N1.7 Trillion Amcon Bonds Crashes Inter-Bank Rates - Nigeria's inter-bank rates took a plunge across tenors at the weekend as the N1.675 trillion bonds issued by the Asset Management Corporation of Nigeria (AMCON) were credited to the accounts of various banks on Thursday and Friday, following which the bank required less funds. Since the 21 banks that sold their non-performing loans to AMCON could use the bonds to borrow funds as security for money from the Central Bank of Nigeria (CBN) at the CBN's rate, market analysts noted that there was no need to borrow at higher rates from the inter-bank market. FSDH Securities Limited, in its Friday, May 6, 2011 edition of the Weekly Nigerian money and capital market report, released to clients on Monday, noted that because the financial system was awash with liquidity, the 7-day Nigerian Inter-Bank Offer Rate (NIBOR) closed the week at 9.21 per cent, compared with previous week's 11.29 per cent. The 90-day NIBOR stood at 11.83 per cent, a decline from the preceding week's 13.46 per cent.

There was no transaction at the primary market for government securities during the week, although, the CBN injected N125.13 billion into the system through the Open Market Operations (OMO) and Repurchase (REPO) held during the week.

The secured open Buy Back (OBB) dropped to 8.0 per cent from 9.50 per cent a fortnight ago, 50 basis points above the central bank's 7.50 percent benchmark rate and 2.5 percentage points higher than the Standing Deposit Facility (SDF) rate.

Overnight placement fell to 8.50 percent from 10.75 percent, while call money dropped to 8.75 percent from 11 percent.

"A number of banks repurchased their AMCON bond holdings to get some cash which helped increase liquidity in the system and forced down cost of borrowing in the interbank market," Reuters quoted one treasurer as saying.

Dealers said the market was up at N161 billion when it opened on Friday, boosted by liquidity from the AMCON bond proceeds.

Traders said rates are expected to remain stable this week, in spite of anticipated outflows to foreign exchange and treasury bill purchases.

Crediting the AMCON funds into the coffers of the banks, FSDH believes, is among Factors that may help lift indicators of the Nigerian Stock Exchange's indicators this week, amidst expectations that bargain hunting investors would throng the market in the face of declining fixed income securities' yields.

Other factors expected to lift the NSE indicators, the report noted, are the improvements in corporate earnings over the corresponding period of last year and the political stability in the country.

In an unprecedented move, the NSE, some weeks ago, admitted the N1.675 trillion Zero Coupon AMCON bond for listing, offering investors more investment options, in addition to serving helping them diversify their portfolio, in the words of Emmanuel Ikazoboh, immediate past interim administrator of the NSE.

More importantly, he said, the bond is a further boost for the nation's stock market which would become significantly deeper, with market capitalization of N10 trillion.

According to Ikazoboh, who presided over the listing, the bond "offering would afford investors opportunity to take advantage of fixed income securities in addition to investing in equities. Since both asset classes are not necessarily correlated, holding them in a portfolio can provide diversification for an investor."

Also reacting to the listing, Oscar Onyema, the director-general of the Nigerian Stock Exchange (NSE), said the listing of AMCON Bond will significantly deepen the market, besides affording investors the opportunity to take advantage of a fixed income instrument.

"The listing is also a special one and it could not have come at a better time as it will confirm our position that our platform is well equipped for trading in bonds. One of the advantages of the NSE Bonds trading platform is price discovery, making pricing highly transparent, and therefore reducing implicit costs," Onyema said.

Kingsley Ighomwenghian

Daily Independent/11/05/2011