Two companies involved in the capital and secondary markets have given out some reasons why the money market continues to be flooded with cash leading to sustained over-subscription of Treasury Bills (TBs).
Both NBM Capital Markets Limited and Alliance Capital Limited said they are aware of the trend on the money markets and commented on the issue.
NBM Capital gave an example of TBs auction of July 2 which was oversubscribed by 1.7 times, as K3 billion was applied against an announced target of K1.8 billion.
Alliance Capital Limited described the K3 billion application that hit the auction as an avalanche since it had an effect of 40 percent of all bids turned down.
“Applications were fairly spread across the tenors. K1.8 billion was allotted leaving a 41 percent rejection. With the zero domestic net lending objective under the 2013/14 National Budget, we see this as a product of the same.
“As further evidence to this stance, all recent TBs auctions have recorded any new issues other than liquidation of maturing instruments. Good performance in revenue collection will definitely reduce government’s appetite for further borrowings. Should the authorities stick to this objective, then yields are likely to fall though time shall be the best test of policy consistence,” NBM Capital said.
They further noted that the financial system was awash during the review week, closing with a surplus liquidity of K4.5 billion against the required reserves of K38.7 billion.
“This was a result of the funds being pumped back into the system due to the high rejection levels from the primary money market auction of the recent TB auctions,” NBM said.
Earlier this year Reserve Bank of Malawi Governor Charles Chuka bashed the financial sector for not being innovative enough when coming up with financial products by still relying on lending to the sovereign borrower who is already struggling servicing several debts.
“This only shows that the financial sector is not ready to go deep into the market and take risks in funding businesses of higher return or being innovative to provide the market with various products because even when government says enough we don’t want money the sector is still coming with bagfuls,” said Chuka then.
NBM Capital is a licensed portfolio and fund manager which is an investment subsidiary of National Bank of Malawi while Alliance Capital is involved in pension fund asset management, portfolio investment management, money market brokerage, share investment services and corporate finance advisory.