Ghana Gives Primary Dealers Until June to Boost Bond Trading

Ghana’s central bank is giving primary dealers 10 weeks to increase purchases at debt auctions or risk losing their role in the market.

Six of the 15 dealers bought 3 percent to 5 percent of securities at sales in 2012, falling below the quota of 7 percent, Adams Nyinaku, the central bank’s head of treasury, said in an interview in Accra, the capital of West Africa’s second-biggest economy. He declined to identify the lenders.

“We have given them assurance that after June we will be very stiff,” he said in the April 12 interview. “It’s not a luxury to be a primary dealer. You should have some commitment.”

Ghana is using Treasury bill sales to pull liquidity from the market and stem a tumble in the local currency, the cedi, which is down 7 percent against the dollar in the past 12 months. Yields on Ghana’s 91-day Treasury-bills, the second-highest in sub-Saharan Africa after Malawi, rose 10.13 percentage points in 2012 to 23.1 percent as the Bank of Ghana offered higher returns to lure demand.

The yields fell 1 basis point, or 0.01 percentage point, at the last auction on April 12 to 22.97 percent. The cedi weakened 0.3 percent to 1.9542 per dollar by 3:15 p.m. in Accra, bringing its decline this year to 2.5 percent.

Capital Needs

Ghanaian lenders have a minimum capital requirement of 60 million cedis ($31 million) and have most deposits in accounts where clients can withdraw their money at any time, rather than in fixed-term ones that lock funds in for a set limit. The banks may not be able to afford buying their whole share of the weekly auctions, Chris Nettey, a bond trader at Standard Bank Group Plc’s local unit and a member of the Dealers Club Association of Ghana, said by phone on April 16.

“With the kind of liabilities they have, it’s easier to lock in a one-month instrument rather than anything longer than that,” he said.

Kobla Nyaletey, the president of the dealers club and head of liquidity management and market making at Barclays Plc’s unit in Ghana, which is one of the dealers, declined to comment when called yesterday.

The others include Standard Chartered Plc, Ghana Commercial Bank Ltd., Ecobank Ghana Ltd., Societe General SA’s local unit, Merchant Bank Ltd., ARB Apex Bank Ltd. and Access Bank Plc. Nyinaku said an ideal number of dealers at the auctions, held on Fridays, is 10 to 12.

Auction Failures

Last year, the most active banks bought as much as 9 percent of auctioned bills and notes, Nyinaku said. The central bank has to pay a brokerage fee to dealers on purchases above the 7 percent quota. When a dealer doesn’t buy its portion of debt, another one has to step in and absorb the remainder, forcing the central bank to pay the fee, he said.

“We don’t want auction failures in the sense that if the government says I want 100 million cedis, everything should be purchased on the auction,” he said. If dealers don’t buy all the notes offered, the Bank of Ghana has to step in to make up the gap, putting local currency from its own coffers back into the market and defeating the objective of removing cedi liquidity, Nyinaku said, adding that the bank bought some of the securities this year to make up the difference.

“When they are not getting customers, it’s a bit difficult for them to meet the quota,” Nikoi Kotey, a currency trader at Accra-based CAL Bank Ltd. and a member of the dealers club, said by phone. “Customers like to talk to some banks; it’s a relationship thing. Some people prefer to deal with specific banks.”

Secondary Trading

The central bank and the Ghana Stock Exchange are merging their security depositories, a move that will lead to all government bills and bonds listed on the Accra bourse to allow for secondary trading, Nyinaku said.

The Bank of Ghana’s Central Securities Depository keeps records on ownership, selling and buying of government bills and bonds while the stock market’s depository keeps the record for shares of companies traded.

Banks now trade government debt over-the-counter, Nyinaku said. While two-, three- and five-year debt are listed on the stock exchange, the separate depositories mean trading is low and limited, he said.

“If you get an effective primary dealer system, then they will be underwriting all the issues and they will be trading among themselves,” said Nyinaku. “If we can get a smaller size then we put in a code of conduct and a regulation and they append their signatories to it, then we’re going to have the market makers.”

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