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CBN Publishes Q1 2017 Economic Report

Proshare

Wednesday, July 19, 2017/11:30 AM/CBN

Summary
The fall in foreign assets (net) and other assets (net) led to the decline in key monetary aggregates in the first quarter of 2017. Consequently, broad money supply (M2) and narrow money supply (M1) fell by 7.2 per cent and 12.7 per cent, respectively, below the levels at end-December 2016.

In line with the continued restrictive monetary policy stance of the Bank, banks’ deposit and lending rates generally trended upwards in the first quarter of 2017. The margin between the average savings deposit and the maximum lending rates widened from 24.25 percentage points to 25.04 percentage points, and the spread between the weighted average term deposit and maximum lending rates also widened from 20.50 percentage points to 20.92 percentage point at the end of the first quarter of 2017. The weighted average inter-bank call rate fell to 16.24 per cent from 20.67 per cent, reflecting the liquidity condition in the banking system.

In most part of the review period, there were no transactions in the inter-bank segment of the market. The total value of money market assets outstanding at the end of the first quarter of 2017 stood at N11,744.07 billion, reflecting an increase of 8.04 per cent above the level at the end of the fourth quarter of 2016.

The development was due to the rise in FGN Bonds, Nigerian Treasury Bills and Bankers Acceptances outstanding. Developments on the Nigerian Stock Exchange (NSE) were mixed. Federally-collected revenue, at N1,501.94 billion, during the first quarter of 2017, was lower than the 2016 quarterly budget estimate by 36.3 per cent, but was above the receipts in the fourth quarter of 2016 by 12.2 per cent.

The decline, relative to the budget estimate, was attributed to the shortfall in receipts from both oil and non-oil revenue during the review quarter. Federal Government retained revenue and total expenditure were N608.11 billion and N1,675.76, respectively, resulting in an estimated deficit of N1067.65 billion in the first quarter of 2017.

The preparation for the 2017 wet season farming was the dominant agricultural activity across the country in the review quarter. Major agricultural activities in the Southern states included harvesting of tree crops and clearing of land for the 2017 wet season farming, while tending of irrigation-fed vegetable and cereal crops were the dominant activities in the Northern states.

In the livestock sub-sector, poultry farmers increased the raising of broilers and layers in preparation for the 2017 Easter celebrations. World crude oil demand and supply were estimated at 95.39 mbd and 95.82 mbd, respectively, in the first quarter of 2017, compared with the preceding quarter of 2016.

Nigeria’s crude oil production, including condensates and natural gas liquids, was also estimated at an average of 1.59 million barrels per day (mbd) or 143.10 million barrels (mb) for the first quarter of 2017.

Crude oil export was estimated at 1.14 mbd or 102.6 million barrels, while deliveries to the refineries for domestic consumption was 0.45 mbd or 40.50 million barrels in the review quarter.

The average price of Nigeria’s reference crude, the Bonny Light (370 API), was US$54.17 per barrel in the review quarter, compared with US$49.84 per barrel at endDecember 2016. Provisional data showed that foreign exchange inflow and outflow through the CBN amounted to US$6.60 billion and US$3.65 billion, respectively, resulting in a net inflow of US$2.95 billion.

Foreign exchange sales by the CBN to the authorised dealers amounted to US$2.15 billion. The average exchange rate of the naira vis-à-vis the US dollar at the inter-bank market depreciated further to N305.64/US$.

Other major international economic developments and meetings of importance to the domestic economy in the review period included: the first ordinary meeting of the year of the Bureau of the Association of African Central Banks (AACB) held at the Headquarters of the Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO) in Dakar, Senegal on March 8, 2017; the 32nd Board of Governors Meeting of the West African Institute for Financial and Economic Management (WAIFEM), the 34th Meeting of the Committee of Governors of the Central Banks of the West African Monetary Zone (WAMZ), and the 49th Ordinary Meeting of the Committee of Governors of Central Banks of ECOWAS Member States were held at the International Conference Centre, Bintumani Hotel, Freetown, Sierra Leone, on February 9, 2017.

Financial Sector

Developments On quarter-on-quarter basis, growth in the key monetary aggregates decelerated at the end of the first quarter of 2017, reflecting the fall in foreign assets net (NFA), and other assets net (OAN).

Banks’ deposit and lending rates trended upward. The value of money market assets outstanding increased, due, largely, to the rise in FGN Bonds and Nigerian Treasury Bills. Developments on the Nigerian Stock Exchange (NSE) were mixed.

Monetary and Credit Developments

The Bank maintained a restrictive monetary policy stance in the first quarter of 2017. Consequently money supply decelerated and inflation moderated to 17.26 per cent, compared with 18.55 per cent in the preceding quarter.

On quarter-on-quarter basis, broad money supply (M2), at N22,024.98 billion, fell by 7.2 per cent at the end of the review period, compared with the decline of 15.8 per cent at the end of the preceding quarter.

This, however, contrasted with the growth of 28.8 per cent recorded at the end of the corresponding period of 2016. The development relative to the preceding quarter, reflected, the 14.8 and 5.7 per cent decline in net foreign assets and other assets (net) of the banking system, which outweighed the 2.6 per cent growth in net domestic credit of the banking system.

Similarly, narrow money supply (M1), at N9,955.24 billion, fell by 12.7 per cent at the end of the first quarter of 2017, compared with the decline of 28.7 per cent at the end of the preceding quarter, but contrasted with the growth of 67.1 per cent at end-March 2016.

The fall in M1 relative to the preceding quarter, was due to the 8.8 per cent and 13.5 per cent decrease in currency outside banks and demand deposits, respectively. Relative to the level at the end of the fourth quarter of 2016, quasi-money fell by 2.0 per cent to N12,069.67 billion at the end of the first quarter of 2017, in contrast to the growth of 1.1 per cent at the end of the preceding quarter.

The fall in quasi money was attributed to the decline in time and savings deposits of deposit money banks (DMBs) (Fig. 1, Table 1).



Aggregate credit (net) to the economy, at N27,472.69 billion, moderated by 2.6 per cent at the end of the review quarter, compared with the growth rate of 3.4 per cent and 5.0 per cent at the end of the preceding quarter and the corresponding period of 2016, respectively.

The development was due, wholly, to the 17.9 per cent growth in net claims on the Federal Government. Banking system net claims on the Federal government rose by 17.9 per cent to N5,199.69 billion, compared with the respective growth of 31.3 per cent and 30.7 per cent at endDecember 2016 and corresponding period of 2016, respectively.

The development was attributed largely to Federal Government borrowing from the CBN and sale of Treasury Securities to banks. At N22,273.0 billion, banking system’s credit to the private sector, contracted marginally by 0.4 per cent, at the end of first three months of 2017, compared with the decline of 1.1 per cent at the end of the preceding quarter.

This, however, contrasted with the growth of 1.0 per cent recorded at end- March 2016. The development relative to the preceding quarter, suggested banks conservative approach towards lending, as credit to the core private sector plummeted by 0.38 per cent during the review quarter.



The gradual stability in the foreign exchange market as a result of the Bank’s sustained intervention at the inter-bank and BDC segments of the market moderated demand for foreign exchange by banks in anticipation of further appreciation of the naira exchange rate.

As a result, foreign assets (net) of the banking system, at N7,574.2 billion, fell by 14.8 per cent on quarter-on-quarter basis, at end-March 2017, in contrast to the growth of 14.8 per cent at the end of preceding quarter of 2016.

The development was attributed mainly to the 98.8 per cent fall in banks’ holdings of foreign assets. On quarter-on-quarter basis, other Assets (net) of the banking system fell by 5.7 per cent to negative N13,021.9 billion at the end of the first quarter of 2017, compared with the 111.9 and 66.1 per cent decline at the end of the preceding quarter and the corresponding quarter of 2016, respectively. The development reflected, the decline in other assets of banks and the CBN.


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