The Debt Management Office says the impact of the proposed limitation of commercial banks’ access to government securities on the market will depend on the actual mechanism provided by the CBN.
Oladele Afolabi, the Director, Portfolio Management Department, Debt Management Office, said this in an interview with the News Agency of Nigeria in Abuja.
Afolabi said: “For instance, how would ‘Government Securities’ be defined? Would this include the Open Market Operations Bills being issued by the Central Bank of Nigeria?
“The specifics of the mechanism would determine the impact on the market.”
He, however, assured that the limitation will not affect the market or discourage investors.
He said that the Federal Government bond market had developed over the years from the initial period when banks were the dominant investors to the present situation where there were now other categories of investors.
Afolabi said the new categories included the pension funds, asset managers and foreign investors, all with significantly higher levels of participation than before.
The director added that the DMO had been working with other stakeholders to encourage higher level of issuances by private sector organisations and the Federal Government granted tax waivers in that regard.
He said: “This is a sign of maturity of the Federal Government bond market and we expect to continue to diversify the investor base for government securities particularly with new instruments such as the Sukuk, Savings Bond and Green Bond.”
He said they were attracting new investors to the market.
Afolabi explained that making funds available to the private sector was also the focus of the Federal Government as the Economic Recovery and Growth Plan expected the private sector to play a major role in the country’s development.
According to him, the DMO’s initiatives in the bond market are not just for the Federal Government’s borrowing, but to also create a market for long term capital for other categories of issuers, such as sub-nationals and corporates.
He said: “The current Debt Management Strategy, which has shifted more of the Federal Government’s borrowing to external sources, is to create borrowing space for the private sector in the domestic market.
“Between 2017 and 2018, the Federal Government repaid over N1 trillion of Nigerian Treasury Bills to make loanable funds available to private sector borrowers and also lower interest rates in the market.
“This saw the rates for NTBs dropping from about 18.5 per cent in 2017 to between 10 to 11 per cent in 2018.
“So, to the extent that the objective is to make more funds available to the private sector, this is in accordance with the government’s focus.”
Afolabi, however, said that banks were still expected to continue to play a key role as investors in the market.
This, he said, was because the Federal Government bonds were liquid assets which the banks would need to hold to meet the 30 per cent liquidity ratio.
NAN reports that the Monetary Policy Committee meeting in May had directed the CBN to initiate policies and mechanisms that would facilitate the restriction of banks’ access to government securities such as treasury bills and bonds.
The committee said the restriction was necessary because banks had unfettered access to government securities, a situation that had the capacity to crowd out private sector lending.