As rate on savings account plunges to 1.15 per cent, from 1.25 per cent, in three weeks, money market investors are now in flight to safer havens as they seek to switch to other asset classes in the nation’s capital market.
Signals from the Nigerian Stock Exchange (NSE), buoyed by the comments of operators of both financial markets, point to this trend.
The bourse which resumed trading for the new month on a positive trajectory of 0.57 per cent as its performance barometers, the All-Share Index and Market Capitalisation, perched on higher levels of 26,985.77 points and N14.11 trillion respectively at the close of business on Friday, October 3. This was an improvement on their opening levels of 26,319.34 points and N13.85 trillion respectively. This shows that investors’ appetite remains whetted for equities. Consequently, the market’s year-to date (YTD) performance advanced to the positive zone at 0.55 per cent. A total volume of 459.7 million units of shares, valued at N4.30billion were exchanged in 4,553 deals. Investor sentiment, as measured by market breadth, was also positive as 23 stocks advanced as against 10 decliners.
In a move seen by many as toeing the line of its peers around the world, the Central Bank of Nigeria (CBN) on September 1, ordered Nigerian banks not to pay more than 1.25 per cent interest on savings deposit accounts. With inflation rate then at 12.8 per cent, this is almost like paying banks to keep the money for you. This practice is now the fad by some apex banks, like the European Central Bank, the Bank of Japan, Denmark’s Central Bank and the Swiss National Bank, which operate negative interest rates, meaning that customers pay banks to keep their deposits.
In a circular to all banks dated September 01, 2020, the Director of Banking Supervision, Bello Hassan, said that “CBN noted, with satisfaction, the recent declining trend in market rates in the banking sector following the implementation of policies aimed, amongst others, at stimulating the credit flow to the real sector. In line with recent market developments, the ‘(apex) bank (said it ) has reviewed the minimum interest payable on savings deposits as provided in its Guide to Charges by Banks, consequently reviewing rates to 10 per cent of Monetary Policy Rates. Consequently, all deposit money banks are hereby informed that effective September 1, 2020 interest on local currency savings deposits shall be negotiable subject to a minimum of 10 per cent per annum of Monetary Policy Rate (MPR).”
The savings deposit rates are default rates which banks pay customers for keeping their money in the banks.The Monetary Policy Rate (MPR) is the rate at which the CBN lends money to banks. It is a benchmark rate for lending in the financial services sector. MPR, as at the time the circular was issued, was 12.5 per cent. But three weeks later, September 22, In a move that caught investors off-guard, the apex bank slashed the MPR by 100 basis points to 11.5 per cent.
That means banks are to pay minimum of 1.15 per cent as interest rate on savings account deposits. According to people familiar with the apex bank’s rate applications, the rate used to be 30 per cent of MPR although the CBN website puts it at about three per cent.