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Breakfast Report - 07 September, 2020

Through a circular, the Central Bank of Nigeria (CBN) lowered the floor of the interest rate payable on savings accounts from 30% of the Monetary Policy Rate (MPR), to 10% of the MPR. This effectively lowers interest payable by banks on savings to 1.25% p.a. from 3.75%. While we believe this move could encourage consumption and investment spending - amid depressed consumer wallets -, it could result in further pressure on inflation and the naira exchange rate (both of which have been pressured in recent months) if the resultant surge in liquidity is not properly sterilized by the apex bank. Another important question which only time will provide answers to is “how much impact will this have on the banks’ cost of funds?”. Already, most people are usually ineligible for interest on savings because banks usually have a ceiling on the number of withdrawals permissible on a savings account to qualify for interest within a given period. Therefore, since people are not earning it - based on the rules -, the banks are not paying it either. So, the impact on the banks - in terms of reducing their cost of funds – may be overrated. Through a circular, the Central Bank of Nigeria (CBN) lowered the floor of the interest rate payable on savings accounts from 30% of the Monetary Policy Rate (MPR), to 10% of the MPR. This effectively lowers interest payable by banks on savings to 1.25% p.a. from 3.75%. While we believe this move could encourage consumption and investment spending - amid depressed consumer wallets -, it could result in further pressure on inflation and the naira exchange rate (both of which have been pressured in recent months) if the resultant surge in liquidity is not properly sterilized by the apex bank. Another important question which only time will provide answers to is “how much impact will this have on the banks’ cost of funds?”. Already, most people are usually ineligible for interest on savings because banks usually have a ceiling on the number of withdrawals permissible on a savings account to qualify for interest within a given period. Therefore, since people are not earning it - based on the rules -, the banks are not paying it either. So, the impact on the banks - in terms of reducing their cost of funds – may be overrated.

Equity: With the consecutive gains recorded last week, we expect the market to trade mixed this week, with continued bargain hunting in some counters and profit taking in others.

Stock Watch: With the uncertainties around the results of the Tier 1 Banking stocks being eliminated, the sector recorded positive patronage in Friday's session, rising 276bps w/w, largely on the back of bargain hunting activities in GUARANTY (+331bps), STANBIC (+133bps), ZENITHBANK (+116bps) and ACCESS (+78bps) among others.

Fixed Income: This week we expect the market to open on a positive note following the aggressive buying behavior by market participants in Friday's session. In addition, the level of liquidity should support another round of buying activity in the market, as fund managers seek to deploy idle funds, amid an underwhelming set of options and limited alternatives.