Money market fund to hit N1trn in 2020 – Analysts. The Nigeria’s money market fund pitched at N560 billion in June, 2019 and some analysts have started to predict a further surge to N1 trillion mark in 2020.

Analysts at a roundtable discussion with MarketForces team hinged their estimate on improve financial literacy and inclusion in addition to digital economic effect.

Though, Fitch in a report revealed that regulation drives money market fund demand, stated that the regulation is robust with respect to credit and market risk.

“Money goes to where it is treated well, Fund Managers did a good job in 2019, and it is expected to see a better version of financial market in 2020. It is more likely to see money market fund kissing N1 trillion mark by year end”, Analysts said.

Analysts echoed that performance of assets under management surged in 2019 due to a wave of shift in the financial service sector, thus relatively outperformed stock market.

However, the number crunchers and assets trackers said they expect an increase activities in securities trading, mutual fund on the back of improve assets classes early investors rush in the year.

The industry data revealed that Stanbic IBTC and FBN Money market fund account for 76% of the total assets under management (AUM) as at first half in 2019.

Stanbic IBTC Money Market Fund accounts for 47% of AUM

In June, 2019 Stanbic IBTC money market fund accounted for 47% of Nigerian money market fund, Fitch stated in a report.

This compares to 13% for the largest Chinese MMF, Yu’e Bao. Fitch expects regulators to continue to examine the potential systemic risks concentrated MMFs can pose.

As a result, Fitch think that high concentration of this magnitude may attract regulatory focus going forward.

According to the rating agency, the MMF sector in Nigeria is extremely concentrated, with the largest four funds accounting for 90% of AUM at June 2019.

For example, MMFs serve as a key source of short-term funding for banks and corporate borrowing, creating a transmission channel through which MMF stress could affect the financial system more broadly.

Nigeria was among first to implement money market reform, Fitch said in a report.

According to the rating firm in its latest update on Nigerian Fund Industry, it stated that the Nigerian Securities and Exchange Commission was one of the first regulators to introduce new rules for MMFs following the global financial crisis.

MMFs have been the fastest growing fund type since the regulation was introduced in 2011. It provided that there are now over 20 funds with a combined AUM of N560 billion or around USD1.56 billion at June 2019.

“These are explicitly addressed through minimum credit rating requirements, and maximum portfolio average and final asset maturity limits.

“The absence of explicit regulation addressing liquidity risk is a notable weakness compared to US or European MMF regulation”, Fitch stated.

The rating agency said it is however slightly mitigated by the minimum 25% exposure requirement to FGN securities which are among the most liquid in the market.

FX Restrictions and Fund Flows Influence AUM

Fitch stated that pressure on the Nigerian currency between 2015 and 2016 saw international and domestic investors in the Nigerian fund markets move or repatriate cash overseas.

The firm remarked that this was evident in the 15% drop in AUM seen in that period.

Recall that the Central Bank of Nigeria (CBN) imposed restrictions on FX access in 2015, with an increasing list of products being added to the list of imports subject to restrictions on FX access.

The effect of this has been a rapid rise in industry AUM, with funds generated locally and investing in the domestic market, the report stated.

Fitch reckoned that MMFs now account for over 75% of total industry AUM, serving as an indication of the early stage of development of the financial markets when compared to developed countries which have lower MMF allocations.

Regulation Tailored to Local Market

Fitch noted that the Nigerian MMF Regulation was introduced to increase the relative safety and stability of the fund type in the aftermath of the financial crisis.

To this end, a number of rules and guidelines were introduced tailored to a local market in which there are limited high credit quality securities, constrained liquidity and modest price discovery.

More people would invest in 2020 in Nigeria’s financial market in 2020, analysts remarked.

By Oluwafemi Michael

Tag: Money market fund