Nigeria’s banking sector in January 2017 - A review

Structure of the Nigerian Banking Sector in January

There was no change in the structure of the Nigerian banking industry as at January 2017

Banking Type	Number available
Commercial Banks	22
Primary Mortgage Institutions(PMIs)	35
Discount Houses	5
Finance Companies	20
Bureau De Change (BDCs)	2,991
Merchant Bank	5
Non-Interest Islamic bank	1
Microfinance Banks (MfBs)	1,023

Source: CBN

Factors that shaped the Industry in January

A major decision that influenced the banking sector was the outcomes of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN). Most of the predictions about retaining the existing rates were proved right. As the regulator of the banking sector, the decisions of the CBN which are usually announced through a communiqué read at the end of the MPC meeting play a major role in the volume of investments executed by commercial banks and the direction of interest rates. Although expectations were high, the outcomes of the 111^th meeting of the MPC of the CBN did not come as a surprise.

Why because with the headline inflation rate high at 18.72 percent coupled with a deteriorating exchange rate where the official market rate of N305/$ and the parallel market rate of N500/$ created an arbitrage opportunity of N195, there was nothing much the MPC could do to the MPR, CRR and other variables in January.

Other prominent factors that shaped the banking sector in the month of January 2017 include expectations about the release of banks’ audited reports for FY2016 and the direction of government policy based on the items listed for execution in the 2017 budget.

MPC Outcomes

The 111^th MPC meeting held between 23^rd and 24^th January 2017 had the following as its resolutions:

The Monetary Policy Rate(MPR) was retained at 14 percent
The Cash Reserve Ratio(CRR) was retained at 22.5 percent
Liquidity Ratio was equally retained at 30 percent;
Asymmetric Corridor of +200 and -500 basis points were retained around the MPR

External Reserves, opening balances of banks and interbank rates

Within the period, external reserves rose by 8 percent from $26.09 billion on January 1^st to $28.17 billion by the last day of the first month of the year significantly owning to the increase in the prices of crude oil at the international markets as OPEC and non-OPEC members implemented a cutback in production.

Opening balances of banks/discount houses with the CBN averaged N226.19 billion for January. The highest opening balance was N440.79 billion attained on January 26 while the least opening balance was N59.04 billion recorded on January 10. The net standing lending facility averaged N160.94 billion within the month. Its peak value was recorded on January 23 at N184.72 billion while the lowest value at N83.61 billion was recorded on January 4^th.

A total sum of N268.13 billion was raised through sales via the open market operations (OMO). Repayment through the same instrument (OMO) amounted to N127 billion. Primary market sales through the Nigerian Treasury Bills(NTBs) and FGN bonds were valued at N125.85 billion just as primary market repayment totalled N195.96 billion.

Interbank rates

OBB

The Open Buy Back (OBB) rates averaged 7.81 percent within the month with the highest and lowest rates of 13.46 percent and 2.51 percent occurring on January 11 and January 24. OBB rates declined in the last seven days of the month as liquidity improved.

The average Call rate in January was 9.05 percent. The peak rate was 13.04 attained on January 16 while the lowest rate of 6.79 percent occurred on January 20. As was noticed in the OBB rates, that the least Call rate was towards the end of the month signalled the time significant liquidity hit the banking system.

Performance of the Banking Stocks

But for the banking stocks, the All Share Index (ASI) of the Nigerian Stock Exchange (NSE) would have closed lower than the -3.20 percent returns it posted in January. ASI closed at 26,036.24 basis points meaning that it shed 838.38 basis points when compared with its level by the last trading day of 2016. The banking stocks collectively made 1.1 percent returns as the NSE banking index rose to 277.32 basis points up from 274.32 basis points on its last trading day in 2016. The NSE ASeM Index and NSE Pension Index posted 1.1 percent and 0.2 percent returns in January to increase the number of sectoral indices with positive returns to three out of the eleven sectoral indices. The others ended the month southward. The NSE Oil/Gas index, NSE Lotus Islamic Index and NSE Consumer Good index were the worst hit with negative returns of 4.4 percent, 5.9 percent and 7.5 percent respectively.

Consequently, GTB, Access Bank and Zenith banks’ shares topped analysts’ stock picks for January. They all have their beta less than 1 percent.