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ASHON sues for policy consistency to boost investment


Patrick Ezeagu

Worried by the inconsistency usually associated with government policies in the country, the Association of Securities Dealing Houses of Nigeria  (ASHON) at the weekend, urged the federal government to sustain the current policy on Open Market Operations (OMO), to attract more investment into capital market.
At the weekend, the All-share Index (ASI), a measure of corporate gains increased by 37.55 absolute points on the Nigerian Stock Exchange (NSE), representing a growth of 0.13 percent to close at 29,628.84 points. Also, the market capitalisation, value of listed securities was up by N19.34 billion, a growth of 0.13 percent to hit 15.26 trillion.
Generally, investors have been smiling to the banks, as the market has largely been on bullish run since the beginning of the month.
The apex bank recently announced the exclusion of non-bank locals (individuals and corporate) from participation in OMO at both the primary and secondary markets, implying that only Deposit Money Banks (DMBs), and foreign portfolio investors can participate in the juicy financial instruments.
The new policy, which crashed interest rate on Treasury Bills and trimmed yields on bond, has prompted investors and fund managers to shift focus from the money market, to the stock market with massive demand for shares in an atmosphere of Santa Claus rally.
Specifically, ASHON Chairman, Patrick Ezeagu, explained that the new policy on OMO had been very beneficial to the stock market, adding that the fall in interest rate created opportunities for higher Return on Equity (ROE), and the investors are taking advantage of the inverse relationship between the money market and capital market.Ezeagu, however expressed concerns on the sustainability of OMO guidelines going by uncertainties that usually characterise government policies in Nigeria.
He argued that the government might decide to reverse OMO policy if banks mount pressure that it is hurting their profit margin or the Central Bank of Nigeria (CBN), perceives a need to top up the nation’s external reserve.
As a result, he insisted that it is too early to celebrate the current rally because of sustainability. “Our concern is always policy uncertainty and consistency in Nigeria. This has been a major drag to the growth and development of the economy and by implication, the capital market.
“The new policy on OMO is making investment in the market more attractive, but the question is sustainability. We operate in an unpredictable environment where there can be policy somersault at the least expected time,” Ezeagu said. Corroborating, market watchers expressed fears that devaluation of the Naira was still on the front burner in view of the current rising inflation in Nigeria.      
The CBN Governor, Godwin Emefiele, had last year denied plans to devalue the Naira, but tactically maintained that this could be an option if the crude oil price drops to between $50 and $45 per barrel ($58.58 as at yesterday morning), or if the external reserve shrunk to between $30billion and $25billion ($38,684 billion as December).
Last week, the apex bank’s Monetary Policy Committee (MPC) increased Cash Reserve Ratio (CRR) by 500 basis points from 22.5 percent to 27.5 percent, apparently to hedge against upsurge in inflation, which is at 11.98 percent as at December. The upward movement of CRR is to mop up excess liquidity in the system.

The OMO policy is part of CBN’s financial engineering tactics to ensure that deposit money banks channel credit to the real sector, to reduce crowding-out of the private sector in the area of credit.“Banks should lend money to the real sector to enhance economic growth and development. Banks are currently awash with liquidity and this should be channelled to the real sector.” Ezeagu said.
With real gross domestic product (GDP) growth at 2.10, 2.12 and 2.38 percent in Q1, Q2 and Q3 2019, respectively, and population growth at 2.6 percent, Nigeria’s economy is struggling to find its bearing.“The sluggish economic growth is further compounded by its debt burden, infrastructure deficit, acute security challenges with concomitant effects on lives and properties as well as food production. Yet, the economy dictates the tune for the capital market,” Ezeagu ended.


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ASHONPatrick Ezeagu
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