By Ngozi Amuche
The Debt Management Office has said that limitation of commercial banks’ access to government securities will not affect the market, or discourage investors.
Speaking with journalists in Abuja over the weekend, Director, Portfolio Management Department, DMO, Mr Oladele Afolabi, said the impact of the proposed limitation of banks’ access to government securities on the market would depend on the actual mechanism provided by the Central Bank of Nigeria, adding that the specifics of the mechanism would determine the impact on the market.
According to him, the Federal Government bond market has developed over the years, from the initial period when banks were the dominant investors, to the present situation where there are 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 a higher level of issuances by private sector organisations and the Federal Government granted tax waivers in that regard.
“This is a sign of maturity of the Federal Government bond market and we expect it to continue to diversify the investor base for government securities, particularly with new instruments such as the Sukuk, Savings Bond and Green Bond. They are attracting new investors to the market” he said.
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 corporate.
“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,” Afolabi said.
He noted that this saw the rates for NTBs dropping from about 18.5 per cent in 2017 to between 10 and 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. Banks are still expected to continue to play a key role as investors in the market,” he
added.
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.
