The Central Bank of Nigeria (CBN) sold a total of N2 trillion Tresury Bills on the secondary Open Market Operation (OMO) , mostly in long-tenured bills of 180 to 361 days maturity in 2021.
According to a report by Guaranty Trust Holding Company Plc (GTCO), the value of the OMO bills issued in 2021 was significantly lower than the N7.1 trillion the regulatory bank issued in the perivous year.
In the report, GTCO predicted that the CBN would continue with its discretionary cash reserve requirement (CRR) debits in 2022. It stated that this could weigh negatively on asset yield for the sector.
The report also stated that the CBN’s discretionary CRR debits posed a huge challenge to banks’ ability to create credit as 50 percent of total naira deposits were sterilised with the CBN as CRR and special bills.
The report noted that the relatively low yield on fixed income securities (FIS) would mount pressure on banks to intensify credit creations to the private sector, which would in turn increase competition for quality loans amongst banks and cause funding costs to inch up slightly.
“The year could witness an intensified competition for deposits not only between banks and non-bank competitors but also with the federal government as a result of FGN Sukuk Bond issuances and possible pick up of the e-naira, effectively taking away deposits from banks,” the report stated.
The report stated that banks would continue to look for innovative ways to grow non-interest revenue as well as consumer and retail loans.
“In view of an expected increase in government borrowing on the back of a higher budget deficit and dwindling revenue, a low-interest rate regime might not hold for much longer,” it said.
The report also projected that the CBN would implement a tight monetary policy in the second half of 2022 to deal with excess liquidity that would flow into the economy as a result of electioneering campaigns.
“Although it is unlikely that the CBN will slow down on its discretional CRR debits, we expect more banks to approach the apex bank for the release of a portion of their ‘excess’ CRR to assist them in funding their transactions, payment of regulatory levies and fees, etc,” the GTCO report stated.
The report stated that the competitive environment would primarily be driven by regulation, non-bank competitors, law enactment, and responses to macro-economic developments.