CBN to Auction N138bn Treasury Bills This Week

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CBN Governor, Sanusi Lamido Sanusi


By Obinna Chima

The Central Bank of Nigeria (CBN) has announced plans to issue a total of N137.97 billion treasury bills this Wednesday, in line with its restrictive monetary policy stance.
The bills, which are to vary from 3-month to 1-year maturities, would be sold at the apex bank’s regular bi-monthly debt auction. Specifically, the CBN plans to issue N32.97 billion naira in 91-day bills, N45 billion in 182-day bills and N60 billion in 364-day bills.
Auctioning treasury bills helps in reducing the volume of money supply in the system, because the liquidity management office accepts money in return for purchase of securities, and keeps the money out of circulation.
The regulator issues the bills with the aim of reducing money supply as well as to control inflationary pressure in the country. Inflation rate had increased significantly to 12.9 per cent in April.

Interbank Rates Movement

Interbank lending rates increased to an average of 15.42 per cent on Friday, as against the13.07 per cent it was the preceding Friday.
The spike in cost of funds was attributed to the Open Market Operations (OMO) of the CBN that led to the withdrawal of funds from the system.
Consequently, data made available by the Financial Market Dealers Association (FMDA) showed that while the Overnight (Call) tenor increased to 14.46 per cent on Friday, from 10.87 per cent the preceding Friday, the 7-day tenor also climbed to 14.75 per cent on  Friday, from  the 11.67 per cent it attained the preceding Friday.
Similarly, whereas the 30-day tenor advanced to 15.08 per cent on Friday, from the 12.92 per cent it stood the preceding Friday, the 60-day tenor jumped from 13.42 per cent the preceding Friday, to 15.46 per cent.
Dealers revealed that the apex bank withdrew about N200 billion through the monetary policy instrument, thereby creating liquidity shortage and rate spike. The market was said to have opened with a cash balance of about N92 billion on Friday, as against the N387 billion the preceding Friday.
The secured Open Buy Back (OBB) closed at 14 per cent on Friday, from 10.29 per cent the preceding Friday. It Friday’s position was 200 basis points above the Monetary Policy Rate (MPR) used to benchmark the OBB.
Analysts predicted that interbank rates would climb further this week as a result of the planned treasury bills auction by the banking sector regulator.

Forex Transactions

The naira fell significantly against the United States dollar at the interbank last week market yesterday as anticipated month-end dollar inflow from oil companies failed to hit the market.
The naira closed at N160.57 to a dollar on Friday, representing a decline by N1.62, over the N158.95 to a dollar it was on Monday. The CBN had intervened at the interbank market last Monday, in a bid to support the naira and help calm the market.
On the other hand, at the CBN’s regulated Wholesale Dutch Auction System (WDAS) Thursday, the apex bank offered a total of $450 million to dealers last week. The naira weakened slightly by 6 kobo to close at N155.75 to a dollar at the WDAS.

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Biometric Verification

The Central Bank of Nigeria (CBN) last week disclosed plans to commence another Know-Your-Customer (KYC) exercise for all bank customers nationwide starting from September 1, 2012.
According to the banking sector regulator, the exercise is aimed at adopting the new National Identity Number (NIN) to be issued from September this year as the new basis for KYC for financial transactions going forward.
It had also explained that the verification exercise expected to be completed by December 31, 2012, is primarily to capture customers’ biometrics, “issuing them the NINs and the General Multi-Purpose Identity Cards (GMPC), as well as providing verification infrastructure for linking their bank accounts to the issued NIN within the National Identity Management Commission (NIMC) database”.

The CBN had stated that the decision was taken at a recent Bankers’ Committee meeting. The apex bank had however maintained that with effect from January 8, 2013, the NIN, would become the basis for KYC verification and compliance by all commercial banks, microfinance banks, primary mortgage banks and other deposit taking financial institutions in the country.
It had also revealed that presently, the Nigeria Interbank Settlement System (NIBSS) is working in collaboration with the NIMC to integrate the Nigeria Central Switch (operated by NIBSS) with the NIMS.

2012 Fuel Subsidy Claims

THISDAY reported last week that the federal government had commenced the payment of verified claims to fuel marketers. This had followed the suspension of payment of 2011 subsidy arrears.
The Federal Ministry of Finance had also said that it had spent N451 billion out of the N888 billion budgeted for the payment of subsidy in this year’s budget, on the payment of arrears for 2011 alone to beneficiaries.
The ministry had also said that next month’s meeting of the Federal Accounts Allocation Committee (FAAC) would decide on the resumption of the payments for the arrears of 2011, adding that it would pay only verified marketers.
THISDAY had however gathered that the ministry, through the Debt Management Office (DMO), had started issuing Sovereign Debt Notes (SDN) to marketers for 2012 subsidy to enable them collect their money from the Central Bank of Nigeria (CBN). To avoid what it called “extra budgetary expenditure”, the ministry had suspended payment of arrears of 2011, after the claims overshot the budget.
The arrears of 2011 were in respect of the import permit issued to marketers in December 2011, which also covered the first quarter of 2012. Marketers, who spoke to THISDAY, had confirmed that payments for 2012 subsidy has commenced.

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Agent Banking

The CBN last week disclosed plans to encourage agent-banking in the economy, with the proposed introduction of the three-tiered Know-Your Customer (KYC) system. The apex bank had however stated that the main objective of the proposed system is to promote as well as deepen financial inclusion in the economy.
Agent banking refers to the delivery of financial services outside conventional bank branches. It entails the use of non-bank retail outlets that rely on technologies such as point-of-sale (POS) terminals, mobile phones, amongst others.
The CBN had explained that it intends to use the proposed tiered KYC approach to implement flexible account opening requirements for low-level and low risk accounts that “are subject to caps and restrictions as the amount of transaction increases,” adding that it meant that account opening requirement would “increase progressively as restrictions on transactions are eased.”
It had explained: “To facilitate the effective implementation of the proposed regime and achievement of the objective of financial inclusion, the three-tiered KYC approach envisages the use of bank agents and mobile banking portals to reach a wider segment of the society that otherwise have no access to financial services.”
According to the CBN, banks and other financial institutions under its purview would be made to comply with the system.
Commenting on the structure of the proposed system, it had explained further: “The average monthly deposit cap in each amount would be set in multiples of N18,000 in the low-value and low-risk levels. This approach ensures that the account will remain attractive to customers of different socio-economic levels while keeping under close watch the risk involved.”

CBN Amendment Bill

Governor of the CBN, Mallam Sanusi Lamido Sanusi, last week argued that the move to amend the CBN Act 2007, would subject the CBN to some undue political interferences.
Sanusi was joined by a former CBN Governor, Mallam Adamu Ciroma, and a former Executive Director of the CBN, Prof. Green Nwankwo. Others who also opposed the bill were the Nigeria Labour Congress (NLC) and the South-south/ South-east Professionals.
Sanusi had told the Senate Joint Committee on Judiciary, Banking, Insurance and other Financial Institutions that the proposed amendment to the legislation was undesirable and against global best practices.
According to Sanusi, the move to compel the CBN to subject its budget to parliamentary scrutiny would not only put CBN at the mercy of politicians but would remove its autonomy and compromise its authority to regulate fiscal and monetary policies in the economy.
He had given instances of about 40 countries where, he claimed, their apex banks do submit annual budgets to the parliaments.
Sanusi had said that the only place where the central bank has been compelled to dance to the tune of the parliament was Zimbabwe, adding that the repercussion of such a law has clearly manifested in the poor health of the Zimbabwean economy.

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NDIC on CBN’s Independence
The Nigeria Deposit Insurance Corporation (NDIC) last week described the independence of the Central Bank of Nigeria (CBN) as an essential component of a modern monetary system.
According to the NDIC, in Western democracies, there has been a long-standing tradition to grant their respective central banks functional, administrative as well as financial and budgetary independence so as to ensure their effectiveness in the formulation and execution of monetary policy.
NDIC had stated: “The CBN clearly uses public resources to perform its functions. Any increase in its expenditures reduces its profits and so reduces its annual payment to the consolidated revenue account.
“These expenditures include the administrative costs of developing and implementing monetary policy, providing financial services to the Federal Government of Nigeria (FGN) and the banking system, and supervising and regulating banks and their holding companies,” it added.
It had noted that the National Assembly should therefore, naturally be interested in the amount of economic resources used in these activities and in whether the CBN is using these resources efficiently.
However that NDIC had said the National Assembly should be able to compare the use of resources in these areas with other alternative uses of the same resources.
It had added: “While the National Assembly is undoubtedly vested with oversight powers in respect of the use of public resources, it also, must be mindful of the effect of increased control over the independence of the CBN to determine and implement its budget without which it cannot perform its monetary policy functions efficiently and effectively.”

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