Banks' Month-End Obligations Cut Securities by 51 %
Economy
By Ayodele Aminu
Attempts by banks to make provisions (provide funds) for their month -end statutory obligations with the Central Bank of Nigeria (CBN) have shot up cost of funds at the money market, reducing investment in the government securities trading by some 51.4 per cent.
Given this scenario, the apex bank through the sale of Treasury Bills (TBs) withdrew a total sum of N68.83 billion from the economy at the weekend. This figure indicates a dip of N73.96 billion when compared with the N143.79 billion mopped up in the previous week.
The government securities trading comprising the Open Market Operations (OMO) and the Primary Market Auction (PMA) are some of the investment windows available for the banks and discount houses and the investment public. It is through these outlets that the apex bank controls the amount of liquidity in the system by selling treasury bills from which the Federal Government borrows indirectly from banks, thereby mopping up their excess funds.
On monthly bases all deposit money banks in the country are expected to make provisions for their month-end obligations with the banking watchdog by a way of funds. Consequently, most of the idle funds at the money market were used to make these provisions, a development that slightly raised the cost of funds (interest rates).
Since no inflow of fund is being expected this week, the money market is expected to be very tight.
An analysis of the flow of funds in the money market last week shows that outflow through the foreign exchange market stood at N24.358 billion compared with N31.38 billion of the previous week, while demand dropped from N248.68 million to N196.818 million. Net outflow through the PMA and OMO last week on the other hand amounted to N22.544 billion.
Meanwhile, a breakdown of the total amount withdrawn from the economy last week shows that N12.2 billion, N150 million, N951 million and N8.987 billion were withdrawn on Monday, Wednesday, Thursday and Friday respectively through the daily OMO, while the remaining N46.542 billion was withdrawn through the PMA on Thursday.
At last Monday's daily OMO where bills with life span of 49 days and maturity date of August 16, 2004 were sold, all the N12.2 billion bills received were sold at the issue and bid rates of 12.5000 per cent apiece, while the true yield stood at 12.5907 per cent.
No bills matured for repayment, putting the net sale/purchase position at N12.2 billion.
At Wednesday's OMO where bills with life span of 21 days and maturity date of July 21, 2004 were sold, all the N150 million worth of bills received were allotted at the issue and bid rates of 12.5000 apiece. The true yield stood at 12.5907 per cent. No bills matured for repayment, putting the net sale/purchase position at N150 million.
At Thursday's OMO where bills with life span of 49 days and maturity date of August 19, 2004 were sold, all the N951 million worth of bills received were allotted at the issue and bid rates of 14.2400 -14.2500 per cent apiece. The true yield was 14.5275 per cent. Bills amounting to N10.237 billion matured for repayment, putting the net sale/purchase position at N10.237 billion.
At Friday's OMO where bills with life span of 35 days and maturity date of August 6, 2004 were sold, bills amounting to N8.987 billion were allotted at bids rates of between 14.2000 - 14.3500 out of the N10.987 billion bills placed on offer. The bills were allotted at the issue rate of between 14.2000 - 14.2500 per cent, while the true yield stood at 14.4465 per cent. Bills amounting to N8.166 billion matured for repayment, putting the net/sales position at N821 million.
At Thursday's PMA - a 91 days tenured investment with September 9, 2004 as its maturity date, total bills placed on offer stood at N65.000 billion, total public subscription amounting to N47.342, while total allotment stood at N46.542 billion.
Bid rates ranged between 14.0000 - 14.5000 per cent per annum, issue rate was between 14.0000 - 14.5000 per cent, while true yield stood at 15.0431 per cent per annum.
Bills amounting to N27.883 billion were repaid, putting the net sales (purchase) position at N18.659 billion.
Minimum Rediscount Rate (MRR) that is the nominal anchor of all interest rates in the economy however, rem-ained unchanged at 15 per cent per annum.
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