Cost of funds rises as market liquidity drops to N96bn

  •  Senate plans law to harvest N3trn from dormant bank accounts

Cost of funds rose significantly in the interbank money market last week following series of liquidity outflow which caused market liquidity to fall by 26 per cent to N96 billion, week-on-week (WoW).

During the week, the interbank money market experienced outflow through treasury bills sale and foreign exchange sales by the Central Bank of Nigeria (CBN).

Financial Vanguard analysis of market activities showed that the apex bank sold Nigerian Treasury Bills (NTB) worth N279 billion, comprising secondary market or Open Market Operations (OMO) Bills of N45 billion and primary market   bills of N234 billion.

This nullified the impact of inflow of N234 billion from matured bills during the week, and was compounded by outflows to fund dollar sale of over $257.5 million by the CBN during the week.

As a result, market liquidity fell by 26 per cent from N128.9 billion the previous week to N96 billion at the close of business on Friday.

In response, short term interbank interest rates rose by 400 basis points compared to the previous week.

According to data by Financial Market Dealers Quote (FMDQ), interest rate on collateralised lending (Open Buy back, OBB) rose by 420 basis points to 14.7 per cent last week from 10.5 per cent the previous week.

Similarly, interest rate on overnight lending rose by 380 basis points to 15.3 per cent from 11.5 per cent the previous week.

In the meantime, further pressure is coming on Nigeria’s banks following moves by the National Assembly to mop up an estimated N3 trillion from dormant accounts of living and dead persons in the banking system.

Under ongoing moves in the Senate, the funds are to be polled into a fund for use by the government to build and maintain infrastructure, notably roads and power, through a  board to be set up under the proposed law.

Expectedly, bank chiefs, according to Vanguard sources, are already fighting back with an intense lobby to kill or water down the provisions of the proposed law. The efforts of the banks, nonetheless, Vanguard gathered that the Presidency is already weighing in on the bill and exploring the legal and political consequences.

The bill, which has passed through first reading, also envisages to poll the estimated N3 trillion in dormant accounts and an estimated N100 billion unclaimed dividends held back by companies operating in the secondary market of the capital market.

The polled funds will be managed by a board to be created under the proposed law. The bill to capture the dormant funds is entitled ‘Dormant Accounts Bill, 2016’ and is sponsored by Senator Ovie Omo-Agege (APC, Delta Central).

The bill prescribes a N10 million fine besides other sanctions on any account provider (bank) which fails to fully comply with a demand notice as prescribed by the board established to manage the fund.

Sponsor of the bill, Senator Omo-Agege, while explaining the purpose of the bill said: “From my research, we have about N3 trillion sitting in these accounts, the owners don’t know that these funds are still there. The banks are treating these funds as if it is their own. In civilised climes, the way it is treated is that after 10 years, it becomes what is called bona vacantia, it now reverts to the states.

“That is the way it is treated in most civilised climes, in the US, UK and elsewhere. But here, the banks treat it as their own funds, they will not even let you know how much is involved in those accounts, they take it as their own money.

“What we want to do is to harness all of these funds, domicile it with the CBN which will now make the money available to agencies like FERMA for the repair of roads, even deploy some to assist with power generation and things like that.

“If the owners ever show up, you can pay back the principal to them with 1.5 per cent interest which is very, very cheap. If they don’t, it remains bona vacantia.”