Consolidated Discount Limited (CDL) has said that the decline in yields on FGN bonds may spur more corporate and state governments to issues fixed income instruments.
CDL stated this in its 2013 macroeconomic outlook made available to THISDAY. The firm also argued that as yields on FGN securities continue to moderate, banks may be left with little or no choice but to create risk assets.
"Consequently the expectations of growth in telecoms, commercial real estate (especially shopping malls) and the agriculture value chain will lead to credit growth in these sectors," the report added.
Nigerian Treasury bill yields fell to the lowest in 15 months at its first auction in 2013 as bids were more than double the amount on sale amid speculation that inflation and interest rates will retreat in the year.
The Central Bank of Nigeria (CBN) sold N30.153 billion ($193 million) of 91-day bills at a yield of 11.55 per cent, the lowest since the September 29, 2011. The CBN also sold N50.403 billion of 182-day bills at an 11.60 per cent yield and N85.845 billion of 364-day notes at a yield of 11.79 per cent. Bids totaled N360.2 billion, more than double the N166.4 billion on sale.
CDL report stated that new entrants into the financial system would engender greater competition in the market.
The apex bank recently licensed merchant banks, while the process for the sale of the three bridged banks is expected to commence June this year.
It added: "International Financial Reporting Standard compliance would increase transparency of reporting albeit with consequence of lower returns on investment in the short run.
"Slow-down in economy may begin to reflect harder on businesses in 2013 if fiscal and monetary authorities do not collaborate to achieve meaningful results. For example, Dangote Cement plans close down its Gboko Plant while P Z Cussons and other leading FMCG firms continue to flag out a slowdown in consumption as a major fear for 2013
"The market could witness a spike in mergers and acquisitions transactions especially amongst listed companies as more firms seek inorganic growth to bolster market share. The real sector will continue to receive significant interest especially from South African investors."
CDL noted that import dependency of the Nigerian economy and weak export capacity of non-oil sectors will continue to put the naira under pressure.
"The CBN Governor has said there will be no significant shocks (capable of weakening the market's confidence) in the regulatory environment in 2013."
"The debt forbearance to stock broking firms will help stimulate market confidence in the short to medium term Relaxation of PENCOM rules on asset classification of pension funds will lead to greater flexibility and more robust portfolio," the firm said.