Interest rate rises as CBN tightens liquidity

…banking stocks boost market value

By Odunewu Segun 

With the Central Bank of Nigeria contractionary monetary policy measure that squeezed out about N441.2 billion from the financial system, interbank interest rates has risen up to 25.6 per cent.

The rate had opened last week at 24.8 per cent. The first tranche of the CBN operation came at previous week’s rate of 18 percent for N205 billion worth of treasury instrument last week, but money market dealers said the apex bank spiked the rate two days later to 18.5 per cent for N236.1 billion worth of instrument, a development which did not only push up the overall market rates but also signalled further rise in lending rates to banks’ credit customers in the days ahead, if the spike rate continues.

Banks had raised their lending rates last month, following the jerk up in Monetary Policy Rate, MPR, to 14 per cent by the CBN, which was followed by steady rise in rates at the fixed income market and government securities. Prime lending rates had since spiked beyond 20 per cent with most banks at over 25 per cent, while other categories of borrowers were slammed over 30 percent interest rates.

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Treasury executives in banks explained that with the increasing rates in fixed income securities and government securities which are near-zero risk, banks would rather channel their funds to those areas rather than private businesses, though they still lend to secured and profitable businesses at new interest rates. They also explained that the financial system does not have the luxury of liquidity to go round all the prospective borrowers given the current monetary policy regime which has been tightening liquidity in recent weeks.

Meanwhile activities in the banking sector on the Nigerian Stock Exchange, NSE, last week, boosted market value to record N12.9 billion for 1.375 billion shares which was exchanged by investors in 16,915 deals.

Trading in the top three equities namely – United Bank for Africa Plc, Access Bank Plc and FBN Holdings Plc (measured by volume) accounted for 559.065 million shares worth N2.452 billion in 3,690 deals, contributing 40.66 per cent and 18.95 per cent to the total equity turnover volume and value respectively.

Also traded during the week under review  were a total of 57,828 units of Exchange Traded Products (ETPs) valued at N766,162.96 executed in 37 deals, compared with a total of 1,003 million units valued at N12.116 million transacted last week in 43 deals.

The NSE All-Share Index and market capitalization appreciated by 1.48 per cent to close the week at 27,650.32 and N9.496 trillion respectively. Similarly, all other Indices finished higher during the week, with the exception of the NSE Insurance and NSE Oil and Gas Indices that shed 1.19 per cent and 3.44 per cent respectively while the NSE ASeM Index closed flat.