MARKET DEVELOPMENT: CBN Moves To Cut Cost Of Liquidity Management

The CBN FX Importation figure and NBS Capital Importation number
In the days of yore, it was generally believed that photograph does not lie, in fact in some geographic zone an idiom was coined for such saying; the camera is like a mirror and as you pose for it so your image will be reproduced.
However, with the advancement in technology, such talks have since changed and became irrelevant, no thanks to Photoshop applications and other filtering mechanisms that could easily transform people’s image from ugly to beauty or distort the look as the case may be.
So also is the axiom that says data don't lie because of the dependability of data these days will depend on the sources of such statistics.
The report of capital importation into the country released last week by the Nigerian Bureau of Statistics (NBS) significantly exposed the manner data could be used or manipulated to achieve expected ends or results
Going by the CBN figure, estimate foreign investment inflows into the country between April and May stood at around $5.72 billion. The regulatory bank figure is doubtful considering the trend of capital flow since the advent of President Mohammadu Buhari’s administration.
Anyway, the disparity in the figure of capital importation into the economy is better left to be resolved by the two agencies of government. It’s however important to note the political undertone behind the release of the CBN figure, which came more than two clear weeks before the release of the NBS figure, which must have also been obtained from the regulatory bank.
Government agencies should ensure the integrity of data released to the public otherwise, they will be inadvertently undermining their relevance in the economy.

NSE suspension of 11 companies and importance of effective regulation The Nigerian Stock Exchange (NSE) last week slammed 11 companies listed on its board for their failure to submit their financials within the stipulated time frame. The move was in consonance with the market regulation on submission of market information by listed firms.
The rule was to ensure transparency in the operations of such listed companies and provide investors with timely market information to enable them make informed decision on their investment.
The beauty of the regulatory action manifested few day later when one of the suspended firm rushed to the exchange to file its audited report, which was overdue, while another have to file information on the late submission of its financials.
However, beyond the issue of suspension of trading on the shares of the defaulting companies, the NSE should go a step further in collaboration with the capital market regulator the Securities and Exchange Commission (SEC) to enforce stricter sanction on key officers of such firms.
Restoring and sustaining investors’ confidence in the market will continue to require the effectiveness of regulations in the market and discouragement of impunity by some operators.
Experience in the past when many companies where not transparent with their accounts and misled many investors into buying into their stocks and later regret their action should not be allowed to repeat itself in the market.
Market regulators should tighten market rules to ensure that companies listed adequately comply with the dictates of the market.
The investors should be protected and their funds secured in the market so that the purpose of capital market is fulfilled and the economy is better for it.

CBN moves to cut cost of liquidity management, wean banks of cheap earnings In a bold move to discourage banks from dumping their excess cash at the Central Bank of Nigeria (CBN) Standing Deposit facility (SDF) window and slash the cost of liquidity management, the regulatory bank came out with a circular on Wednesday proclaiming its decision to stop paying interest on commercial lenders idle funds with it.
The measure will checkmate the habit of many high net worth banks that usually dump their idle funds at the CBN SDF window to earn up to 8.5 percent interest rather than lending to the productive sector or on the interbank market.

The regulatory bank over the years continues to spend a huge portion of its balance sheet to manage liquidity in the system and pay interest on banks idle funds deposited with it.
This has often indirectly encouraged banks to resort to armchair banking rather than focus more on their intermediation role in the economy.
Many of the banks rake in huge profits from merely placing their idle funds at the CBN SDF window to earn secured interest and invest the balance in treasury bills and other government debt instruments.
Most banks resort to this measure because of the high rate of default in their loan portfolio and the high risk associated with granting credit to the private sector.
Many analysts consider the latest move by the central bank as timely and would lead to the reverse of the trend where banks simply depend on fee earn from government treasuries and placement in the SDF to record jumbo profit.
The CBN should go ahead to slash the present interest being paid on funds placed by banks in the SDF window to the barest minimum as a way of discouraging them from just dumping their idle fund with the regulatory bank.
However, the monetary authority should strengthen its supervisory role in the financial system, tightens risk management process in the industry and help banks recover the bulk of their NPLs through appropriate monetary policy initiative.