In spite of the recently concluded consolidation programme in the banking sub-sector which was intended to strengthen shareholders fund of the ensuing mega banks, public sector fund still exerts huge influence on rates in the money market. Rates in the money market rose sharply in the last week of January owing to the controversy that stalled sharing of revenue that accrued into the Federation Account for the month of January. Prior to the impasse, Call and OBB interest rates had averaged 9% and 11% respectively between the first three weeks of 2006. However, as Finance Commissioners from the 36 states of the federation turned down the N40.3 billion offered for sharing for the month of January on account of under reporting of crude oil accrual, Call and OBB rates rose astronomically to 40% and 42% respectively.
For many years, rates in the Nigerian money market have been influenced by public sector funds which trickle into the market monthly. This trend betrays the mono product nature of the Nigerian economy. Proceeds from sale of crude oil are routinely shared from the centrally kept account of the federation by the three tiers of government using the statutory allocation revenue sharing formulae. The fund, more often than not, singly determine movement of rates in inter-bank borrowing in the country.
The other factor which drove rates high in the market in January has been linked to system failure experienced by the Central Bank of Nigeria (CBN). This consequently led to closure of the CBNs rediscounting window for the first time this year. It occurred too once last year. The technical gap which affected the regulator's system hampered access to the statements of banks. Many banks were unable to access their balances with the CBN as a result of the hitch. Therefore, the banks resorted to speculative inter-bank trading, in order to meet their cash obligation. Bankers often access the rediscount window anytime they experience liquidity squeeze which usually make them to convert their treasury bills holdings to cash.
The alleged discrepancy in reporting revenue accrual to the Federation Account has been blamed on the Nigerian National Petroleum Corporation (NNPC). A member of the Revenue Mobilization and Fiscal Committee (RMAFC) accused the NNPC of lack of transparency in accounting for the countrys domestic crude oil revenue. This sizzling accusation is not strange to our political economy. What is worrisome is the deleterious effect of subjecting the money market to the interplay of political forces. It is also bothersome that within 30 days of concluding recapitalization programme of the banks, the money market has not shown enough depth of fund within the system to moderate rates. Little wonder the CBN Governor insists that there is not one big bank in Nigeria yet, relative to the size of the economy.