The new Treasury Bills policy of the Central Bank of Nigeria, CBN, has effectively obstructed about N622 billion interest earnings that would have accrued to banks and other individual and corporate investors in the money market. The banks had mobilised their customers to invest in the NTB at mouth watering yields (interest rate) shortly after the apex bank increased the Loan-to-Deposit Ratio, LDR, requirement to 60percent in September last year. Instead of lending to real businesses as required by the new LDR directive, banks embarked on aggressive loans to individuals and companies for investment in the NTB to meet the CBN’s LDR requirements.
In response to this the CBN tweaked its NTB policy in October last year cutting off local investors, individuals and corporates, from investing in NTB through the Open Market Operations (OMO) auctions.
Consequently, the interest cost which the apex bank pays to the investors has recorded a massive crash in the first half of 2020 to N675 billion as against N1.3 trillion it dolled out to the investors before the policy (in the first of 2019, H1’19), leaving a balance of about N622 billion that would have gone to the investors. The blocking of the investors from the OMO segment of the NTB also resulted in a huge decline in the volume of transaction in the instrument. Financial Vanguard investigations revealed that the ban has triggered a 45 percent year-on-year (YoY) decline in the volume of OMO NTBs issued and sold by the CBN, in the first half of the year (H1’2020). According to the apex bank, OMO NTBs issued during the period fell by 45 percent YoY to N6.39 trillion and N6.45 trillion in H1’2020 from N11.85 trillion and N11.83 trillion respectively in H1’19. Also reflecting the impact of the exclusion of local investors from OMO auctions, demand for OMO NTBs (public subscription) fell by 34 percent, YoY, to N8.57 trillion in H1’2020 from N13.05 trillion in H1’19.
This trend continued in July and August, with OMO NTBs issued during the two months falling by 81 percent, YoY to N231 billion from N1.24 trillion in the corresponding period of 2019. Similarly, OMO sales fell by 74 percent, YoY, to N218 billion in July and August, from N855 billion in the corresponding period of 2019. During this period, demand for OMO bills also fell by 83 percent, y/y to N512 billion from N3.05 trillion in the corresponding period of 2019. Bulls to rule market Meanwhile, there are indications that the NTB OMO market would remain on the bullish sentiment this week despite a similar trend in the equities market, money market analysts said. Last week, performance in the NTB market was bullish as excess funds from the primary auction filtered into the secondary market. Consequently, average yield across benchmark tenors declined 28 basis points (bps) Week-on-Week, WoW to close at 0.1 percent. At the close of the week, the mid-term instrument enjoyed the most buying interest as the average yields declined 52bps WoW to 0.1 percent while yield on the short and long-term instruments dived 27bps and 4bps WoW to 0.1 percent and 0.2 percent respectively. According to analysts at Afrinvest West Africa Limited, a Lagos based investment house, “In the coming week, we expect the CBN to resume its liquidity intervention as OMO worth ¦ 103.1billion would hit the system. We expect rates in the secondary NTB market to remain low due to huge money supply.”