The Central Bank of Nigeria (CBN) data have shown significant rise in broad money supply (M3) by 62.8 per cent year-on-year to N108.9 trillion, just as currency-in-circulation surged to N4.31 trillion.
The rise in these indicators, have equally caused a significant upbeat in Credit to Private Sector (CPS).
Cordros Securities Analysts, said: “We project the CPS will maintain a double-digit expansion in 2024 fiscal year as we believe the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks (DMBs) will continue to drive the willingness of commercial banks to create risky assets. Nonetheless, we acknowledge that the increased monetary policy tightening measures may tether CPS growth.”
According to data from the CBN, CPS increased by 27.5 per cent year-on-year to N75.85 trillion in September as against N59.51 trillion recorded in the same period of last year.
“We believe the continuous increase in CPS reflects the impact of CBN’s enforcement of the 50.0 per cent loan-to-deposit ratio and the spillover effects of the naira depreciation on foreign-denominated assets of the banks.
“On a month-on-month basis, the CPS rose by 1.7 in September (August: -1.0 per cent m/m to N74.73 trillion). Similarly, Credit to the Government surged to a record high of N42.02 trillion in September, representing an 89.8 per cent year-on-year increase relative to the N22.14 trillion in September 2023, indicating increased reliance on domestic banks for deficit financing”.
Based on the data obtained from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) rose to a five-month high in October, increasing by 40.2 per cent m/m to $3.04 billion in October compared with $2.17 billion in September last year.
The analysts attributed the improvement primarily to a substantial increase in inflows from foreign sources (44.6 per cent of total inflows).
In comparison, collections from local sources (55.4 per cent of total inflows) dropped for the second consecutive month. Specifically, inflows from foreign sources increased by 292.7 per cent m/m to $1.37 billion compared with $345.50 million recorded in September last year, reflecting the highest level in seven months in line with improved carry trade opportunities in the capital market over the review period.
As a result, higher accretions were recorded across the Foreign Portfolio Investment (+510.9 per cent m/m) and Foreign Direct Investment (+44.6 per cent m/m) segments, while inflows from other corporate segment (-15.1 per cent m/m) dropped.
“Elsewhere, inflows from local sources declined by 7.5 per cent m/m to $1.69 billion in October as against $1.82 billion in September last year, driven by declines across collections from the individuals (-30.6 per cent m/m), CBN (-14.3 per cent m/m), and non-bank corporates (-8.6 per cent m/m) segments, amid a marginal improvement in the exporters/importers (+0.6 per cent m/m) segment,” the report said.
“While we acknowledge the recent liquidity influx from foreign investors, we believe this is unlikely to be sustained given the unfavourable macroeconomic conditions, still weak structure of the Nigerian FX market, and sustained volatility in the naira”.
“Additionally, we anticipate that the limited inflows from the CBN may pose downside risks to overall liquidity conditions in the near term, potentially dampening market confidence and heightening pressure on the naira,” the report said.
In the Treasury bills secondary market, demand pressures eased on the last trading day, undermining the four consecutive days of bullish sentiments posted last week.
As a result, the Treasury bills secondary market closed bearish week-on-week, as the average yield across all instruments increased by nine basis points (bps) to 25.9 per cent.
Across the market segments, the average yield advanced by four basis points to 24.2 per cent in the Nigeria Treasury Bills segment and increased by 11bps to 26.2 per cent in the Open Market Operation segment.
