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  • How banking sector reforms are shaping businesses, economy

    How banking sector reforms are shaping businesses, economy

    At the just-concluded 2025 Spring Meetings of the International Monetary Fund (IMF) and World Bank Group, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso highlighted the positive impact of banking sector reforms on businesses and the broader economy. Cardoso acknowledged that while the economic reforms were challenging, they are beginning to yield tangible results, citing exchange rate stability, stronger economic buffers, a decline in inflation, and increased participation by foreign investors as clear signs of the early success of the macroeconomic initiatives, writes Assistant Editor COLLINS NWEZE

    The adoption of orthodox monetary policies and reforms in the exchange rate regime continue to reverberate across key sectors of the economy. The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, said the reforms would be sustained, noting that they have helped steer the economy through a difficult path toward greater stability.

    Globally, the past two years have been turbulent, with economies grappling with the aftermath of the COVID-19 pandemic, the ripple effects of the Russia-Ukraine war on energy and food prices, a surge in global inflation, and the subsequent tightening of monetary policy in advanced markets. Against this backdrop, Cardoso stressed the importance of sustaining and deepening reforms to strengthen Nigeria’s economic resilience and capacity to withstand external shocks.

    He emphasised that tackling inflation, maintaining fiscal discipline, and driving economic diversification must remain top priorities. Another critical pillar of the ongoing reforms, Cardoso disclosed, is the commitment to a market-driven foreign exchange system—one designed to boost investor confidence and enhance economic efficiency. “We have embraced market-driven pricing for the naira, significantly enhancing transparency and restoring investor confidence.

    Again, thanks to disciplined reforms and policy clarity, the naira has stabilised at a more sustainable level against the U.S. dollar. The once-wide gap between the official and parallel market rates has all but disappeared, a first in Nigeria’s recent history, and speculative arbitrage has all but vanished. “This renewed stability has restored confidence and spurred autonomous inflows through formal channels. These inflows are diversifying our foreign exchange sources beyond oil,” he stated.

    Cardoso said that the apex bank has strengthened its monetary buffers and positioned Nigeria to better withstand external shocks. “Indeed, the macroeconomic stability we are beginning to see today would not have been possible without these decisive actions. Nigeria’s external buffers have also strengthened considerably. Our foreign reserves now exceed $38 billion, providing nearly ten months of import cover. This robust buffer enables us to better withstand external shocks – whether from declining oil prices or global financial turbulence – thereby safeguarding our economy,” he said.

    Speaking further, Cardoso said that in 2024, Nigeria recorded a balance of payments surplus of $6.83 billion, the strongest in many years, driven by rising exports and renewed capital inflows. “At the same time, we are enhancing the strength of our financial sector. The banking sector recapitalisation is well underway, with strong momentum and stakeholder alignment, and will ensure that Nigerian banks are fully equipped to support the real economy with greater scale, stability, and capacity.

    “At these Spring Meetings, our development partners expressed their confidence in Nigeria’s trajectory. Feedback from global investors and the Nigerian diaspora has likewise been overwhelmingly positive, reflecting growing alignment with our economic direction.

    “Nigeria is increasingly recognized as a rising economic force, admired for the resolve shown in implementing difficult but necessary reforms. These achievements, while encouraging, only strengthen our resolve to press forward. We will not be complacent. Instead, we will redouble our efforts to ensure these positive trends are sustained,” he stated.

    Upon assuming office in October 2023, the apex bank under his leadership prioritised reforms to rebuild Nigeria’s economic buffers and strengthen resilience. Inflation, which had surged to 27 per cent, was one of the most pressing challenges, partly driven by excessive money supply growth. While the GDP growth had stagnated at a meagre 1.8 per cent over the previous eight years, money supply expanded rapidly, averaging about 13 per cent growth annually. This imbalance not only fuelled inflation but also contributed to a significant depreciation of the naira.

    Besides, inflation creates uncertainty for households and businesses, acting as a silent tax by eroding purchasing power and driving up living costs. To tackle the pressing challenge of inflation, the CBN acted decisively by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024—an essential move to contain inflation and restore stability.

    FX backlogs cleared

    In the foreign exchange market, the country faced a backlog of over $7 billion in unfulfilled commitments and a fragmented FX regime characterised by multiple forex rates, which had encouraged arbitrage opportunities. This regime stifled much needed foreign investment, and led to the depletion of Nigeria’s external reserves, which fell to $33.22bn in December 2023.  It must also be understood that the cost of the FX subsidy regime is estimated to far exceed that of fuel subsidies.

    Read Also: CJN warns against risk of data misuse in banking sector

    The apex bank has also undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled it to clear the outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future. To further enhance the functionality of the foreign exchange market, the CBN introduced an electronic FX matching system, which has proven effective in other markets.

    With these developments came positive Fitch Ratings on Nigeria’s economy, signalling positive fallout from the reforms. The global rating agency said that from exchange rate unification to reduce arbitrage in the markets, introduction of electronic FX matching platform and a new FX code to enhance transparency and efficiency in the market as well as deployment of monetary policy tightening to keep inflation on check, the CBN has demonstrated commitment to achieving sustainable economy growth and exchange rate stability.

    Already, the latest Fitch rating moved Nigeria’s long-term foreign-currency issuer default rating (IDR) from negative to stable, meaning that the country stands a better chance of attracting foreign investment, borrow money on international markets at better interest rates, and boost investor confidence. Fitch also applauded government’s commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening, and steps to end deficit monetisation as well as fuel subsidies removal. “These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks,” the agency stated.

    Other policy measures

    The apex bank recently took strategic step to enhance transparency and boost market confidence with the inauguration of the Nigeria Foreign Exchange Code (FX Code) in Abuja. The FX Code has so far ignited naira stability at both official and parallel markets. Cardoso also recently launched the FX Code, underscoring integrity, fairness, transparency and efficiency as essential pillars for fostering Nigeria’s economic growth and stability.

    He emphasised that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement processes. These principles, he explained, aligned with international standards while addressing the unique challenges within Nigeria’s foreign exchange market. According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standard for ethical conduct, transparency, and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”

    The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive. Governor Cardoso also noted that the journey towards market reform is already yielding results. He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”

    Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions.

    Issued as a guideline for the foreign exchange market, the FX Code is backed by the authority of the CBN Act of 2007 and the Banks and Other Financial Institutions Act (BOFIA) of 2020. These legislative instruments empower the CBN to establish and enforce directives regarding the standards financial institutions must follow in conducting foreign exchange business in Nigeria. The FX Code, therefore, serves as an official directive that all market participants are expected to observe in their operations.

    Besides FX Code, the apex bank also introduced the Electronic Foreign Exchange Matching System (EFEMS), which has proven effective in other economies in enhancing the functionality of the foreign exchange market. The EFEMS was meant to check forex market distortions, eliminate speculative activities and instil transparency. The EFEMS, which is commonplace in developed and developing markets, offers real-time information on currency rates, trading volumes and market activity.

    Policies attract more dollar inflows

    As part of its efforts to boost diaspora remittances and support naira stability, the CBN recently announced the introduction of two new financial products designed to serve Nigerians living abroad. The Non-Resident Nigerian Ordinary Account and the Non-Resident Nigerian Investment Account were created to streamline remittances, encourage investments and foster financial inclusion among Nigerians in the diaspora. It said, “The Central Bank of Nigeria is pleased to inform the general public of the introduction of the Non-Resident Nigerian Ordinary Account and Non-Resident Nigerian Investment Account targeted at Nigerians in diaspora.”

    The initiative is also expected to provide a secure and efficient platform for managing funds and investing in Nigeria’s financial markets. Since the beginning of this year, eligible NRNs have continued to get the opportunity to own any of the non-resident Nigerian accounts. The Non-Resident Nigerian Ordinary Account was designed to facilitate remittances by allowing non-resident Nigerians to remit foreign earnings into Nigeria and manage funds in foreign currency or naira. Deposits from sources such as salaries, allowances and dividends are supported, alongside spending on family maintenance, education, and healthcare.

    On the other hand, the Non-Resident Nigerian Investment Account provides an opportunity for NRNs to invest in Nigeria’s financial markets, including foreign currency-denominated bonds, fixed deposits, and local assets like equities, government securities, and mortgage products. The CBN explained that both accounts offer currency flexibility, enabling holders to maintain balances in either foreign currency or naira. Account holders will also be able to convert funds between the two currencies at prevailing exchange rates through authorised dealers. The Non-Resident Nigerian Investment Account, in particular, was structured to promote investments in Nigeria’s financial instruments, such as the Diaspora Bond, and encourage active participation in the country’s economic development.

    The CBN said the introduction of these accounts will harness the economic potential of Nigerians in the diaspora by boosting remittances and fostering investments in critical sectors. These and other measures, including the granting licences to new International Money Transfer Operators (IMTOs), implementing a willing buyer-willing seller model, and enabling timely access to naira liquidity for International Money Transfer Operators (IMTOs). Diaspora remittances are a crucial source of foreign exchange for Nigeria, supplementing both foreign direct investment and portfolio investments.

  • $7b FX backlog clearance sharpens banking sector stability

    $7b FX backlog clearance sharpens banking sector stability

    • Naira records 10.69% recovery in one week
    • Down 66% post currency reforms era •Expert lauds CBN for FX backlog clearance

    The clearance of $7 billion forex backlog comes with significant impact on the stability and resilience of the financial system. The move, analysts said, would not only boost  the direction of foreign capital flows to the economy but will also contribute significantly to exchange rate stability.

    Under the leadership of Governor Olayemi Cardoso, the Central Bank of Nigeria (CBN) last week announced the successful clearance of a $7 billion backlog in foreign exchange transactions.

    This accomplishment fulfills Cardoso’s commitment to addressing the backlog with efforts dedicated to settling outstanding transactions.

    The CBN also reported a significant boost in external reserves, reaching $34.11 billion, the highest level in eight months, driven by remittances from Nigerians abroad and increased purchases of local assets by foreign investors.

    The value of the Naira to the dollar appreciated by 10.69 per cent to print at N1431.49/$ this week at the Nigerian Autonomous Foreign Exchange Market Window.          

    Independent auditors from Deloitte Consulting verified the legitimacy of each transaction, ensuring that only valid claims were honoured.

    In emailed report to investors, Investment research Associate at Comercio Partners, Ifeanyi Uba, said the clearance aligns with the CBN’s strategy to stabilise the exchange rate, mitigate imported inflation, and enhance confidence in the banking system and economy.

    He said: “Cardoso underscored the significance of this action in restoring credibility and confidence in Nigeria’s economy, signaling a positive stride towards a more resilient and stable financial landscape, thereby fostering confidence among investors and businesses.”

    A member of the Monetary Policy Committee (MPC), Aku Odinkemelu, said the Nigerian financial system is resilient as the banking sector remains sound and stable.

    Read Also: Ethical crisis in Nigeria’s banking sector

    “Total assets of the banking industry increased month-on-month by 24.76 percent between December 2023 and January 2024.The banking industry Capital Adequacy Ratio (CAR) remained above the minimum threshold of 10–15 per cent. Similarly, the Liquidity Ratio (LR) remains above the regulatory threshold of 5 percent and 30 per cent, respectively,” she said.

    According to her, the industry NPL ratio of 4.15 per at end-January 2024, which is itching towards the industry regulatory threshold of five per cent should be monitored closely.

     “Given that most banks had CRR above the regulatory threshold of 32.50 per cent and the industry average of 39.36 per cent at end-January 2024, I vote to raise CRR by 750 basis points. I am also aware that tightening of money supply will lead to increased borrowing costs for businesses, with consequences for both the bad debt portfolio of banks and the risks. I am, however, confident that the bank’ supervisory tools are robust to address risks arising from monetary policy tightening,” she added.

  • Emerging outlook of banking sector

    With the successful consummation of its merger with Diamond Bank, reports show Access Bank as the largest bank by size and top-line earnings, but the contest remains in the bottom-line. Analysts believe that value accretion from the merger may further catapult Access Bank in the leadership of the banking sector. Capital Market Editor, Taofik Salako, reports

    Nigerian banks generally maintained steady growth in the first quarter of the year, building on the performance of last year. Emerging results showed improved bottom-line; although banks appeared to be slow with the top-line in the first three months. The striking difference in the results is the emerging structural change in fundamental positions of banks.

    Access Bank, which during the quarter consummated a business combination with the defunct Diamond Bank Plc, is clearly now the largest bank in terms of assets and top-line earnings, leaping from  the third position by the end of last year.

    The three-month report for the period ended March 31, 2019 showed that Access Bank grew top-line earnings by 16.5 per cent to N160.12 billion in first quarter of the year, as against N137.54 billion in first quarter of last year. Profit before tax jumped by 66 per cent from N27.44 billion to N45.10 billion. After taxes, net profit leapt by 86.03 per cent from N22.12 billion in first quarter 2018 to N41.15 billion in first quarter 2019. Earnings per share also rose from 77 kobo to N1.39.

     

    Fundamental shift

    From its third position last year, Access Bank’s total assets rose by 29.9 per cent from N4.95 trillion in December 2018 to N6.43 trillion in March 2019. Customer deposits leapt by 53.1 per cent from N2.56 trillion to N3.92 trillion, while shareholders’ funds increased by 17.8 per cent from N482.64 billion by December 31, 2018 to N568.74 billion by March 31, 2019. Most analysts believe that the first-quarter performance reflected both the immediate impact of the merger and the steady organic growth of Access Bank.

    First-quarter results showed that Guaranty Trust Bank (GTBank) Plc grew top-line earnings by 1.2 per cent to N110.33 billion in the first quarter of the year as against N108.97 billion in the first quarter of last year. Profit before tax rose by 8.3 per cent from N52.62 billion to N56.98 billion. Profit after tax also rose from N44.67 billion to N49.30 billion. With these, earnings per share increased from N1.58 in the first quarter of last year to N1.74 in the first quarter of this year.

    GTBank, Nigeria’s most capitalised financial institution, in terms of market valuation, closed first quarter 2019 with total assets of N3.56 trillion and shareholders’ funds of N627.2 billion. Customers’ deposits had risen by  six per cent to N2.41 trillion in March 2019 as against N2.27 trillion recorded by December 31, 2018 while loan and advances rose from N1.26 trillion in December 2018 to N1.28 trillion in March 2019.

    Last year, Access Bank had surpassed other competing leading banks, recording double-digit growths across key performance indicators. It rode on the back of improved operating efficiency and risk management to cross the N100 billion profit mark. The audited report and accounts for the year ended December 31, 2018 showed that the bank grew pre- and post-tax profits by 32 per cent and 58 per cent. Gross earnings had risen by 15 per cent. Total assets increased by 21 per cent while customers’ deposit grew by 14 per cent.

    Group gross earnings rose to N528.7 billion in 2018 compared with N459.1billion in 2017. Interest and non-interest incomes contributed 72 per cent and 26 per cent to the top-line. Profit before tax rose from N78.2 billion to N103.2 billion while profit after tax increased to N95.0 billion in 2018 as against N60.1 billion in 2017.

    With these, earnings per share rose from N2.11 in 2017 to N3.31 in 2018. Return on average equity (ROAE) stood at 19.0 per cent while return on asset closed 2018 at 2.1 per cent. Access Bank’s total assets rose to N4.95 trillion in 2018 as against N4.10 trillion in 2017. Loans and advances had increased from N2.06 trillion to N2.14 trillion while customer’s deposits improved to N2.57 trillion from N2.25 trillion.

    Zenith Bank Plc recorded mixed performance in the first quarter with a decline in the top-line counterbalanced by improvement in the bottom-line. Gross earnings dropped from N169.19 billion in first quarter 2018 to N158.11 billion in first quarter 2019. Profit before tax meanwhile rose from N54.00 billion to N57.29 billion. Profit after tax also increased from N47.08 billion to N50.23 billion. Earnings per share thus rose from N1.50 in first quarter 2018 to N1.60 in first quarter 2019. Zenith Bank closed the period with total assets of N5.88 trillion and shareholders’ funds of N780.89 billion.

     

    Growing value

    Market analysts believe that the merger may provide further impetus for growth for Access Bank, citing the bank’s pedigree of value accretion and seamless integration. Analysts at GTI Capital said the share price of Access Bank could rise by about 70 per cent over the next 12 months, a target premised on the first-quarter performance of the bank and the enlarged growth opportunity.

    “In light of the above and the favourable macroeconomic outlook for 2019, we anticipate a better dividend payout by Access Bank for the 2019 financial year. Hence, we maintained our price target of N11.30 for Access Bank,” GTI Capital stated in a first-quarter earnings review.

    The board of Access Bank has recommended payment of a final dividend per share of 25 kobo to shareholders, bringing the total dividend per share for the 2018 business year to 50 kobo. The bank had paid an interim dividend of 25 kobo per share.

    Under the terms of the merger with the defunct Diamond Bank, Access Bank took over all assets, liabilities and undertakings of the defunct bank, which was subsequently dissolved without being wound up. In exchange, Diamond Bank’s shareholders received a cash consideration of N1 per share and two ordinary shares of the enlarged Access Bank for every seven ordinary shares of Diamond Bank held as at the effective date.

    Directors and management of the banks have said the merger will create significant values for all stakeholders, underlining the inherent synergies and value accretion in the business combination.

    Group Managing Director, Access Bank Plc, Mr Herbert Wigwe said the enlarged Access Bank is well-positioned to beat the competition in the  banking industry and attain its goal of being the financial hub for Africa.

    He pointed out that increased earnings during the first quarter underscored the value potentials of the newly expanded business model.

    According to him, following the successful completion of the merger with Diamond Bank in March 2019, the bank has now fully positioned itself in the retail market to bring the power of banking to the doorsteps of millions.

    “We are providing a broader platform to facilitate payments services in Nigeria and across Africa, by harnessing our significantly enhanced digital technology capabilities,” Wigwe said.

    He noted that the capital and liquidity position of the bank remained above regulatory levels, with capital adequacy ratio (CAR) at 19.5 per cent and liquidity ratio of 47.6 per cent, which further demonstrated the capacity of the enlarged balance sheet to cope with possible negative shocks.

    He pointed out that the bank has made solid progress throughout the first quarter of the year in line with its 2018-2022 five-year strategy, assuring that it remains committed to the achievement of its strategic imperatives going forward as it continues to invest in people, technology and most importantly, product offerings to customers.

    “Our focus is to become the world’s most respected African Bank by leveraging on the strength of our retail and wholesale business to provide unrivalled value to our customers,” Wigwe said.

    He noted that the enlarged bank will create significant opportunities and benefits to customers, shareholders, staff and other stakeholders, pointing out that similarity of several common values and technologies has made its business combination a seamless one.

    Against the background of the performance in 2018, Wigwe said the banking group has continued to make significant progress in spite of the challenges in the operating environment.

    According to him, the bank made solid progress throughout 2018 in line with its 2018-2022 five-year strategy, and it remains committed to the achievement of its strategic imperatives going forward.

    Looking forward, Wigwe assured that the banking group will continue to invest in its people and technology in order to improve operational efficiency and service touch points with earnings growth in 2019.

     

    Ambitious plan

    Access Bank had in 2018 started implementation of a new five-year strategic plan aimed at making it Nigeria’s foremost bank by 2022. The new plan was expected to build on the successes of a series of transformative strategies that had resulted in sustained growth over the years. From 2013 to November 2017, Access Bank had increased its total assets at a cumulative yearly growth rate (CAGR) of 18 per cent and delivered shareholder returns of 90 per cent. The bank had also grown its customer base from 90,000 in 2002 to over eight million in 2017 and in the same period opened 351 new branches. Thus, the new five-year strategy was expected to accelerate this growth story to position Access Bank as the leading bank by 2022.

    The new strategy has many strategic levers including digitally led, retail banking growth and consolidation in wholesale markets, customer focused, analytics driven, with robust risk management, strong global collaboration in key gateway markets and the creation of a universal payments gateway. To deliver the transformation, Access Bank will adopt a new organisational structure.

    The retail bank will have a customer segment focus, driven by digital and payments. The corporate bank will build deep sector expertise and deploy global relationship managers. Also, Access Bank’s subsidiaries will be organised around strategic clusters, with strong collaboration between them to secure trade finance and correspondent banking.

    The bank’s transformation programme will be underpinned by robust risk management together with high levels of automation to enhance the compliance and risk functions and drive customer insights.

    In next phase of its transformation programme, Access Bank will also embark on a series of bold initiatives. At home, the goal is to be the ‘Number One Bank’ in Nigeria by growing the retail customer base, SME client base, and by dominating the top 100 Nigerian corporates. Internationally, Access Bank will develop an integrated global franchise by strategically developing its presence in key African markets, enhancing collaboration in global financial gateways, including London and New York, Asia and the Middle East, and strengthening its trade hubs in India, Dubai and China. A strengthened presence in key African markets, and the creation of universal payments gateway combined with an integrated global franchise, ideally positions Access Bank to be Africa’s gateway to the world.

    While the merger with defunct Diamond Bank took the financial services sector by storm, the success of the maiden N15 billion green bond by Access Bank has been lauded as one of the “bold initiatives”.

    The first corporate green bond to be issued in Africa to be fully certified to have met global climate bonds standard, the Five-Year Fixed Rate Senior Unsecured N15 billion Green Bond was awarded an Aa- rating by Agusto & Co, while the underlying framework was verified by PwC (UK) and the bond was certified by the Climate Bonds Initiative as having met the global climate bonds standard. The green bond was achieved by way of a book build which was fully subscribed. Access Bank would use the net proceeds from the green bond to foster its green bond framework, including support for projects directed at flood defense, solar generation facilities and agriculture.

    Deputy Chief Executive, Climate Bonds, Justine Leigh-Bell, said Access Bank’s Climate Bond-certified corporate green bond represented a major milestone in the development of the local green finance market. “In addition to being an inspiration to other private companies, the leadership demonstrated by Access Bank is critical for the long term development of the green finance market in Nigeria and a great example for other African nations to follow,” Leigh-Bell said.

    Wigwe noted that the green bond issuance highlights the bank’s commitment to sustainability and its status as a pioneer in green financing in both the domestic and international capital markets.

     

     

  • Banking sector records N32.90tr transactions

    The National Bureau of Statistics (NBS) yesterday said  a total of 509,668,433 transactions valued at N32.90 trillion was recorded in the banking sector during the second quarter (Q2) of this year.

    The NBS stated this in its Selected Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels and Staff Strength (Q2 2018) report released in Abuja.

    According to the report, Automated Teller Machine (ATM) transactions dominated the volume of transactions recorded.

    It said 217,417,961 volume of ATM transactions valued at N1.603 billion was recorded in the period under reveal.

    “In terms of credit to private sector, the total value of credit allocated by the banks stood at N15.34 trillion as at the second quarter.

    “Oil and gas and manufacturing sectors got credit allocation of N3.45 trillion and N2.02 trillion respectively to record the highest credit allocation as at the period under review.

    “As at the second quarter, the total number of banks staff increased by 13.67per cent, from 89,608 in first quarter to 101,861,” the report stated.

  • RenCap picks UBA, Access Bank as top stocks for banking sector

    RenCap picks UBA, Access Bank as top stocks for banking sector

    United Bank for Africa (UBA) Plc and Access Bank Plc have the upside potential and valuation for the highest returns in the banking sector, Renaissance Capital (RenCap) has said.

    In an investment research report titled: “Nigerian Banks: Path to Recovery”, RenCap noted that improving macro indicators points to a recovery in the Nigerian banking sector, which made the investment firm to increase its target prices for most of the stocks in the sector on the back of lower risk-free rate assumption of 13.0 per cent as against previous estimate of 14.0 per cent.

    “We believe earnings resilience will also be demonstrated by net interest margin protection. We are less concerned about the declining yield environment at Access Bank, Stanbic IBTC Holdings and FCMB Group, as we expect that improvements in the cost of funds will be more than offset asset-yield pressure. Our top picks in the sector remain UBA and Access Bank on upside potential and valuations, but we also like FBN Holdings and Stanbic IBTC Holdings, as we believe both banks have scope to report lower cost of risk in 2018. We like GTBank given the quality of its earnings, but believe that current valuations are full,” the report, anchored by Olamipo Ogunsanya stated.

    The investment firm noted that things appear to be looking up for the Nigerian economy after a challenging few years pointing out that improving macro-economic condition and high crude oil prices may lead to improvement in assets quality of banks.

    “We believe capital buffers will rise as profits improve and note that the banks are increasingly more comfortable, using an exchange rate of N330/$ – an average of the official rate and Investors and Exporters (I&E) window rate as against previous N306/$– to value their foreign currency portfolios. We take this to mean potential revaluation gains in fourth quarter 2017, which we think could offset any negative asset quality surprises,” RenCap stated.

    The investment firm, however, cautioned that the political risks might moderate performance in 2018 as Nigeria enters into election season.

    “Despite a positive macro backdrop, we believe 2018 will be a recovery story at best; earnings growth will be challenged by the declining yield environment, volatility in foreign exchange-related gains, and limited scope for cost efficiencies. Tough economic decisions are likely to be delayed till after the 2019 general elections, but the political risks that come with a pre-election year render us cautious on the recovery ahead,” RenCap noted.

    The UBA‘s board had last week approved the audited report and accounts of the bank for the year ended December 31, 2017. The directors also approved payment of final dividend for the 2017 business year.

    The bank’s Group Company Secretary, Bili Odum, confirmed the approval of the audited report and proposal for dividend payment, noting that the approved audited report has been forwarded to the Central Bank of Nigeria (CBN) for approval.

    He said the actual final dividend recommendation and the audited report would be released to the investing public after the approval by the apex bank.

    Market sources said they expected the bank to increase its dividend payout, citing the improvement in the overall performance of the bank in 2017.

    UBA had earlier paid an interim dividend of 20 kobo per share, after the audit of its 2017 half-year results. It had declared a final dividend of 55 kobo per share, in addition to an interim dividend of 20 kobo for the 2016 business year.

    Key extracts of the interim report and accounts of UBA for the nine-month period ended September 30, 2017 showed that gross earnings rose by 26 per cent while pre and post tax profits grew by 33.2 per cent and 23 per cent respectively.

    UBA’s gross earnings rose to N333.9 billion in third quarter 2017 as against N265.5 billion reported in corresponding period of 2016. Group’s operating income stood at N236.9 billion in 2017 compared with N183.3 billion recorded in the corresponding period of 2016, representing a 29.3 percent growth.  Profit before tax jumped to N78.3 billion in 2017 as against N58.8 billion recorded in the similar period of 2016. Profit after tax grew from N49.5 billion in 2016 to N60.9 billion in 2017.

    The balance sheet showed that while the group closed the third quarter with total assets of N3.77 trillion, a year-to-date growth of 7.6 per cent, the bank prudently grew net loans to N1.6 trillion, a 6.0 per cent year-to-date growth in the loan book. Group’s shareholders’ fund grew by 13.3 per cent to N507.6 billion in 2017 while the annualised return on average equity stood at 18 per cent.

    Access Bank in December 2017 launched a new five-year plan that aimed at making the bank Nigeria’s foremost in the next five years.

    The new plan is the latest in a series of transformative strategies that have resulted in sustained growth. From 2013 to November 2017, Access Bank has increased its total assets at a CAGR of 18 per cent and delivered shareholder returns of 90 per cent. The bank has also grown its customer base from 90,000 in 2002 to over 8.0 million in 2017 and in the same period opened 351 new branches.

    The new five-year strategy is expected to accelerate this growth story to position Access Bank as the leading Nigerian bank by 2022.

  • Afrinvest 2017 Banking Sector Report launched

    Afrinvest (West Africa) Limited launched the 2017 edition of the annual Banking Sector Report at the London Stock Exchange (LSE), heralding the call that Nigeria has reopened for business.

    The launch of the report was the anchor event of the fourth Nigeria Capital Markets and Banking Forum hosted by the LSE in collaboration with the Nigerian Stock Exchange (NSE) and in partnership with Afrinvest.

    According to Group Managing Director, Afrinvest, Ike Chioke this is the right time for foreign investors to re-engage with the Nigerian economy. He elucidated the stable macroeconomic environment that now exists in Nigeria, and the extensive reforms in diverse industries that continue to create a favourable environment for long term investments.

    In his words, “We stand on the side of optimism that the glass is half full. With a population of 180 million people growing at 2.8 per cent and indicators that show positive Gross Domestic Product growth, certainly, the Nigerian economy is one to watch. This forum, therefore, comes at a topical moment, and we are proud to lend our voice to the international community that Nigeria is open for business. This is the time to come back.”

    “We have already seen strong reforms in the agriculture, power and oil & gas sectors. In addition, there have been commendable efforts to improve the ease of doing business in Nigeria, including the introduction of Visa on Arrival.”

    We are, therefore, looking forward to building on the foundation of the stable macroeconomic environment and these reforms to develop the hard infrastructure that will culminate in extensive industrialization.”

    Special Guest of Honour, Godwin Emefiele, Governor, Central Bank of Nigeria expressed his delight over Afrinvest’s flagship report saying, “I would like to thank the Board and Management of Afrinvest for this incisive report that so clearly analyses Nigeria’s position, and does an excellent job of presenting Nigeria in its best light.”

  • Tough times ahead for banks

    Tough times ahead for banks

    Regulatory headwinds among other factors may have brought the nation’s hitherto thriving banking sector to its knees as most deposit money banks have been recording a lull in activities since the beginning of the year, reports Ibrahim Apekhade Yusuf

    The nation’s banking landscape is in dire straits, no thanks to the lull in the economy, which has naturally rubbed off on the sector.

    For a sector that thrives on growth, only visible in numbers, the numbers, in a manner of speaking, sadly so, are no longer adding up these days.

    Expectedly, many players in the banking sector are worried that things may even get out of hand unless as the year progresses.

    One of those who have raised his voice above the din over the parlous state of the banking sector is Nnamdi Okonkwo, Managing Director/Chief Executive, Fidelity Bank Plc.

    Okonkwo who spoke to these fears on Thursday in Lagos, at a forum to mark Fidelity Bank’s 27 years anniversary, said the first half of 2015 was very tough for the banking industry as a result of the global headwinds as well as regulatory pressure.

    Like Okonkwo, many bankers are equally worried that it is no longer at ease with their sector, what with the dwindling fortunes being recorded by many thus far.

    Genesis of crisis

    It may be recalled that the Central Bank of Nigeria CBN) made some policy pronouncements late last year including the review of capital adequacy ratio 15 per cent.

    The withdrawal of public funds from the money deposit banks among others.

    The apex bank also devalued the naira amid growing domestic and international concerns about the tough outlook facing the Nigerian economy after the collapse of oil prices last year.

    Justifying the need for these policies, the CBN governor, Godwin Emefiele in an interview said that given the major hit to state revenues for the continent’s top oil producer, there was no way to avoid “bad times” for now.

    But he insisted his policies, and not the naira devaluation traders and analysts call for, would curb inflation and bolster depleted foreign reserves.

    “We have begun to get people to refocus               .                      .                      .                      the challenges of the dwindling reserves [are] making people change their paradigms because we are telling people our story and they are beginning to look inwards,” he said.

    Emefiele also dispelled fears that the central bank was overreaching itself and getting involved in industrial policies, stating that beyond the mandate of the CBN to provide price and monetary stability and forex management, it was also the responsibility of the central bank to take actions that would achieve macroeconomic stability.

    “In an attempt to achieve macroeconomic stability, you must take actions that impact positively on the lives of your people. And any monetary or fiscal authority will do that. In the United States, everything is (about) ‘jobs, jobs, jobs’.

    “The Federal Reserve talks about jobs. Every month, Janet Yellen comes and talks about employment. So if you are saying that it is not within the mandate of the central bank governor to put in place policies that will increase job creation, reduce unemployment, increase economic growth and development then you are not right.

    “So what we are doing is taking actions and decisions that will improve the lives of the people and that will make our people look inwards. And those things we are importing right now, we are taking action to say produce them locally, and in the process you create jobs for our people and in the process you are growing the economy.”

    On the current volatility in the parallel forex market, the CBN governor maintained that informal market was shallow and should not serve as a benchmark for determining the real value of the naira.

    Emefiele also insisted the restriction placed on importers of the 41 items had not added depth to the parallel market, stating: “It’s not the policy we introduced in June that is causing it. It is because of the speculative activities, the round-tripping and rent-seeking activities of certain people in the economy that is creating this.

    Besides, the apex bank capped it all with other new policy regime in recent times, including the single treasury accounts, restriction on forex among other policies, may have had adverse effect on banking operations, which rely on cash flows from various economic sectors.

    Global verdict

    Indications that Nigerian banks may be heading into storms as the year progresses is becoming clear if the observation of Financial Institutions is anything to go by.

    In its latest report released by the Director, Financial Institutions, Mahin Dissanayake, Fitch Ratings insisted that Nigerian banks are highly exposed to the domestic market and that the economic slowdown would affect their performance.

    Subsequently, the Fitch has warned that Nigerian banks are heading into financial and operational storms in view of what it called the increasingly difficult conditions under which they are operating.

    It made it clear that the difficult times are likely to result in a sharp deterioration in profitability, asset quality, liquidity and capital ratios.

    “We said the sector outlook was negative in December. GDP figures for 2Q15, released yesterday, show weaker year-on-year growth of 2.4 per cent, down from four per cent in the previous quarter, the slowest quarterly growth rate for over 10 years.

    “The volatile operating environment is highly important in determining ratings for all Fitch-rated Nigerian banks, keeping their Viability Ratings low, in the highly speculative ‘b’ category.

    “Nigeria’s oil sector growth slowed in 2Q15 and non-oil growth was just 3.5 per cent, down from 5.6 per cent in 1Q15. Part of this slowdown was caused by temporary fuel shortages, which caused industrial production and manufacturing output to contract. Lower oil prices, reduced government spending and restrictions on foreign exchange availability are also taking their toll on performance across the economy. Positively, agricultural output, construction, telecommunication services, internal trade and financial services continued to grow.

    “Nigerian banks have had to contend in recent months with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity. These are all credit negative for the sector. Since the beginning of August, public sector deposits, which represent around eight per cent of total system deposits, have exited the commercial banks and must be held at a single treasury account at the central bank. This adds pressure to liquidity. No significant changes in economic policy have materialised following the change of government at end-March 2015, but until a new cabinet is formed and a clear policy framework is announced, uncertainty will weigh on the outlook.

    “Loan growth contracted in 1H15, which is likely to translate to weaker bank financial metrics for the year. We believe sector non-performing loans will rise above the central bank informal cap of five per cent but below 10 per cent of total sector loans by end-2015. Regulatory capital adequacy ratios are likely to fall further due to lower earnings, weaker asset quality and a limited ability to raise capital. Tier 1 capital ratios could fall below 15 per cent for many banks, which is low by historical standards for Nigeria.

    “In our opinion, key financial metrics reported by Nigeria’s banks are likely to continue to decline in the closing months of 2015. A prolonged economic downturn would likely put pressure on bank ratings.”

    CBN may throw in the towel

    Apparently discomfited with the refusal of banks to carry out their core mandate, which includes lending support to drive economic sectors, the CBN said hinted that bailout from the apex bank may no longer be feasible.

    Giving this hint in Abuja, the Assistant Director Development Finance Department of the CBN Mr. Jonathan Tobin at a workshop for Micro Small and Medium Enterprises (MSMEs) funding organised by the Bankers’ Committee, lamented that intervention will not be forever.

    “A day will come when we will close the tap and you will be compelled to lend from your balance sheets. We want to encourage banks to lend.”

    Many banks, the CBN regretted, are not participating because CBN said they should lend from their balance sheets. They don’t want anything to tamper with their balance sheets but immediately it is an intervention fund from the CBN, all banks will jump at it.”

    Tobin lamented that the Nigerian “economy is virtually dying but the banks are declaring billions as profit. But they forget that if the economy collapses everybody will be the worse for it. We have to take some risks.”

    Clear and present dangers

    In the view of financial analysts, the banks are not in the clear as far as their health is concern.

    Sola Alabi, Zonal Manager, Wema Bank Plc, while attempting a prognosis of the imminent crisis in the nation’s financial service sector said the overexposure to risk by some of the banks may have been responsible for the poor showing of banks in recent times.

    According to him, “most of the banks are weak there is no doubt about that. You find that majority of them in their craze for deposits drive finance some projects, especially in the oil and gas sector, where price volatility is now a major problem so, naturally, many recorded losses. The size of their balance sheet is lean.”

    Corroborating Alabi, a staff in one of the old generation banks, who asked not to be named, confided in The Nation that the outlook of the banks leaves nothing to cheer about.

    “Majority of our banks have had to contend in recent months with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity,” he said.

     All this pose negative effect for the sector, he maintained.

    “It is very disheartening to note that since the first quarter of this year, public sector deposits, which represent around eight per cent of total system deposits, have left the commercial banks and must be held at a single treasury account at the central bank. This adds pressure to liquidity.”

    A lot of people, the source said, looked forward to some economic policy changes with the change of government but so far, no significant change has happened, fueling fears that things make progress negatively for the sector.

    However, the question on the lips of many is whether the banks are still safe havens.

    Time will tell.

  • NSIA boss to speak at Banking Sector Report launch

    NSIA boss to speak at Banking Sector Report launch

    Managing Director and Chief Executive Officer of the Nigerian Sovereign Investment Authority (NSIA), Uche Orji, will deliver the keynote address at the launch of the Afrinvest 2014 Nigerian Banking Sector Report on September nineth.

    The event would hold at Oriental Hotel, Victoria Island, Lagos, and will be attended by key stakeholders in the nation’s financial services industry, from both the public and private sector.

    Godwin Emefiele, Governor of the Central Bank of Nigeria, is the Special Guest of Honour. Titled ‘Navigating Growth in a Challenging Environment,’ the 2014 Report, according to Ike Chioke, Managing Director of Afrinvest, “ will x-ray the current conditions of the Nigerian banking landscape within the context of the domestic and global economy.

    “We are excited that Uche Orji, MD/CEO of the NSIA, will be the keynote speaker at the launch; guests can have a better appreciation of the key sectors that the agency is focused on with respect to its remit to catalyse the transformation of the economy, and how the objectives of the NSIA interlink with those of the CBN and the banking industry”, Chioke said.

  • Banking sector credit slides to N13 trillion

    Banking sector credit slides to N13 trillion

    The aggregate banking system credit to the domestic economy stood at N13.09 trillion in July 31, the Central Bank of Nigeria (CBN) Economic Report, obtained by The Nation, has shown.

    The data depicted a decline of 1.6 per cent, on month-on-month basis, in contrast to the increase of 0.5 per cent at the end of the preceding month.

    Also, banking system’s credit to the Federal Government, on month-on-month basis, fell by 26.5 per cent to negative N1.7 trillion, compared with the decline of 13.1 per cent at the end of the preceding month.

    The development was attributed, largely, to the decline in banking system’s holding of Federal Government securities.

    As at December 2011, aggregate banking system’s claims on the Federal Government fell significantly by 251.5 per cent.

    The Federal Government, however, remained a net lender to the banking system at the end of the review month.The report said banking system’s credit to the private sector rose by 1.0 per cent to N14.8 trillion, compared with 1.5 per cent recorded at the end of the preceding month, but in contrast with a decline of 0.2 in the corresponding period of 2011.

    The report said the banking system’s claims on the core private sector rose by one per cent to N14.2 trillion, above the level in the preceding month, compared with the growth of 1.5 per cent at the end of the preceding month.

    The development reflected, a 1.9 per cent rise in DMBs’ claims on the sector. Relative to the level at the end to December 2011, banking system’s credit to the private sector rose by 4.7 per cent.

    At N7.8 trillion, foreign assets of the banking system rose by 3.9 per cent at end to July 2012, in contrast to the decline of 5.8 per cent at the end of the preceding month.

    The development was attributed to the 4.5 and 1.1 per cent increase in the CBN and banks’ holdings, respectively.

    The value of money market assets outstanding at end–July 2012 was N5,950.25 billion, showing an increase of 4.5 per cent, over the level at end-June 2012. The development was attributed to the increase of 9.4 and 2.0 per cent in the value of NTBs and FGN Bonds outstanding, respectively.

    Activities on the Nigerian Stock Exchange (NSE) in July 2012 were mixed.The report said gross federally-collected revenue in July 2012 was estimated at N985.80 billion, showing an increase of 28.6 and 22.1 per cent above the receipts in the preceding month and the 2012 provisional monthly budget estimate, respectively.

    At N632.58 billion, gross oil receipts exceeded both the receipts in the preceding month and the provisional monthly budget estimate.

    This was attributed largely to the rise in receipts from royalties.Also, non-oil receipts, at N353.22 billion (35.8 per cent of the gross federally collected revenue), was 89.2 and 38.7 per cent higher than the receipts in the preceding month and the provisional monthly budget estimates, respectively.