, the expansion was led by consumer spending, construction and stock building. Net trade knocked 0.9 percentage point off GDP, the most since the second quarter of 2011.Bank of England Governor Mark Carney this week extolled the strength of the economy’s revival, while acknowledging that weak growth in the euro area may weigh on the export outlook and limit rebalancing of the economy. Part of the domestic demand is linked to a revival in the housing market, which has fuelled concerns of a brewing bubble. Carney will address those risks at a press conference in London today.

CHINA: China’s overnight money-market rate fell toward a two-week low and bonds advanced as the central bank boosted the availability of cash in the financial system. The People’s Bank of China conducted 19 billion Yuan ($3.1billion) of 14-day reverse repurchase agreements today, according to a trader at a primary dealer required to bid at the auctions. The monetary authority injected 32 billion Yuan via seven-day contracts two days ago and last week’s money-market operations added a net 59 billion Yuan, the most since September, according to reports.

COMMODITIES: WTI traded near the lowest price in almost six months as crude stockpiles rose for a 10th week in the U.S., the world’s biggest oil consumer. WTI for January delivery was at $92.22 a barrel in electronic trading on the New York Mercantile Exchange, down 8 cents.

Indicative Currency Exchange Rates
                        Bid        Offer
EURUSD     1.3578      1.3628
GBPUSD     1.6311        1.6361
USDJPY      102.18      102.58
USDCHF     0.9075     0.9105
GBPEUR     1.2013      1.2023
USDZAR     10.1820    10.3320
USDNGN    158.35      158.80
JPYNGN     1.5497       1.5997
CHFNGN    174.49      178.49
EURNGN    215.01      219.01
GBPNGN    258.28     262.28
ZARNGN    15.55         17.55

WTI traded near the lowest price in almost six months as crude stockpiles rose for a 10th week in the U.S., the world’s biggest oil consumer. WTI for January delivery was at $92.22 a barrel in electronic trading on the New York Mercantile Exchange, down 8 cents.

Interest rates
NIBOR (%)                    LIBOR (%)

O/N              10.8333        USD 1 month      0.1650
7 Day            11.1250         USD 2 month      0.2051
30 Day         11.5833         USD 3 month      0.2376
60 Day         11.8750         USD 6 month      0.3460
90 Day         12.1667         USD 12 month     0.5781
Y/Y Consumer Inflation October 2013 :          7.8%
FX Reserves: 26 November 2013 (USD bn) 44.645
MPR                                                                      12.00%
Source: Reuters, Bloomberg, Central Bank of Nigeria, Financial Market Dealers Association Standard Chartered Bank Nigeria.

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