Market News

The expected N1.15 trillion inflows from the Federation Accounts Allocation Committee (FAAC) disbursements this week is expected to boost system liquidity, raising demand for T-Bills, analysts have predicted.

Analysts from Cordros Securities, said T-Bills secondary market was bullish last week as investors continued to reprice yields downwards in line with market dynamics.

Accordingly, the average yield declined by 125 basis points (bps) to 21.1 per cent. Across the market segments, the average yield declined by 31bps to 19.9 per cent in the T-Bills segment, while it declined by 244bps to 22.5 per cent in the Open Market Operation (OMO) segment.

 “Following our expectations of liquidity influx into the financial system this week, we expect this to drive demand for bills, causing yields to decline. Additionally, the Debt Management Office is scheduled to offer N650 billion T-Bills on Wednesday,” the analysts said.

The FAAC disbursements to the three tiers of government in February (from the total revenue generated in January) increased by 19.5 per cent month/month to N1.70 trillion against (N1.42 trillion in January.

The increased was due to improved collections from Value Added Tax (VAT), Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Excise Duty, Import Duty and Customs External Tariff levies (CET) Levies and despite the decline in receipts from Electronic Money Transfer Levy (EMTL) and Oil & Gas Royalties.

“We estimate that the amount disbursed is 64.5 per cent of the total gross revenue (N2.64 trillion) generated in the month, with the remaining balance allocated for transfer, intervention and refunds (N830.66 billion), and the cost of collection (N107.79 billion),” they said.

In the near term, the analysts anticipate potential revenue improvements from a potential increase in domestic oil production, and increased Company Income Tax (CIT) collections, driven by improving macroeconomic conditions.

However, we note that the recent stability in the naira could lead to reduced exchange rate gains on foreign collections, which could tether the growth in overall FAAC disbursements.

The naira appreciated by 0.1 per cent to N1,500 to dollar at the Nigerian Foreign Exchange Market (NFEM) despite the absence of Central Bank of Nigeria (CBN) intervention.

The zero intervention by the apex bank was attributed to reduced demand pressure amid declining FX reserves.

“Notably, the FX reserves level declined by $241.50 million w/w to $38.46 billion, marking the seventh consecutive week of decline. We expect FX liquidity to remain robust as a more efficient market and improved market confidence continues to support inflows from autonomous sources. The CBN is also expected to intervene in periods of high volatility, keeping the naira stable in the near term,” the analysts said.