The Recycling Of Flows From FPIs

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Friday, August 02,  2019  08:58AM / by FBNQuest Research 


Fx flows through the CBN have increased dramatically since Q1 2017 (see chart) in response to its reforms (the opening of additional windows). The CBN publishes its flows in tabular form and covers those through autonomous sources in its quarterly text. Aggregate inflows and outflows in Q1 2019 amounted to US$35.28bn (52.8% CBN) and US$17.78bn (96.7%) respectively, resulting in a net inflow of US$17.40bn. The catalyst has been the positive response of foreign portfolio investors (FPIs) to the fx reforms and the attractive returns on offer.       

Inflows to the CBN in Q1 consisted of oil sector receipts (US$2.60bn) and non-oil public sector transactions (US$15.74bn). In earlier quarters this last figure was boosted by Eurobond sales such as US$2.90bn in Q4 2018. 

Autonomous inflows would be predominantly FPI monies, with a small contribution from non-oil exports (US$1.26bn in Q1). There is consistently a large net inflow on autonomous transactions: the monies from FPIs are generally ‘recycled’ in CBN sales of fx to different windows. 

CBN sales of fx to authorized dealers increased to US$11.81bn from US$9.18bn the previous quarter, consisting principally of: sales to bureaux de change of US$3.64bn, fx forwards disbursed at maturity of US$2.30bn, sales on the I&E window (NAFEX) of US$1.53bn and swap transactions of US$1.14bn. 

Sales on NAFEX declined from US$2.09bn the previous quarter because of the surge in inflows from FPIs just after the presidential election, which allowed the CBN to stand back from the market and accumulate reserves.


Fx flows through the CBN (US$ bn)

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Sources: CBN; FBNQuest Capital Research


That surge was a one-off but we see this week’s reversal of US monetary policy as underpinning the naira exposure of FPIs.

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