18 Oct

Daily Watch – Interbank rate hits roof, Nigeria seeks $15bn India oil payment

  • Nigeria’s overnight interbank lending rate soared to a record high of 128 percent on Monday on naira cash shortages after the lenders funded their account with the CBN to participate in last Friday’s currency forward auction, traders said. Overnight rates opened at 100 percent on Monday, traders said, after the money market ended on Friday with no deals as commercial lenders held onto naira to be able to participate in the auction. Overnight money traded at 14 percent on Thursday. The CBN has been tightening liquidity and intervening directly with dollar sales to commercial lenders to support the ailing naira, hit by the fall in oil prices. The regulator on Friday held a two-month dollar forward auction to clear a backlog of demand from airlines, manufacturers and other companies, as the currency crisis deepened. However, it debited customers’ naira accounts on the day of the auction but will deliver the dollars in two months’ time, traders said, adding that the move had soaked up liquidity from the money markets. CBN intervened again on Monday with dollar sales to support the naira, which ended at ₦305.50/$, traders said.
  • Nigerian banks have continued to review and modify their international usage of naira debit cards as foreign exchange liquidity issues continue to linger. Effective October 14, bank customers will not be able to carry out cross-border transactions or transactions priced in foreign currency using their naira debit, credit and prepaid cards as they will remain suspended. The list of banks that are affected by this directive include Access, Diamond, Ecobank, GTBank, StanicIBTC, UBA and Union banks. This directive only applies to naira denominated international cards while affected customers can request for dollar-denominated credit, debit and prepaid cards. Currently, First Bank remains the only bank able to sell FX to licensed BDCs to meet valid customer needs as the CBN has stopped the sale of FX by other banks to BDCs in a new directive issued last week.
  • Nigeria expects oil production rate to jump by 22 percent by the year-end to 2.2 million bpd from current levels, oil minister, Ibe Kachikwu said on Monday, adding he hoped a force majeure on all its oil fields would be lifted by December or January. Emmanuel Ibe Kachikwu, on a visit to New Delhi, also said Nigeria was likely to sign a cash-raising oil deal with India for $15 billion by the end of this year. India’s oil ministry said that Nigeria, whose economy has been hit hard by low oil prices and militancy, had requested an upfront payment. “Nigeria has a bit of a cash flow problem right now. Our reserves are not as strong as we want them,” Kachikwu told reporters on Monday. “The impact of that is the value of the naira (currency) is coming down. So what we are trying is to leverage on the assets we have to receive immediate cash.” He said OPEC, which has agreed to cut world output to rescue prices, has however allowed a production window of 1.8 million bpd to 2.2 million bpd for recession-hit Nigeria. Kachikwu, who said oil prices would rise from current levels by December, met Indian oil minister Dharmendra Pradhan to discuss expanding energy ties between the two countries. In the last fiscal year ended March 31, Nigeria accounted for nearly 12 percent of all crude oil imports by India, one of the fastest growing economies and energy markets in the world.
  • The CBN on Monday raised the exchange rate for BDCs to N385/$ in a bid to encourage Nigerians in the diaspora to use official channels to transfer earnings back home. Currently, the CBN allows Travelex and First Bank to sell proceeds of international money transfer services to BDCs. While each BDC is allowed to purchase $10,000 per week, the CBN sets the exchange rate at which the dollars are sold to them. The CBN had hitherto, allowed BDCs to buy at ₦375 per dollar and sell at ₦381 per dollar. But yesterday, the apex bank raised the rates, allowing BDCs to buy at ₦381 per dollar and sell at ₦385 per dollar. The Acting President of the Bureaux De Change Operators of Nigeria (ABCON) Alhaji Aminu Gwadabe said the increase was to make the market more attractive to Nigerians in Diaspora. Vanguard reports that the rate increase was communicated to the BDCs an hour after the regulator directed BDCs to submit bids at the old exchange rate increasing the likelihood that most bids might be disqualified, leading to a shortage of dollars.
  • Access Bank Ghana, a subsidiary of Access Bank of Nigeria, has unveiled plans to launch an initial public share offer aimed at raising at least 104 million cedis, (about $26 million). A statement by the bank indicated that it would also cut its stake to 78 percent from 100 percent in the floatation, aimed at enabling it to become self-funding. It explained that the planned launch was in line with a broader drive by subsidiaries of Nigerian banks to seek fresh sources of funding, given the weakness of its own economy due to low oil prices. The bank’s Managing Director, Dolapo Ogundimu, was quoted as saying that “the bank is seeking to expand our operations by making new investments in branch expansion, robust technology and other infrastructure. “The offer follows approval from Ghana’s Security and Exchange Commission and the Ghana Stock Exchange, with the offer open from Wednesday until November 11,” Ogundimu added.