ECONOMY: Oct. Broad Money Supply Rises on Higher Net Foreign Assets, Equities FPI Spikes in Q3’17

30/11/2017/Cowry Assets

In the just concluded week, Central Bank of Nigeria’s depository corporations survey showed a 2.49% month-on-month (m-o-m) increase in Broad Money to N22.50 trillion in October – as Net Foreign Assets (NFA) increased m-o-m by 23.35% to N12.40 trillion, thus offsetting a m-o-m 15.12% fall in Net Domestic Assets (NDA) to N10.10 trillion.

Hence, the increase in NFA resulted from increase in foreign exchange reserves position as well as increase in foreign portoflio inflows (FPIs). On domestic asset creation, the increase in NDA resulted from a 0.70% m-o-m rise in Net Domestic Credit (NDC) to N27.17 trillion, accompanied by a 13.19% increase in Other Liabilities (net) to N17.07 trillion.

A breakdown of NDC showed a 5.69% m-o-m increase in Credit to the Government to N5.25 trillion accompanied by a 0.42% decline in Credit to the Private sector to N21.93 trillion as the public sector continued to crowd-out the private sector.

The decline in credit to the private sector was, in part, informed by decreasing appetite for risk assets by lenders in the face of high-yield safe assets.

Increase in Broad Money also followed a 1.83% m-o-m increase in Quasi Money (near maturing short term financial instruments) to N12.11 trillion, accompanied by a 3.27% rise in Narrow Money to N10.39 trillion of which Demand Deposits increased by 3.48% to N8.93trillion.

Indicative of tightened monetary policy conditions, Reserve Money (Base Money) also increased m-o-m by 3.65% to N5.76 trillion as bank reserves increased m-o-m by 5.62% to N3.62 trillion while currency in circulation rose m-o-m by 0.57% to N1.79 trillion.

In another development, National Bureau of Statistics (NBS) published Nigeria’s capital importation statistics which showed a 127.49% year-on-year increase in imported capital to USD4.14 billion in Q3 2017; while on a quarterly basis, capital imports also increased by 131.27%. A breakdown of the foreign inflows showed that Foreign Portfolio Investments (FPI) accounted for 66.76%,

Other investments (mainly comprised of Foreign Loans and other claims) comprised 30.40% while Foreign Direct Investments (FDI) constituted a meagre 2.84%. A more detailed analysis showed that Equities FPIs grew the most by 860.65% y-o-y (and 214.64% q-o-q) to USD1.93 billion in Q3 2017; while FPIs in Money market instruments increased by 105.57% y-o-y (630.25% q-o-q) to USD719.91million in Q3 2017.

However, Bonds FPIs shrank y-o-y by 68.72% to USD115.43 million in Q3 2017. The steep increase in Equities FPIs reflected the boost in investor confidence following the introduction of the investor-friendlier foreign exchange policy – the introduction of the Investors and Exporters Foreign Exchange Window –, coupled with growth in economic output.

The decline in the longer maturing fixed income investments was indicative of declining yield environment amid sustained GDP growth which led to a switch to equities and short term maturing fixed income instruments by foreign portfolio managers.

Foreign Loans increased by 70.50% y-o-y (27.99% q-o-q) to USD956.69 million in Q3 2017 while Other claims spiked to USD302.88 million in Q3 2017from USD60,000 in Q3 2016. A breakdown of capital imports by sector showed that investments in shares accounted for 66.24% or USD2.74 billion and grew by 324.86% y-o-y.

Other sectors which received significant inflows include: production which saw a 548.93% y-o-y growth in inflows to USD442.90 million (accounted for 10.68% of total capital imports) and services which recorded a 1,505.95% y-o-y spike in inflows to USD586.97 million (accounted for 14.16% of total capital imports). However, banking sector recorded a 67.97% y-o-y decline in inflows to USD177.94 million (accounted for 4.29% of total capital imports).

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