Naira bid-offer spread widens, suggesting pressure on currency: The gap between Nigerian banks’ bids to buy and sell the naira to investors is widening due to a tight supply of dollars in the market, traders said on Thursday, suggesting the currency is coming under international pressure even as government finances improve. Some lenders are seeking to sell the naira at N365/US$ to investors, while others offered to buy at N359. Banks were trading between themselves in the middle at N362/US$, traders said. The currency bid-offer spread has been much tighter in the past, usually ranging between N359 and N360. (Source: Reuters)
Some space for lending growth ahead
Our chart today shows the trend in net domestic credit extension on a q/q basis over the past two years. These are the claims of the monetary system (the CBN and the banks combined) on both the FGN and the private sector, which includes the state governments. From the chart we can see the modest growth of lending to the private sector, together with the swings in claims on the FGN. The broader trend in money and credit aggregates has been a sharp increase in the net foreign assets of the system since Q2 2017, reflecting investor confidence in the economy.
· The share of claims on the FGN and the private sector in total claims stands at about 20/80.
· The growth in claims on the private sector has been modest because the banks have instead bought NTBs on a large scale. Rates on the 364-day paper were over 22% as recently as late August, when prime and maximum lending rates to the real economy were 18% and 31% respectively according to the CBN. The choice of FGN paper has been a “no brainer”.
· Now that the rates on the 364-day paper are more than 600bps lower at auction, banks (and PFAs too) may wish to change their investment thinking.
· For the banks, a core question is whether they can identify new lending targets where they are comfortable with the risk (and for which they have the necessary credit skills). They like to join club deals where the risk is shared with their competitors. These deals can also go wrong but in our view their popularity with the banks reveals a “safety first” mindset.
· We do, however, see some pick-up in real economy bank lending, perhaps low single-digit growth annualised, because the banks will be looking to replicate the high returns on NTBs they enjoyed most of last year.
. Fifteen new airlines seek operating permits: About 15 new private and commercial airlines have applied for operating permits as demand for air travel steadily rises in the country. The spokesman of the Nigerian Civil Aviation Authority (NCAA), Sam Adurogboye, said the applications were being considered and as many airlines that met the laid down conditions would be granted permits to operate in Nigeria. (Source: Guardian)
. Shiroro power plant shuts down: One of the nation’s three hydropower plants, Shiroro Power Station, has been shut down as a result of flooding. Shiroro generated a high of 428MW on January 3, 2018. (Source: Punch)
. Thailand to establish rice mills in Nigeria – Minister: The federal government (FG) on Sunday announced that Thailand had commenced moves to establish rice mills in Nigeria. The minister of information and culture, Lai Mohammed, disclosed this during a tour of some rice farms in Kebbi State. He said the FG had won its fight against rice importation, particularly from Thailand, as Nigeria had reduced its importation of rice by over 90%. (Source: Punch)
CENTRAL BANK OF NIGERIA HAS WARNED INVESTORS ABOUT CRYPTOCURRENCIES.
The Central Bank of Nigeria (CBN) has once again cautioned Nigerians to be wary of investments in cryptocurrencies, asserting that virtual currencies are not accepted legal tenders in the country. The CBN, however, seems to be taking the laziest route in asserting its influence on the burgeoning crypto-market.
Following the circular issued by the CBN warning Banks and other financial institutions about dealing with cryptocurrencies operators and customers in the country, the regulator issued a press release on Wednesday stating that cryptocurrencies such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, etc and exchanges such as NairaEx are not licensed or regulated by the CBN.
The release, signed by the bank’s Acting Director in charge of Corporate Communications, Isaac Okorafor, emphasised that dealers and investors in any kind of cryptocurrency in Nigeria were not protected by law. Mr Okorafor added that the legal implications of such an arrangement are that they may be unable to seek legal redress in event of failure of the exchangers or collapse of the business.
“Members of the public are hereby warned that virtual currencies are not legal tender in Nigeria. Accordingly, we wish to caution all and sundry on the risks inherent in such activities,” the press release from the apex bank in the country concluded.
A cryptocurrency is a digital medium of exchange that uses encryption to secure the processes involved in generating units and conducting transactions. The anonymous nature of cryptocurrency transactions makes them heavily criticized as a way to carry out a host of nefarious activities, such as money laundering and tax evasion.
Countries around the world have been grappling with cryptocurrencies and how to regulate them. Some are welcoming, others are cautious. While Nigeria seems to be joining countries like China and India who are downright antagonistic to cryptocurrencies.
It’s important to note that the crypto-market is still very much in its infancy. But a few years from now, these digital currencies and the technology they built upon have the capacity to cause a significant shift in the financial industry, and even outgrow our traditional financial market. It would be better for regulators like the CBN to acknowledge it doesn’t know everything about digital currencies or blockchain and set up a research team that would help it come up with better ways of approaching the crypto market. There are also ways to enforce certain legislations to safeguard those interested in the market.
The CBN can also learn a thing or two about the future of cryptocurrencies and the accompanying technology — Blockchain — from the written testimony of J. Christopher Giancarlo, chairman Commodity Futures Trading Commission before the United States Senate banking committee: “We are entering a new digital era in world financial markets. As we saw with the development of the Internet, we cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response. The evolution of these assets, their volatility, and the interest they attract from a rising global millennial population demand serious examination.”
There’s real value hiding behind the hype and somewhat hideous attempts of crude crypto companies.