Foreign Portfolio Investors (FPI) withdrew more than N94.4 billion between July and September 2018 from the Nigerian Stock Exchange (NSE), THISDAY has learnt.
THISDAY, however, gathered that the amount may rise further following last week’s decision by the United States Federal Reserve to once more hike interest rates despite calls by President Donald Trump for Fed to stop raising interest rates.
The Fed rate hike, the fourth this year, had pushed the US central bank’s key overnight lending rate to a range of 2.25 per cent to 2.50 per cent.
A member of the Central Bank of Nigeria’s Monetary Policy Committee (MPC), Mr. Robert Asogwa, confirmed the withdrawal of the N94.4 billion in his personal statement at the recent MPC meeting, according to a data posted on CBN website.
Following this development, Asogwa noted that capital inflows have declined consistently especially since 2018, while outflows have more than doubled during this same period, thus making external financing more challenging in Nigeria.
He said, “There have been sharp declines in inflows, especially for portfolio investments and Foreign Direct Investment (FDI).
“Between July and September 2018, foreign portfolio investors withdrew more than N94. 4 billion from the Nigerian Stock market alone.
“These movements have been attributed to the monetary policy normalisation process in some advanced economies, which has seen interest rates in places like the USA increased for three times in 2018.”
According to him, besides, the usual investors fear about the 2019 general elections may have also been a contributing factor.
He pointed out that given that monetary policy forecasts for 2019 in many advanced economies suggests policy rate increases, “the capital flow position in Nigeria may possibly worsen in the near future.”
Asogwa said the US Federal Funds rate had been anticipated to reach 3.5 per cent by end of 2019, while the prevailing zero rates in the Euro Areas was expected to move a bit higher by mid-2019.
He added that the return of frequent volatility in the oil market was already putting pressure on commodity exporting countries like Nigeria.
According to him, there are still expectations that prices may drop further in the early months of 2019.
He added, “CBN staff report shows that the NPL ratio, which has risen to 14.70 per cent in August 2018 had declined to 14.05 per cent in October which signals improvement even though it is still above the allowed prudential maximum thus requiring comprehensive NPL reduction strategies from the banks and the regulators.
“In addition, the modest improvement in the Capital Adequacy Ratio (CAR) and the Profitability Indicators (ROE and ROA) in October as compared to August shows that the financial sector weaknesses which was a key concern at the last MPC meeting of September are partly being halted.”
In her contribution, the Deputy Governor, Financial System Stability Directorate, Ms. Aisha Ahmad, said even though there was need to brace for a tough year ahead, it was also imperative to consolidate on the price stability gains on the monetary side by stimulating stronger and more resilient Gross Domestic Product growth.
This, according to her, calls for a policy stance that achieves price stability conducive to economic growth.
She said, “As we approach 2019, new downside risks are emerging as existing risks continue to intensify. Slowing global demand and growth projections, volatile oil prices, and sustained monetary policy normalisation in the US, have implications for exchange rate stability and by extension, price and monetary stability.
“In addition, the upcoming general elections and unintended but largely contractionary fiscal environment due to the delays in passing the 2018 budget, also have implications for sustained economic recovery and growth.”
On his part, another MPC Member, Mr. Dahiru Balami, pointed out that there was threat to exchange rate stability due to the pressure on external reserves as well as increase in capital outflow.
He noted that capital outflows accelerated due to lack of instruments for foreigners to invest in.
“Price stability is better achieved if we can prevent exchange rate volatility through proper management of external reserves. “The exchange rate market is largely affected by the volatility of the oil price and the level of domestic production,” he said.
To the Deputy Governor, Economic Policy Directorate, CBN, Dr. Joseph Nnanna, despite significant pressure from non-performing loans, systemically important top-five banks in the banking industry, which account for over 50 per cent of total banking sector assets, revealed soundness of their financial system.
He explained, “Overall, credit to the core private sector has leveraged on the emerging positive sentiments, and the lull in government borrowing, to increase by 2.20 per cent in September 2018 and 2.93 per cent annualised.
“Net credit to the government contracted by 6.25 per cent in September 2018 over the level at end-December 2017, representing an annualised decline of 8.34 per cent.”