Bankers’ acceptances decline by 0.60% in one month

The value of bankers’ acceptances (BAs) declined by 0.60 percent to N20.34 billion in January 2014, compared with N20.47 billion at the end of the preceding month, according to the Central Bank of Nigeria (CBN). The development was attributed to the decline in investment in BAs by the deposit money banks (DMBs) during the month.

Consequently, BAs accounted for 0.29 percent of the total value of money market assets outstanding, at the end of January 2014, compared with 0.3 percent at the end of the preceding month.

Bankers’ acceptances as a product is described by the United Bank for Africa (UBA) as short-term discount instrument used in the course of international trade. Its is also a short-term discount note drawn on and accepted by banks, which are obliged to pay the face value on maturity.

The features of the product include short-term negotiable discount note, bank guarantees on behalf of buyer to pay seller by accepting time draft, typical tenor usually six months, interest usually paid upfront except otherwise agreed, used to fund trade transactions, typical bearer security i.e. bearer of security at time of maturity redeems amount, can be held till maturity or sold at a discount before maturity, and mostly regarded as promissory note of accepting bank.

The benefits of the products are: considered very safe assets because it allows trader to substitute a banks credit standing for its own, used widely in international trade where the creditworthiness of one trader is unknown to the trading partner, and beneficial as both an asset and a liability.

The requirements for existing clients include letter expressing desire to invest in BA and authority to debit account thereafter, custodial authority duly signed by client, copy of physical bill duly signed by investor and reflecting issuers name, duly signed investment contract confirmation letter showing issuers name, and filled KYC form.

Requirements for new clients are account opening form with passport attached and means of identification, cheque or lodgement slip, custodial authority duly signed by client, copy of physical bill duly signed by investor and reflecting issuers name, duly signed investment contract confirmation letter showing issuers name, and filled KYC form.

Provisional data from the Economic Report for the month of January released last week by the CBN indicated that the value of money market assets outstanding at end-January 2014 was N6,968.52 billion, indicating a decline of 1.9 percent, in contrast to the increase of 9.4 percent at the end of the preceding month. The development was attributed to the respective 2.1 percent and 1.6 percent increase in FGN Bonds and NTBs outstanding at the end of the review period.

Available data from the report showed that money market indicators were relatively stable during the review month. Monetary policy remained largely restrictive during the review period in line with the monetary tightening stance of the bank. Thus, Monetary Policy Rate (MPR) was maintained at 12 percent, while public sector Cash Reserve Ratio (CRR) was raised from 50 percent to 75 percent.

In spite of the liquidity surge, which arose from maturing CBN bills, Asset Management Corporation of Nigeria (AMCON) bonds redemption and fiscal inflows during the review period, financial market indicators were relatively stable. The CBN discount window remained open to authorised dealers for the Standing Deposit Facility (SDF) and Standing Lending Facility (SLF). FGN Bonds and NTBs were issued at the primary market on behalf of the Debt Management Office (DMO).