The Nation Newspaper

Category: Money

  • CBN defers credit risk mitigation policy for oil sector loans

    CBN defers credit risk mitigation policy for oil sector loans

    The Central Bank of Nigeria (CBN) at the weekend, deferred the implementation of its credit risk mitigation framework for oil and gas loans. This is due to the on-going implementation of the Basel II/III capital adequacy framework.

    A letter to all banks signed by K.O Balogun, for Director, Banking Supervisions, said a new date would be advised to all banks in due course.

    The regulator however advised banks to put in place adequate risk mitigating techniques for the management of their oil and gas risk exposures which would be reviewed during its regular risk-based supervision activities.

    The letter, titled:  ‘Oil and Gas Industry Credit Risk Mitigation,’ referred to the December 10 circular, where the apex bank warned banks on dire consequences of the falling oil price on loan advances to the oil and gas sector, as well as the public sector.

    CBN Director, Banking Supervision, Mrs. Tokunbo Martins, said the falling oil prices and the potential for a further decline has been of major concern in recent times.

    She said  considering the quantum of exposure to the oil & gas sector, combined with risk management deficiencies revealed by the recent Risk Based Supervision exercise, there is a need to proactively guard against a crystallization of these risks.

    “The CBN therefore considers it essential to ensure that banks have sufficient capital buffers to mitigate these escalating risk taking activities. Where exposure to the oil and gas sector (as defined by the International Standard Industrial Classification of Economic Sectors as issued by the CBN) is in excess of 20 per cent of total credit facilities of a bank, the risk weight of the entire portfolio in the sector will attract weight of 125 per cent for the purpose of capital adequacy computation,” she said.

    Oil prices have declined from $107.89 per barrel in June to $85.06 per barrel in October, and currently trading at $50.33 per barrel. The possibility of further declines, she said, should not be underestimated.

    The CBN director said that a proposed single-factor sensitivity stress test showed that at $70 per barrel, 25 per cent of oil sector loans would become non-performing while 15 per cent of the loans will be nonperforming in the public sector.

    At $65 per barrel, 40 per cent of oil and gas portfolio becomes non-performing and 30 per cent for public sector loans. Also at $60 per barrel, 55 per cent of oil loans become non-performing while 45 per cent of the loans become non-performing in the public sector.

    The CBN has therefore mandated banks to forward to it, the computations and results of a single-factor sensitivity stress test, using specified template and guidelines, on the impact of volatile and falling crude oil prices on bank’s financial position, performance and prudential ratios.

    The regulator also wants lenders to ensure that projections for volumes of crude oil sales for upstream obligors are backed by independent and professionally prepared reserves estimation reports.

    It is requesting that adequate technical data be provided by the obligor for the management of obligor credit risk, including a copy of the feasibility study of the project being financed.

    The CBN is also asking lenders to ensure there is documented improvement in their monitoring activities of oil and gas exploration, production exposures. Oil and gas customers have a robust and effective enterprise management policy and system. Of key importance is a price risk hedging policy. A comprehensive review exercise on oil and gas obligors is conducted on a periodic basis. There is an improvement in the quality of credit file contents, organization and indexing, presentation, maintenance, management, and oversight. She said lenders will be assessed for compliance with these directives as part of periodic Risk Based Supervision review.

  • Protect your cards against fraudsters, Sterling Bank urges

    Protect your cards against fraudsters, Sterling Bank urges

    Sterling Bank Plc has advised organisations and Nigerians to protect information about their financial transactions, particularly their cards to avoid falling prey to fraudsters.

    This advice came against the backdrop of increasing Automated Teller Machines (ATMs) related frauds within and outside the shores of the country leading to financial losses on the part of banks’ customers.

    The bank’s Group Head, Strategy & Communications, Shina Atilola,  said the bank expressed regret that fraudsters had taken advantage of the cash-less policy introduced by the Central Bank of Nigeria (CBN) to penetrate electronic payment systems globally.

    He explained that although the card payment system in the country was based on the “Chip and PIN” technology, which is adequately protected, some other countries have not fully adopted this technology.

    “What is use in some countries is the magnetic strip technology, which makes it easy for fraudsters to clone customers’ cards and fraudulently make use of their card information.  Also, some people do not exercise sufficient caution in the manner they handle their debit and credit cards as they either expose it to unauthorised persons or give it out to other people to make withdrawals or transact on their behalf,” he explained.

    The bank’s spokesman explained that when card information has been compromised, the card-holder becomes vulnerable to fraudulent activities.

    “In countries where the chip and PIN technology has not been fully adopted, such as the USA and China, card information such as the card number on the face of the card and the Card Verification Value (CVV) -the set of numbers at the back of the card – can be used to perpetrate fraud even without the customer’s PIN”.

    Therefore, it is not just about keeping the PIN secure, the card number and the CVV should also be protected.

     

    He advised customers to exercise additional caution when carrying out transactions in the above-named countries or with companies based in these countries. He implored customers to be careful as it may be difficult for any bank to assume responsibility for frauds of this nature,” he said.

  • Ghana to issue 400m cedi domestic bond in April

    Ghana to issue 400m cedi domestic bond in April

    Ghana plans to issue a 400 million-cedi, seven-year domestic bond in April in a fresh bid to use longer-term maturities to restructure its rising debt, the central bank said.

    Reuters said the country’s third bond will finance infrastructure projects and will be open to foreign investors.

    Ghana is seeking aid from the International Monetary Fund as it grapples with fiscal problems including a debt-to-gross domestic product ratio above 60 percent.

    The West African country aims to raise a total of 25.4 billion cedis ($7.88 billion) in domestic securities before July, the bank said in its issuance calendar.

    Ghana issued its debut seven-year domestic bond in August 2013 and held a similar auction three months later with yield at 18 percent yield.

    The bank will also issue five-year bonds in March and June to raise 440 million cedis each, and three-year paper worth 630 million cedis each in February and May to roll over maturing debts. The government did not issue a seven-year bond last year as it wanted to avoid a spike in yields following a slump in the local currency.

  • External reserves may drop to $30b, say analysts

    External reserves may drop to $30b, say analysts

    Analysts at Financial Derivatives Company (FDC) see external reserves dropping to $30 billion from current $34.5 billion in the coming months.

    Its Chief Executive, Bismarck Rewane said the naira under pressure, could cross N200 to a dollar and that further depreciation of three to five per cent at the official market is expected.

    He explained that said the Monetary Policy Rate (MPR) will be reduced cumulatively by 1.5 per cent per annum adding that economic growth is weaker but outlook remains positive.

    Rewane had said the reserves which stood at $37.87 billion as at April 3, had about $10 billion of which is in hot money. He said reversal of capital flows into the economy will intensify, further depleting external reserves.

    Hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.

    These speculative capital flows are called “hot money” because they can move very quickly in and out of markets, potentially leading to market instability.

    Rewane said there would be further external sector imbalances in a run-up to this year’s elections even as equity market imbalance is likely to increase with stock market correction continuing.

    He said spill over from Russia-Ukraine crisis poses downside risks for neighbouring countries and Europe with 20 per cent of European Union (EU’s) energy consumption is from Russia with 32.5 per cent of Nigeria’s imports coming from the EU.

    He said countries that have tried to prop up their currencies stood the risk of depleting their foreign exchange reserves adding that Nigeria’s Gross Domestic Product (GDP) growth is estimated to spike to 7.22 per cent during the past quarter as against 7.72 per cent recorded last December.

    GDP rebasing is expected to boost Nigeria’s estimated size by about 40 to 70 per cent and is almost certain to push it ahead of South Africa to become Africa’s biggest economy.

    The National Bureau of Statistics (NBS) changed the base year for calculating Nigeria’s GDP to 2010 from 1990 to reflect changes in the economy of Africa’s most populous nation, and more accurately assess the size of its current output.

    Most governments overhaul GDP calculations every few years to reflect changes in output and consumption, but Nigeria has not done so since 1990, meaning sectors such as the internet, telephoney and even the “Nollywood” film industry have had to be newly factored in to give a truer picture.

    He said Nigeria’s GDP growth is accelerating but hampered by insecurity, which currently has five to eight per cent negative impact on nominal GDP.

    Also, data from the CBN showed that gross external reserves as at December 31, 2013 stood at $42.85 billion, representing a decrease of $ 0.98 billion or 2.23 per cent compared with $43.83 billion at end- December 2012.

    The reserves have further dropped to $38.79 billion as at March 12 after dropping by $3 billion in one month.

    The reserves were at $42.77 billion on February 3, and dropped to $39.72 billion on March 3. It has further dropped to $37.8 billion in March 28. Analysts said the reserves declined as imports of fuel and foods soared.

  • Firm marks decade of service to economy

    Courteville Business Solutions Plc is marking a decade of service to the economy. The sub-regional business solutions development company, quoted on the Nigeria Stock Exchange (NSE) has over the past decade, recorded consistent year on year growth in clientele base and key financial indices.

    Speaking at the ninth Annual General Meting of Courteville Business Solutions, its Chairman, Murtala Salami said the firm has since inception, the firm has provided exceptional e-service delivery models that are industry standard. He also lauded the firm’s corporate governance and service delivery benchmarks.

    “In less than five years of operations, Courteville Business Solutions Plc became a publicly quoted company. In November 2008, with its Operation and Management systems certified to be compliant with International Standards under the ISO 9001:2008 approved standards, CBS became the only company so certified from the business solutions development sector of the economy,” he said.

    He said the 10 years anniversary will be a one-week celebration starting tomorrow and ends January 17th.

    Activities lined up for the event include;  a two kilometer  “Walk For Life” from the Company’s head office to University of Lagos (UNILAG) gate and back to the head office tomorrow.

    “On Sunday, a thanksgiving service will hold at RCCG, Commercial Avenue, opposite the Head Office. A Seminar themed “Empowerment Strategies to Developing, Social Entrepreneurship” will also take place in Lagos on Monday.

    “On Tuesday, the commissioning of the Head Office by the Company’s Chairman will take place while on Wednesday, staff of Courteville will pay a visit to Modupe Cole Memorial Child Care at St. Finbarrs Road, Akoka, The Old People Home at Yaba and a Public Primary School in Yaba, where food items and educational materials would be distributed respectively,” he said.

    He said that Thursday has been tagged “Cultural day (African dressing) and Raffle Draws “ where staff would dress in their cultural attire and customers would have a chance to pick draws and win exciting gifts, this would take place at the company Head Office.

  • CBN, IOCs’ $600m sales lift naira

    CBN, IOCs’ $600m sales lift naira

    The naira advanced the most since November 2003 as the Central Bank of Nigeria (CBN) and International Oil Companies (IOCs) increased sale of foreign exchange.

    The naira rose 3.8 per cent to 179.55 per dollar. The naira appreciated 2.2 per cent this year, the most among 24 African currencies tracked by Bloomberg after the Somali shilling.

    The CBN sold $451 million at its auction on Wednesday, the most since November 26.

    Oil companies offered about $200 million between January 5 and 7, according to Adebayo Omogoroye at Guaranty Trust Bank Plc.

    “There’s a lot more supply and demand is very thin. The central bank was very strong in the auction,”Omogoroye, head of trading at the Lagos-based lender, said by phone.

    Buyers have been put off after a CBN announcement in December forcing them to use foreign exchange within 48 hours or sell it back to the institution. Demand was also hit by a ruling that banks clear foreign-exchange positions daily, having previously been allowed net-open positions of 1 percent of shareholder funds.

    The CBN is reviewing this, its Governor Godwin Emefiele told Bloomberg. His comments have helped to boost liquidity, according to Robert Hagenaars, a fixed-income trader at Zenith Bank U.K. Ltd.

    “Interbank market activity is picking up, with investor confidence incrementally rising due to strong indications that the central bank will reconsider” the zero net-open position limit, Hagenaars said in a note.

    The naira fell 13 percent last year as falling oil prices battered Nigeria, which relies on crude for almost all export earnings and 70 per cent of government revenue. Brent crude futures fell 0.1 per cent to $51.11 yesterday.

  • Naira edges up by nearly one per cent

    Naira edges up by nearly one per cent

    The naira, yesterday, ended up 0.8 per cent following a turbulent second day of trading this year. The rise contradicts Monday’s 1.9 per cent drop putting the local currency at 185 to the dollar.

    The naira has been hurt by falling oil prices, which have hammered the foreign exchange reserves while stocks reacted to a global equities sell-off, traders said.

    Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion Yvonne Mhango said the Central Bank of Nigeria (CBN) has shown absolute commitment to dealing with dwindling fortune of the naira.

    Last year’s eight per cent official devaluation of the naira, she said, allows the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.

    “While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.

    Head, Equities Market at FBN Capital Olubunmi Ashaolu said the CBN has by the policy, set clear cut objective on its monetary policy direction. He said the stock exchange’s positive reaction was an indication that local and foreign investors now understand where the naira is heading. “As long as there is clarity and good investment climate, the equities market will benefit,” he said.

    He advised government to improve infrastructure, noting that it would make the investment climate more attractive for foreign investors.

    Managing Director, Financial Derivatives Company (FDC) Limited Bismarck Rewane said the Monetary Policy Commitee’s decision has reinforced the CBN’s independence and autonomy.

    He said the currency adjustment has a direct impact on the cost of imports and may undermine the MPC’s efforts at ensuring price stability in a hugely import-dependent economy. The devaluation, he added, would slow down external reserves depletion. “Since the naira is closer to equilibrium, the need to intervene will be less,” he added.

    To the President of National Association of Small Scale Industrialists, Chukwu Wachukwu, there are consequences wherever currencies are devalued.

    He said the naira devaluation would make government to jettison its sole reliance on oil and pay attention to other sectors of the economy. “We can’t just continue to depend on oil; we need to diversify,” he said.

    However, for exporters, devaluation of the naira means increased cash flow and higher profit margins.

  • e-transfers hit N10tr mark

    e-transfers hit N10tr mark

    Online transfers via the Ni-geria Interbank Settlement  System (NIBSS) Instant Payments have reached an all-time record of N10.85 trillion, the Central Bank of Nigeria (CBN) has said.

    CBN Director, Banking and Payment Systems, ‘Dipo Fatokun, who spoke at the Finance Correspondents Association of Nigeria (FICAN) yearly conference in Lagos, said that the expansion of the electronic payments channels enabled NIBSS to achieve the result.

    He explained that the figure, which was for 2013,  was enhanced by transfers done through online web payments, electronic funds transfer, various forms of cards, Point of Sale (POS) terminals and Automated Teller Machines (ATMs) non-cash transactions.

    “As an instance, the NIBSS Instant Payments used for online transfers has grown at an annual growth rate of 199 per cent and 190 per cent in volume and value with total transfers on the platform grossing N10.85 trillion,” he said.

    Fatokun, who spoke on the theme: E-Payment: Past, present and future, said the operations of local and international “electronic payments companies have had positive impact on investment and employment.

    He highlighted the role of payments system which include effective monetary policy, stable and sound financial system as well as economic growth and development.

    The CBN director said sustainable economic growth requires a well-functioning, efficient and reliable clearing and payments system which would enhance local and international business transactions by providing liquidity in the financial system.

    He said the payment system had been significantly transformed in recent years. “As you may recall, time was in this country when up-country cheques, by this I mean cheques presented for clearing in a different state from where the issuing account is domiciled, took 21 working days to clear. Today, cheques clear nationwide, next day and soon to become same day. You may bear witness with me that approaching the millennium, we were counting the total number of ATMs in the country in 10s; today, they are in their thousands. Just three years ago, we barely have 5,000 active POS but today, there are over 100,000 installed in various merchants across Nigeria. The last decade, indeed, has been revolutionary for the national payments system,” he said.

    He said since the establishment of the NIBSS in 1994, cheque clearing cycle has improved, adding that the CBN issued the first guidelines on electronic banking in 2003, which covers a whole spectrum of electronic payments.

    “Following the realisation by the Central Bank of Nigeria that the payments system, especially through the settlement process usually indicates the initial distress signals among banks and the potential impact on the bank’s role as lender of last resort and by extension monetary policy implementation, deliberate attention were given to the need to effectively manage payments system risks,” he said.

    He said the apex bank introduced the settlement framework for cheque clearing in 2004 and implemented the Real Time Gross Settlement (RTGS) system in 2006.

    The RTGS is a critical infrastructure, which addressed credit and settlement risk in the payments system. Large value payments were, therefore, transited from the cheque clearing system into the RTGS, which settles the transactions on gross basis instantaneously.

    This eliminated substantial risk from the payments and maximum transaction limit of N10 million was imposed on cheque transactions with the cheque standard of 2006.

     

  • Oil price fall threatens financial stability, says IMF

    Oil price fall threatens financial stability, says IMF

    The International Monetary Fund (IMF) has warned that risks to financial stability have increased, but remain limited, as oil price fall continues.

    U.S oil fell further yesterday to $48.01, having fallen below the symbolic threshold of $50 a barrel for the first time since April 2009 on Monday.

    The prices of both Brent crude and US oil, known as West Texas Intermediate crude, have now fallen by more than 50 per cent since mid-2014.

    In its report titled Seven Questions About Recent Oil Price Slump, it said currency pressures have so far been limited to a handful of oil exporting countries such as Russia, Nigeria and Venezuela.

    It said  given global financial linkages, these developments demand increased vigilance.

    According to report: “Oil exporters will want to smooth out the adjustment by not curtailing fiscal spending abruptly. For those without savings funds and strong fiscal rules, budgetary and exchange rate pressures may, however, be significant. Without the right monetary policies, this could lead to higher inflation and further depreciation.

    “The fall in oil prices provides an opportunity for many countries to decrease energy subsidies and use the savings toward more targeted transfers, and for some to increase energy taxes and lower other taxes.”

    The report said oil prices have plunged recently, affecting oil  producers, exporters, governments, and consumers.  Overall, the IMF described this as a shot in the arm for the global economy.

    “Bearing in mind that our simulations do not represent a forecast of the state of the global economy, we find a gain for world Gross Domestic Product (GDP) between 0.3 and 0.7 per cent in 2015, compared to a scenario without the drop in oil prices. There is however much more to this complex and evolving story,” it said.

    Oil prices have fallen by over 50 per cent since June, over 40 per cent since September.  Metal prices, which typically react to global activity even more than oil prices, have also decreased but substantially less so than oil.

    “This casual observation suggests that factors specific to the oil market, especially supply ones, could have played an important role in explaining the drop in oil prices,” it said.

    It said the fall in oil prices provides an opportunity for many countries to decrease energy subsidies and use the savings toward more targeted transfers and for some to increase energy taxes and lower other taxes.

    IMF said: “In the euro area and Japan, where demand is weak and conventional monetary policy has done most of what it can, central banks forward guidance is crucial to anchor medium term inflation expectations in the face of falling oil prices.”

  • CBN: bailout loans fell from N130.6b to N23.8b in one month

    CBN: bailout loans fell from N130.6b to N23.8b in one month

    The Central Bank of Nigeria (CBN) bailout loans to banks  dropped in October to N23.86 billion from N130.69 billion in September.

    The decline, CBN said, reflected the liquidity condition in the market during the review month. The fund, which came as Standing Lending Facilities (SLFs), showed that average daily request stood at N4.77 billion compared with the N7.69 billion in September. The interest received during the period was N9.15 million, compared with N67.53 million in September.

    The SLF is an overnight CBN credit available on banking days between 2 pm and 3.30 pm, with settlement done on same day value. Funds were sourced mainly from time, savings and foreign currency deposits, as well as accretion to unclassified assets.The funds were used, largely, to extend credit to the private sector and payment of claims on demand deposit.

    According to the CBN, daily aggregate request for Standing Deposit Facility ranged from N115.59 billion to N524.78 billion. The total deposits stood at N5.75 trillion compared with N6.75 trillion in the preceding month.

    This culminated in a daily average of N338.49 billion for the 17 business days in the period. Total interest paid during the review period amounted to N2.40 billion, compared with N2.60 billion interests paid in September, it said.

    Further data from the apex bank showed that lenders’total assets and liabilities amounted to N26.3 trillion, representing a 1.5 per cent increase above the level at the end of the preceding month.

    The regulator explained that funds were sourced, mainly, from increased mobilisation of central government deposit, increase in unclassified and foreign liabilities, and reduction in foreign assets. The funds were used, largely, to increase claims on central government, claims on central bank and reduce time, savings and foreign currency deposits, and demand deposits.

    It said banks’ credit to the domestic economy fell marginally by 0.7 per cent to N13.8 trillion, compared with the level at the end of the preceding month. The development was attributed to the 3.9 per cent and 0.5 per cent decline in credit to the Federal Government and credit to the private sector, during the review month.

    Total specified liquid assets of the banks stood at N6.4 trillion, representing 37.0 per cent of their current liabilities. At that level, the liquidity ratio declined by 0.8 percentage point below the level in the preceding month,and was seven percentage points above the stipulated minimum ratio of 30 per cent.

    The loans-to-deposit ratio, at 62.8 per cent, was 2.9 percentage points above the level at the end of the preceding month, but was 17.2 percentage points below the prescribed maximum ratio of 80 per cent.

    “Provisional data indicated that total assets and liabilities of the discount houses stood at N187.0 billion at last October, showing an increase of 20.4 per cent above the level at last September. The development was accounted for, largely, by the 43.5 per cent and 24.9 per cent rise in claims on banks and claims on the Federal Government. Correspondingly, the increase in total liabilities was attributed, largely, to the 66.4 per cent and 29.5 per cent rise in borrowings and money-at-call,” it said.

    Also, discount houses’investment in Federal Government’s securities of less than 91-day maturity rose to N69.0 billion and accounted for 45.7 per cent of their total liabilities.

    At that level, discount houses’ investment in Nigeria Treasury Bills rose by 31.1 per cent above the level at the end of the preceding month. Thus, investment in Federal Government securities was 14.3 percentage points below the prescribed minimum level of 60.0 per cent.  Total borrowing and amount owed by the discount houses was N58.4 billion, while their capital and reserves amounted to N28.6 billion.