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Nigeria Has A Good Chance To Boost Its Reserves And Prevent Devaluation In 2020 - Coronation MB

Bonds & Fixed Income	1388 VIEWS
Bonds & Fixed Income
1388 VIEWS

Thursday, February 20, 2020 / 11:14 AM/ Ottoabasi Abasiekong for WebTV / Header Image Credit: WebTV

Mr. Guy Czartoryski , Head of Research, Coronation Merchant Bank believes Nigeria has a great opportunity to raise enough funds to shore up its external reserves and avoid the pressures of a currency devaluation in 2020.

Mr. Czartoryski was the keynote speaker at the maiden Coronation Merchant Bank breakfast session for the Fixed Income market discussing the theme "Re-Risking Nigeria's Financial System".

The Analyst was of the view that Africa's largest economy could experience inflows of between $5bn and $6bn, but this will largely depend on key developments in the Nigerian economy at the end of Q1, 2020.

Part of this will be the level of foreign portfolio investments (FPI) in the Central Bank of Nigeria's open market operations (OMO) during the period of January and February,2020.

Major source of inflows for the Nigerian economy will come from oil & gas proceeds, bilateral loans, eurobond issues and the foreign portfolio investments in the Open Market Operations, OMO bills.

He noted that despite the fact that foreign exchange steeped during the second half of 2019, Czartoryski was of the opinion that there will be sufficient sources of US dollars, for the Central Bank of Nigeria to support the foreign exchange, FX reserves.

Speaking further on the foreign exchange said CBN will be expected to keep the exchange rate close to N362.50k for most of, if not all of 2020.

Coronation Merchant Bank also stated that an international crude oil price regime below $50 per barrel for example could challenge foreign exchange and interest rate management in 2020.

Looking at interest rates he stressed that the downward pressure on T-bill and government bond rates will continue as domestic funds rotate from high-yielding CBN OMO bills into government securities.

He identified two disruptive forces at work that could change the interest rate outlook for 2020, which are;

The uncertainty over foreign portfolio investors returning to buy the CBN's OMO bill in 2020.

The Naira T-bill yields are close to yields on Nigeria's sovereign US dollar eurobonds , so demand for US dollars may increase. If FX reserves fall quickly, they could lead to a reversal of the interest rate policy, opening the way for T-bills rate to rise.

Giving the overview of the Fixed Income Market, Mrs. Iyobosa Sorae, Head of Trading and Fixed Income, Coronation Merchant Bank in her presentation said in the past five (5) years the investment bank has executed transactions in the Fixed Income space worth N6.1trn.

She also added that in the non-sovereign debt market, Coronation Merchant Bank remained the major player helping corporate and sub-sovereign entities raise over N100bn over the past two years.

Mrs. Sorae also highlighted some of the key regulatory actions carried out by the Central Bank of Nigeria in 2019 and early 2020, that have had a huge impact on the Fixed Income Market, including;

OMO Restriction

Minimum Loan-To-Deposit ratio

The recent hike of the Cash Reserve Ratio

5 year OTC FX Futures agreement between CBN and FMDQ

The Acting MD/CEO of Coronation Merchant Bank Mr. Banjo Adegbohungbe in his opening remarks at the event said the breakfast session, was an opportunity to give clarity to market stakeholders amidst economic uncertainty.

He stated that the forum was an avenue for fund managers and fixed income market players to receive deep insight into key economic trends, and how they can best manage their funds in the year 2020.

The breakfast session also featured a panel session with Mr. Magnus Nnoka, Chief Risk Officer, Coronation Merchant Bank, Mr. Guy Czartoryski, Head of Research and Mrs. Iyobosa Sorae, Head of Trading and Fixed Income as discussants.

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