Liquidity pressures are mounting in Nigerian banks as the Nigeria Interbank Offered Rate (NIBOR) for overnight loans, the benchmark for determining interest rate payments between financial institutions, rose 46 percent from 86.29 percent last week to 126.69 percent Monday, the highest in recent times, according to bank treasurers spoken to by Businessamlive.com
The current market development indicates that there is serious pressure on naira liquidity in the system, making banks desperate to cover their positions and consequently driving up the overnight rates, according to one treasurer who did not want his name mentioned.
Market analysts at Cowrie Assets management Limited say attractive rates of fixed income instruments such as government bonds and treasury bills, which are also risk free, are crowding out private sector investors, including the banks, adding that the overnight rates nearly closed at 200 percent Monday, which may have dampening effect on the economy as banks are not able to lend under the current circumstance.
Increased yield and returns on fixed income market instruments have been on a stable rise since this year as government looks to the
domestic debt market to fund its budgetary deficits.
Muda Yusuf of the Lagos Chamber of Commerce has in the past weeks described the current returns on Federal Government bonds and treasury bills at between 13.6 percent and 18.5 percent as disincentives for both lenders and investors to invest in the real sector.
The investing publics now have increased appetite for government securities, which may cannibalise private-sector credit, said another analyst.
However, analysts and investors in the Nigerian treasury bills market are still optimistic that yields will trend upwards at the upcoming primary market auction (PMA) to be held by the Central Bank of Nigeria (CBN) Wednesday, June 14, 2017.
Though the treasury bills market started the week on a negative note as investors had previously held instruments for cash to meet short-term obligations, we expect yields to trend upwards due to the upcoming primary market auction (PMA),” they said.
It would be recalled that the apex bank had previously offered N15 billion, but eventually sold N18 billion across the 191DTM and 345DTM bills at respective stop rates of 17.90% and 18.60% (effective yields: 19.87% and 22.57%).
Yields on the bills moderated 15 basis points on average. Buying interest was most notable on the short dated bills with yields on the 51DTM, 58DTM and 72DTM bills declining 46bps, 130bps and 67bps to 17.30%, 18.71% and 18.06% respectively. Consequently, average yields had increased by 17bps to settle at 20.52%.”
“The NIBOR is a major financial market benchmark for the pricing of floating rate money market instruments, bonds and interest rate
derivatives. Its credibility is a key financial market infrastructure need” says Jumoke Olaniyan, Market & Business Development Officer in FMDQ OTC PLC.