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Breakfast Report - 11 December, 2017

The Week Ahead                                                                            

In a bid to boost lending to SMEs in the country, the Central Bank of Nigeria (CBN) has highlighted the possibility of reducing the Cash Reserve Ratio (CRR) from 22.5%. While speaking on how to drive inclusive economic growth and job creation through monetary policy, the Governor of the apex bank suggested that banks that aggressively lend to SMEs could be rewarded with lower CRR requirements. The CRR was raised from 20% to 22.5% in March 2016 in a bid to combat rising inflation. Given the moderate 2018 inflation outlook and CBN signals of monetary easing, we see possibility of a CRR reduction in the coming year as the apex banks looks to stimulate bank lending. However, we believe the CBN would tread cautiously given the adverse impact of excess liquidity on inflation and the exchange rate.                                                                     

Despite a negative session at last week’s close (ASI down 70bps), the Nigerian bourse notched an impressive 346bps w/w gain following green closes in the previous four sessions. We highlight mild profit taking in the market at last week’s close following the seven-session bull run. With key sectors pressured at the end of the session, we anticipate another red close at the start of this week.  

Stock Watch: FIDELITYBK has gained 57% over the last twelve sessions. The stock currently trades at a year-high of ₦2.49, above consensus target price of ₦1.60, and has returned 196% ytd.                                          

With expectations of lower supply and interest rates going forward, we believe demand will remain healthy in the fixed income market this week as market participants continue to lock in comparatively higher rates, even as buying interest is further supported by stronger system liquidity (amidst the CBN’s current stance to pause OMO auctions). Furthermore, we foresee healthy demand at this week’s Primary Market Bond Auction where the Debt Management Office will be offering a total of N100 billion across the 5-year and 10-year bonds.