A Review of the Nigerian Energy Industry

Financial market products & services update

28 October 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Disturbed by increase in borrowings by banks through foreign lines of credit and issuance of foreign currency denominated bonds (Eurobonds), the Central Bank of Nigeria (CBN), has placed some restrictions on the raising of such funds by banks. Specifically, the central bank directed that the aggregate foreign currency borrowing of a bank excluding inter-group and inter-bank (Nigerian banks) borrowing should not exceed 75 per cent of its shareholders’ funds unimpaired by losses. The CBN stated this in a letter posted on its website on Monday, titled: “Prudential Regulation for the Management of Foreign Exchange Risks of Banks,” signed by its Director of Banking Supervision, Mrs. Tokunbo Martins. The letter addressed to all banks, noted the measures were part of prudential and hedging requirements to mitigate risks in the banking system and also to avoid losses that could pose material systemic challenges.

Financial marketsFX: Slight depreciation for the pair yesterday, printing at about 164.90/165.00 at close. We had some oil flows induced gains at open, pushing rates south to a 164.35 intraday low after opening at 164.65.

CBN RDAS AUCTION: CBN offered $500 million at yesterday’s RDAS, selling $498.95 million with marginal rate maintained at 155.76 (1% commission excluded).

FIXED INCOME: It was a steady start to the week. There was an OMO auction with NGN72.66 billion sold at 11% discount (11.55% yield). Some correction on the 22 January 15 bills (+52bps) but overall low volumes and yields were largely range bound in both tbill and bond market. NGN422bn liquidity (with another NGN234billion of OMO bills maturing on Thursday) and AMCON maturity distracting market from oil price.

CHINA: China’s industrial profit growth slowed in the first nine months, reinforcing signs of fragility in the world’s second-largest economy, as factories struggled with falling prices and softening domestic demand. Industrial companies made a combined profit of 4.37 trillion Yuan ($714.68 billion) between January and September, up 7.9 percent from a year earlier, the National Bureau of Statistics stated. This compares with a 10 percent rise in the first eight months.

EU: The European Central Bank spent 1.704 billion Euros last week on covered bonds under a new purchase program with which it hopes to foster lending to businesses and thereby support the euro zone economy. The purchases of covered bonds – debt backed by pools of home or commercial properties – are a new front in the ECB’s battle to revive the euro zone economy and keep deflation at bay. Inflation in the bloc is running at just 0.3 percent. The ECB began buying the bonds last week as part of a stimulus package it hopes will ease lending conditions and generate positive spill-over effects to other markets.

COMMODITIES: Brent slid in London. Brent for December settlement decreased as much as 68 cents, or 0.8 percent, to $85.15 a barrel on the London-based ICE Futures Europe exchange.

Macro Economic Indicators
Inflation rate (YoY) for Sept. 2014                     8.30%
Monetary Policy Rate current                            12.00%
FX Reserves (Bn $) as at October 24 2014      39.002

Money Market Highlights

O/N                            10.7100
30 Day                       12.5670
90 Day                       13.2579
180 Day                     14.2501
USD 1 Month            0.1525
USD 2 Months          0.1975
USD 3 Months          0.2326
USD 6 Months          0.3227
USD 12 Months        0.5418

Benchmark Yields
Tenor      Maturity      Yield (%)

91d            22-Jan-15        9.98
182d          23-Apr-15       10.84
364d         03-Sep-15        11.59
2y              16-Aug-16        12.45
3y              27-Apr-17         12.54
5y              29-Jun-19        12.69

Indicative Currency Exchange Rates
Bid       Offer

USDNGN     164.55      165.25
EURUSD      1.2613      1.2815
GBPUSD      1.6020      1.6222
USDJPY       107.84      107.87
USDCHF      0.94345   0.9536
GBPEUR      1.2578      1.2782
USDZAR      10.8331    11.0365
JPYNGN      152.7397   152.8403
CHFNGN     172.88      174.57
EURNGN     208.81      210.17
GBPNGN     264.91      266.30
ZARNGN      14.03       15.96

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