NSE RoundUp! Banking liquidity drops as forex rattles financial system
The liquidity of the Nigerian banking system declined and activities at the fixed income and foreign exchange markets slowed down considerably as the financial system continues to reel under the negative effects of the running foreign exchange crisis.
The latest report on the Nigerian fixed income and currency (FIC) markets released this weekend by the FMDQ OTC Securities Exchange, showed that the financial system suffered a contraction in August compared with the previous month.
FMDQ is the formal over-the-counter (OTC) market for secondary trading of fixed income securities and it is licensed and recognised by the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC).
The monthly report showed that banks generally came under financial pressure and their ability to meet emerging obligations were strained, forcing them to source short-term funds at significantly higher rates.
The report indicated that open buy back (OBB) and overnight rates, which measure the liquidity flow in the banking system, spiked up to 16.0 per cent and 17.67 per cent respectively in August as against 3.75 per cent and 4.25 per cent recorded respectively in July, underscoring the tough liquidity within the period.
Turnover of transactions in the fixed income and currency markets in August also dropped by 23.5 per cent or N2.99 trillion to N9.75 trillion on month-on-month basis. This also represented a decline of 15.9 per cent or N1.84 billion when compared with the corresponding period of 2015.
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A breakdown of the turnover summary indicated that activities in the foreign exchange (forex) market accounted for about 23.3 per cent in August as against 27.6 per cent in July. The Federal Government bonds accounted for 2.9 per cent in August as against 3.79 per cent in July while unsecured placements and takings accounted for 4.06 per cent in August as against 3.99 per cent in July.
Also, treasury bills transactions accounted for 33.0 per cent in August compared with 33.6 per cent in July while secured money market including repurchase agreements and buy-backs accounted for 36.7 per cent as against 31.0 per cent in previous month.
In the forex market, transactions amounted to $3.16 billion, a drop of 66.5 per cent or $6.3 billion when compared with the value recorded in July. In the fixed income market, turnover stood at N3.5 trillion, a decrease of 26.4 per cent or N1.3 trillion from the previous month.
Treasury bills accounted for 91 per cent of the fixed income segment. Total outstanding Treasury bills closed the month at N6.6 trillion as against N5.4 trillion in July. Total outstanding federal government’s bonds decreased by 5.4 per cent to close at N6.33 trillion as a result of an August bond maturity.
Also, activities in the secured money market, which included repos and buy-backs, totaled N3.57 trillion, 9.56 per cent below the value recorded in July but a 46.94 per cent on the turnover during the comparable period of 2015.
Banks have been under pressure as the apex bank continues the scrutiny of banks’ deposits and accounts in continuation of the enforcement of the Treasury Single Account (TSA) of the government.
The CBN had earlier this month suspended some banks from the formal foreign exchange market for allegedly holding on to some forex funds of certain government corporation in violation of the TSA. The banks had argued that the apex bank was in the know of the accounts but they couldn’t make total and immediate remittance to the TSA because of the forex crisis.
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