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Debt Securities

With nowhere to invest, Nigerians keep N36 trillion in banks and low yielding assets

Too much cash, low yields, nowhere to invest

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With nowhere to invest, Nigerians keep N36 trillion in banks and low yielding assets, Naira hits N570 to $1 at forwards market, pressure on the naira climbs up  

Nigeria’s low-interest-rate environment for savings and investments is eroding trillions of Naira in value for Nigerians who keep money in the banking system.  The total money supply in the country as of July 2020 was N36.8 trillion up by over N2 trillion from December last year and the highest on record.

The Nigerian financial sector has been experiencing a low-interest-rate environment since the CBN blocked the sale of its Open Market Operations (OMO) bills to local investors (except banks) last October. The singular action has driven savings deposit rates, fixed deposit rates, and other risk-free rates such as treasury bills to under 6% per annum. This is despite a rising inflation rate that rose to 12.82% the highest in 27 months.

Wale Okunrinboye, the Head of Research Sigma Pensions explained why money supply has been on an increase. “On what has driven the expansion. It has been partly driven by credit growth given the LDR policy but more strongly by an expansion in net foreign assets,” he said.

Get relevant financial data from Nairametrics on Nairalytics

Since the central bank reduced access to the purchase of its securities, investment in CBN related bills has reduced to N3.4 trillion as of July 2020 from N8 trillion at the end of December 2020. The outflow of money from CBN bills created a huge liquidity supply that found its way back into the banking sector.

The CBN has practiced heterodox monetary policies as it seeks to manage exchange rate stability while attracting foreign exchange investments into the country. To achieve exchange rate stability, it offered high-interest rates to buyers of its OMO bills. However, the cost of servicing these bills and its attendant effects on the economy meant it had to stop in November. OMO bills rate has now fallen to single digits since this year for its short dated bills.

READ: BIG TROUBLE: CBN’s N650 billion ‘crisis’ explained

CRR Pressure

It appears that the central bank may have envisaged that the possible influx of cash into the financial system could trigger a new round of foreign exchange speculation. Banks have in the past been accused of diverting excess cash flow emanating from excess deposits into forex roundtripping rather than lend to the private sector. This risk has resulted in over N2 trillion of banking sector deposits held by the central bank as reserves.  Mr. Okunrinboye explains again.

“On FX demand, the buildup in liquidity could be a problem but the pickup in Bank reserves suggests that CBN’s debits have worked to remove the extra liquidity entirely.”

READ: ‘Shashe Banking’ cost CBN N1.3 trillion in interest expense in 2017

Too much cash, low yields, nowhere to invest

With money supply at all-time highs, interest rates on 3 months treasury bills is a paltry 1.2% compared to about 11% last year. With the inflation rate at 12.8%, investors in Nigeria’s treasury bills have a whopping -11% in negative real return.

Apart from government securities and commercial bonds, the only investment outlet available to invest is in the stock market. But with the possibility of another round of exchange rate devaluation lurking, investors are left to choose between investing in a capital market that has lost trillions in market value or keeping the money in banks at the risk of being eroded by inflation, or look elsewhere even if it means investing abroad.  It appears many have chosen the latter.

READ: Why Emefiele’s interest rate policy is ‘great’

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A diaspora investor Charles Bivins, who spoke to Nairametrics lamented about his disappointment with investing in the Nigerian equities market.

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“I will not also support anyone to invest in Nigeria’s low-interest-rate as things are now. I was a strong believer in the Nigerian economy and I have invested a lot of funds in the equity market. If I had deployed the capital I invested in the markets in Canada where I reside, I would probably have made like 20 times my money in a 10-year frame. All things being equal, investors should be prepared to take some risk and invest in a low-interest environment, but nothing is stable in Nigeria,” he said.

READ: FG expected to spend a record N12.65 trillion for 2021 budget

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Another Hedge Fund Manager who preferred that we do not mention his name vowed he will not invest in Nigeria considering the low-interest environment.

“I cannot invest in Naira right now. Not just possible. It is against any fund manager’s fiduciary responsibility to invest in either equity or fixed income instruments at this time when you are almost certain that you will lose money once you enter,” he concedes.

Unfortunately, a lot of Nigerians have no choice but to retain their funds in Nigeria’s low yielding financial system. Institutional investors like pension funds with over N11 trillion in pension fund assets out of which N1 trillion is in treasury bills and another N1.35 trillion in bank placements. Yields on these funds are by estimates negative after adjusting to inflation.

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Debt Securities

DMO debunks misappropriation rumour, clarifies missing N2.2 trillion in 2018 Appropriation Act

The DMO has debunked rumours of misappropriation of a N2.2 trillion debt service provision in the 2018 Appropriation Act.

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Debt Management Office resumes FGN savings bond offer on August 10, Eurobonds, Patience Oniha, DMO, External debt servicing

The Debt Management Office of Nigeria (DMO) has vehemently denied the rumour making the rounds that it was unable to account for the sum of N2.2 trillion allocated to its office in the 2018 Appropriation Act.

The agency in a recent disclosure available on its website described the claims as not only false but extremely misleading.

It is pertinent to note that the rumours became rife, after DMO honoured an invitation by the Public Accounts Committee of the House of Representatives, to explain how it spent the sum of N2.2 trillion provided in the 2018 Act. The DMO appeared before the aforementioned committee on the 26th of February, 2021.

Clarifying the issue, the DMO explained that of the N2.2 trillion provided in the 2018 Act; only the sum of N721, 251,798.00 was appropriated to its agency, while the remaining N2.1 trillion was earmarked for Debt Service. In lieu of this, the DMO emphasized that the appropriated sum of ₦2.2 trillion was not available as the DMO’s total allocation.

What they are saying

Commenting on the issue, a part of the press release reads: ‘’ The DMO wishes to emphasize that the provisions in the Annual Appropriation Acts for Debt Service, including the 2018 Appropriation Act, are dedicated for Debt Service payments only; that is, for the repayment of Principal, Interest and Other Charges for both Domestic and External Debt.

“Indeed, the funds for Debt Service are never released to the DMO for spending, rather, in line with the mandate of the Office of the Accountant-General of the Federation (OAGF), the funds are domiciled with the OAGF, who on the advice of the DMO, effects payments directly to the creditors as at when due. Such creditors include multilateral and bilateral lenders like the World Bank, African Development Bank, Exim Bank of China, investors in Nigeria’s Eurobonds, as well as, investors in securities issued in the domestic market such as FGN Bonds, SUKUK, Green Bonds and Nigerian Treasury Bills.”

It also went further to justify the need for Debt Servicing, emphasizing that: “The general public is invited to note that servicing of the public debt is absolutely necessary to ensure that Nigeria remains credit-worthy and retains or improves on its sovereign rating which ultimately, will support growth and development. It is for this reason as well as transparency purposes, that Debt Service is expressly provided as a line item in the Annual Appropriation Acts.’’

What you should know

  • The 2018 Appropriation Act authorized the Federal Government of Nigeria to withdraw a total sum of N9, 120,334,988,225 from the Consolidated Revenue Fund, in a bid to meet expenditure requirement in the 2018 fiscal year.
  • A breakdown of the 2018 Act showed that; N3,512,677,902,077 was earmarked for recurrent expenditure, N2,873,400,351,825 (capital expenditure), 2,203,835,365,699 (Debt Service and DMO’s allocation) and N530,421,368,624 (Statutory transfers).

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Debt Securities

DMO announces March 2021 FGN Savings Bond offer for subscription

The DMO, on behalf of the Federal Government of Nigeria, has offered for subscription, the March 2021 FGN Savings Bond.

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Debt management office, DMO,Nigeria's Debt to revenue ratio, DMO suspends April 2020 FGN savings bond offer

The Debt Management Office (DMO), on behalf of the Federal Government of Nigeria has offered for subscription, the March 2021 Federal Government of Nigeria Savings Bond.

This is contained in a notification published on the website of the agency on Monday. According to the notification, the savings bond offer comes in two tranches;

  • 2-year FGB Savings Bond due March 10, 2023: 5.181% per annum
  • 3-year FGN Savings Bond due March 10, 2024: 6.181% per annum

Details

  • Opening Date: March 1, 2021
  • Closing Date: March 5, 2021
  • Settlement Date: March 10, 2021
  • Coupon Payment Dates: June 10, September 10, December, and March 10
  • Units of sale: N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50 million.

According to the circular, the offer is backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria.

Interested investors were however advised to visit their website in order to get the list of stockbroking firms appointed as distribution agents.

What you should know

  • Nairametrics had reported the offer for subscription of a similar Savings Bond in February with interest rates of 4.214% and 5.214% per annum for 2 years and 3 years tenor respectively.
  • The interest rate for the latest offer is, however higher than the offer announced in February. This could be a move to attract more investors to subscribe to the securities.
  • The FGN Savings Bond is an investment product issued through the Debt Management Office (DMO) on behalf of the Federal Government.
  • It also qualifies as securities in which trustees can invest under the Trustee Investment Act, and is listed on the Nigerian Stock Exchange.

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