Investors Panic Over CBN’s Policy

Tayo Afolabi

The initial response by investors to the Central Bank of Nigeria (CBN), increase in the Cash Reserves Requirements, CRR of Deposit Money Bank, DMBs had been very strong and swift.

The CRR is a percentage of cash deposit commercial banks in the country keep with the CBN.

Since the CRR was raised penultimate week, after the quarterly meeting of the Monetary Policy Committee, MPC chaired by the CBN Governor, Godwin Emefiele, investors have remained skeptical on new investments, though market analysts predicted a change in attitude within days.

But few days after, investors are still cautious whether to commit to new investment or not.

The situation has affected the market capitalization of the Nigerian Stock Exchange, NSE, which has consistently dropped below the N15 trn benchmark in the last few days.

At the close of market on Tuesday, the NSE capitalization stood at N14.8 trn, a slight growth of N1.88 trillion compared to the January figure.

The market recorded a turnover of 9.877 billion shares worth N129.626 billion on Wednesday.

From all indications, the market is not likely to rebound soon contrary to suggestions last year, according to analysts.

What this means, market watchers say, is that investors will not try to grow their wealth at the risk of inconsistent government policies.

For instance, the CBN at its last MPC meeting in December indicated a move towards making more loans available for investors.

The apex bank had at that meeting maintained the Loans to Deposit Requirement, LDR at 60 percent.

It had raised the LDR from 54 per cent during its quarterly MPC meeting in June, 2019, despite protest from banks that the action will put more pressure on them.

Insiders in the apex bank said the MPC even planned to raise the LDR further, but was cautious after warning from experts that such could destabilize struggling banks.

“The essence of CBN action, Bolaji Ibiyemi, an investment expert says, is that the apex bank wanted the commercial banks to commit more to growing the economy by providing more loans to would-be investors who are ready to take the risk.”

That attempt has now been watered down in the face of its decision to demand more cash deposit from the same commercial banks who are already facing cash crisis as a result of the struggling economy, he said.

“The banks now have more reason than ever to remain conservative to the issuance of loan portfolios, bringing down drastically the rate of loan-on demand, he stated.”

He may be right.

Feelers from the NSE indicate that investors’ attitude has led to bearish run for most blue-chip companies.

Within this period, NSE figures indicate, the shares of blue-chip companies have nose-dived.

They include multinational companies such as MTN, Unilever, UACN and BOC Gases.

The Guarantee Trust Bank, GT Bank, a top bank in the country has also lost its share value within the period, though the prospect of rebound is very high, market sources said.