20 June 2016, Lagos — The Central Bank of Nigeria (CBN) loan to banks rose sharply last week by 173 per cent to N281 billion. Vanguard investigations reveal that lending to banks through the CBN’s standing Lending Facility (SLF) rose from N102.89 billion the previous week to N281 billion at the close of business on Friday.
This represents the second consecutive week of sharp increase in CBN’s lending to banks. The previous week, CBN lending to banks rose by 97.9 per cent.
This implies that some banks are relying more on CBN loans to meet their cash obligations. It also implies banks with surplus cash are unwilling to lend to banks with deficit.
However, the amount of cash deposited with CBN by banks with surplus cash dropped slightly by 3.47 percent to N594.7 billion from N613 billion the previous week.
Meanwhile, cost of funds dropped slightly in the interbank money market following outflow of N314 billion worth of fresh treasury bills sold by the CBN as well as inflow of same amount from repayment of matured treasury bills by the apex bank.
As a result, the Nigeria Interbank Offered Rate (NIBOR) for overnight lending fell to 2.15 percent from 4.33 per cent, while the rate for One month lending fell to 8.06 per cent from 9.04 per cent.
However, interest rate for Three months and Six months lending rose to 12.34 per cent and 11.87 percent from 11.87 per cent and 13.89 per cent.
Analysts at Cowry Asset Management Limited, a Lagos-based investment firm predicted that cost of funds will further moderate downward this week due to inflow of N107 billion from payment of matured treasury bills and inflow from statutory allocation.
Meanwhile, the nation’s external reserve rose marginally last week to $26.44 billion as at Thursday from $26.42 billion the previous week.
Consequently, the external reserve has risen by $50 million this month, while it has fallen by $2.66 billion in 2016.
The naira breathed a sigh of relief in the Bureaux De Change and parallel markets last week, where it appreciated by 2.47 per cent and 1.08 per cent to N355 per dollar and N365 per dollar respectively.
The naira, however, remained stable at the interbank market where it traded at the official exchange rate of N197 per dollar. The naira is expected to depreciate in the interbank market from today when the flexible exchange rate regime will commence.
Analysts at Cowry Assets Management Limited however advised that the naira should be allowed to depreciate to a rate close to that of the parallel market. “We advise a bullish rate N350 per dollar which would allow the naira enough headroom to appreciate instead of depreciate.
An appreciation from the commencement interbank rate would help the market regain confidence faster than a more conservative opening rate that is below the equilibrium rate and subject to further depreciation,” they said.
*Babajide Komolafe – Vanguard