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The Market Today - 17 August 2018

CBN leverages CRR to boost credit to real sector                                                             

The Central Bank of Nigeria (CBN) revealed that it would permit banks to use a portion of their Cash Reserve Ratio (CRR) funds to facilitate lending to the agriculture and manufacturing sectors. At present, commercial banks keep at least 22.5% of their funds with the apex bank, in line with the CRR requirement. However, the CBN has outlined its willingness to refund a portion of the CRR to any bank engaging in lending to these priority sectors at a single-digit interest rate. The move should encourage banks to look to lend more towards agriculture and manufacturing which still constitute far too small a portion of their loan books—agriculture credit accounted for c.3% of banking credit in 2017. Nevertheless, we assert that credit to these sectors has often been low due to structural factors such as asymmetric information and long-term economic weakness (particularly with manufacturing) and these must be addressed to really unlock credit growth.                                                            

ASI extends losing streak amid sharp decline in Industrials                                                        

"Led by notable losses in the Industrial Goods sector, the NSE ASI extended its losing streak to ten in a row in yesterday’s session, down  -129bps d/d and with ytd losses only slightly off the 10% mark. With the market showing no signs of recovery and sentiment remaining bearish, we foresee another negative session for the market today even as investors remain skittish.                                            

Stock Watch: STANBIC released its H1’18 results yesterday, the company saw a 17% increase in revenue and a remarkable 79% increase in PAT, 17% above Vetiva estimate. The stock is currently trading at ₦50, a ytd return of 20%, well above the industry average (-8%).                                                      

Tepid trading persists despite buoyant liquidity                                                              

"At its OMO auction, the CBN offered ₦450 billion and sold ₦154 billion across the 91DTM and 203DTM bills at respective stop rates of 11.0% and 12.1%. Amid this, interbank call rate declined 167bps to 7.83% with system liquidity imporving to ₦492 billion. Despite healthy system liquidity, trading in the T-bills space turned tepid as yields advanced 2bps on average. In particular, yields on the 28DTM  and 336DTM bills advanced 71bps and 44bps to settle at 11.03% and 13.42% respectively. Sentiment in the bond space likewise was tepid as yields on benchmark bonds rose 5bps on average. Sell pressure was concentrated on shorter-dated bonds as yields on the 16% FGN JUN 2019 and 14.50% FGN JUL 2021 bonds rose 33bps and 42bps  to 13.20% and 14.45% respectively.