The Nation Newspaper

Tag: Banks

  • Banks refund over N60b illegal charges to customers

    The Central Bank of Nigeria (CBN) yesterday said it has made banks to refund N60 billion, $18 million, Euros 26,286 and 6,196 British Pounds illegal transaction charges to customers as at March this year.

    CBN Director, Banking & Payment Systems Department, ‘Dipo Fatokun who disclosed this, said the implementation of the revised Guide to Bank Charges issued to the banking industry in 2013 has helped the regulator to ensure that more illegal charges are refunded to customers.

    Fatokun, who spoke at the ‘Meet The Executive’ forum organised by Finance Correspondents Association of Nigeria (FICAN) in Lagos, said the CBN’s action aligns with its vision to protecting customers interest, which prompted the establishment and implementation of Consumer Protection Framework for the industry.

    He said the apex bank has also directed all commercial banks to resolve disputes arising from use of Unstructured Supplementary Service Data (USSD) channel within three days.

    He said such resolution will help build more confidence in the payment system and bring more people into the financial services net.

    He added that some provisions of the regulatory framework for USSD such as the authentication measures for transactions, International Mobile Subscriber Identity (IMSI), Date of SIM Swap, Date of Device change, International Mobile Equipment Identity (IMEI) among others were meant to make the channel more effective.

    Fatokun, who was represented by Assistant Director, Banking & Payments System Department, Taiwo Oladimeji, said maximum USSD transaction limit remains N100, 000 per customer per day adding that any amount above that requires customer to execute indemnity at the bank.

    Speaking on the theme: Half-Year Review of Developments in the E-Payment Industry and Customer Protection, Fatokun said: “USSD transactions above N20,000 require two-factor authentication (2FA). No USSD financial service should be activated for customer unless the deactivation mechanism is put in place with effect from October, 2018. In addition, the CBN is currently working to properly structure and formalize the sandbox arrangement in Nigeria by collaborating with some infrastructure providers like the Nigeria Interbank Settlement System (NIBSS) to interact with FinTechs”.

    He added that the financial system is undergoing transformation through technology, adding that it is not only peculiar to the financial services sector, but all sectors of human endeavours.

    “We are seeing new operators with technology savvy, more efficient models, and collaborations among new entrants as well as established participants in payments systems in ways that exhibit regulatory challenges. To meet up with the challenges, some countries have adopted regulatory sandbox approach which is not totally novel to the CBN. We are however working to properly structure and formalis e the sandbox arrangement in Nigeria by collaborating with some infrastructure providers to interact with FinTechs,” he said.

    He said a well-functioning National Payments System (NPS) is crucial to the financial sector development as it increases confidence in the financial sector by ensuring a credible, reliable and efficient payment system. He added that in recent years, the Nigerian payment landscape has experienced a lot of innovation, bursting with enterprise and reaching the unbanked and undeserved.

    Speaking further, he said consumer protection, involves a whole range of laws, policies, structures, actions and behaviours designed to protect consumers from the abuse and exploitation of service providers.

    “Consumer protection is critical in improving access and usage of financial products and services.  Ensures that increase access and usage of financial services, translate into benefits for the economy and individuals. Helps protect consumers from probable market abuse and exploitation. Helps consumers benefit from well informed decisions. Helps consumers appreciate how best to use and manage financial products and services,” he said.

  • Banks get units to probe earnings

    Banks are examining  their earnings through their Revenue Quality Assurance Departments, it was learnt at the weekend.

    The departments are helping them to determine if such revenue was genuinely earned or not to protect their brand identity, Chartered Institute of Bankers of Nigeria (CIBN) President Uche Olowu said.

    Banks’ earnings have been a subject of controversy, with customers complaining of illegal charges on their accounts. They also accuse the lenders of not adhering to the Guide to Bank Charges template instituted by the Central Bank of Nigeria (CBN).

    Despite a tough operating environment and the troubled economy, banks posted a strong performance in 2017, with the 10 top lenders recording Profit After Tax (PAT) of N632.24 billion. Eleven mid-tier lenders and small banks earned over N200 billion in PAT within the same period. As the banks enjoyed the windfall, CBN data showed that over N55 billion illegal charges were refunded to customers.

    Olowu, in an interview in Lagos, said complaints over illegal and excessive charges prompted the lenders to set up the Revenue Quality Assurance Departments to ensure that all income is truly earned.

    He said various banks put on the compliance procedure on their own. “The banks are even reviewing charges before their customers come complaining. Revenue Quality Assurance Departments assure the quality of earnings that come into the banks. It is a dent on your own brand if continuously you are having dirt thrown on your system,” Olowu said.

    According to Olowu, what has impacted on bank charges is the cost of doing business, which he described as “very high”. “The banks practically provide everything and there are no freebies. I do not agree or subscribe to charges that have not been agreed on upfront,” he said.

    Continuing, the CIBN chief said: “Please, when you are opening an account, it is clearly stated on the account opening forms that there are no charges outside what you have agreed with the banks. There are banking tariffs but people are so lazy to look at the CBN website to see the approved tariffs. They are all there. There are ones that are negotiable, there are ones that are sacrosanct fees.”

    In his view, no responsible bank will want to go outside what was approved for the charges but admitted that there could be occasional situations where that happens. “That is why I made reference that we have to self-regulate ourselves, ensuring that whatever you are collecting as charges, you really earned it,” Olowu said.

    Speaking on Automated Teller Machine (ATM) charges, he said the machines cost banks money to deliver services. “How do we recover those investments? So, you can really see that in ATM charges, everything is stated there. If you do not want, take for example the alert charges, you do not want, fine. Look at the value you derive from those services. I think the banks are doing very well,” he said.

    According to Olowu, the CIBN determines the rules, ethics and standards of the banking profession but CBN, Nigeria Deposit Insurance Corporation (NDIC) and bank examiners look at the banks’ books to ascertain the quality of their earnings. Besides, the CBN has also set up the Consumer Protection Department (CPD) to ensure that customers are not short-changed.

    “If you are a bank and customers keep writing and complaining about excess charges, how will you feel? Those things affect banks’ brands and speak volume about their governance framework. That is why banks are now self-regulating themselves by putting up department to check illegal charges. We do not want a situation, where you earn today and tomorrow you are asked to refund. We must put a process in place to ensure the revenue is earned. We have continually emphasised that bankers must be truthful in whatever they are doing. The only way to do that is to respect contract,” Olowu said.

    In Olowu’s view, huge bank profits are nothing compared to the huge capital they put at risk to make such income, but he insists that such revenue must be truly earned.

    “When you convert the profits in dollar terms and compare with what happens in Europe or America, you will know what I am talking about. You have not talked about the capital put at risk in deriving those profits. You do not talk about the various funds that were written off, the accidents that happen. So, whether we are making huge profits, people put their money there. They are investors like you and me. We invested in a bank as shareholders; how much are we getting in return? That is where we will know whether they are making humongous profits.”

    “Are they charging within the framework of agreed tariffs? Then you are saying there should be freebies so that they will not make much profits. This is a capitalist economy; we are not in a socialist economy. People have put money to provide services and they should be compensated adequately. For me, it is neither here nor there. I make bold to say that if every other sector performs well the way banking has performed, we will lift this economy out of the doldrums,” Olowu said.

    Praising the development in banking, he said the country was exporting banking. “ We are almost everywhere around the West Coast; we are dominating. We have perfected the system, whereby people get money and get alerts. The banking sector is attracting the best brains. It is not just about efficiency, but about deploying capital affectively. This issue of huge profit is misplacement as far as I am concerned,” he said.

    On how such complaints are being resolved, he said: “First and foremost, you have to realise that there is a Bankers’ Committee Sub-Committee on Ethics in the CIBN. The committee members, headed by a sitting bank managing director from any bank, meet to look at customers’ complaints and resolve them. We have had cases of banks refunding, and cases of letting the customer know that there is no case against the bank and they resolve it amicably.”

     

  • Banks face tough margins as yields dip

    • Profit rises to N256b

    ABOUT two-thirds of banks witnessed a contraction in their profitability in the first quarter (Q1) of this year,  struggling between relatively steady income lines and declining yields on transactions.

    The Nation’s Market Intelligence showed that increase in actual earnings in Q1 ended March 31, 2018 masked varied declines in underlying profitability. The report underlined the ability of top-tier banks to withstand shocks compared with less-capitalised banks, most of which showed considerable vulnerability.

    Average profit-making ability of the banking industry declined by 48 basis points to 19.19 per cent in first quarter of the year compared with 19.67 per cent recorded in corresponding period of last year.

    Pre-tax profit margin-which measures the underlying profitability of a corporate’s transaction and a global standard for measuring profitability while the analysis covered all quoted commercial banks that have so far submitted their first quarter report was used.

    Quoted banks account for more than 90 per cent of the industry and the surveyed banks account for more than 95 per cent of earnings by quoted banks.

    There are 16 banks listed on the Nigerian Stock Exchange (NSE) including Diamond Bank, Ecobank Transnational Incorporated, Fidelity Bank, Guaranty Trust Bank, Jaiz Bank, Sterling Bank, Union Bank of Nigeria, Wema Bank, Stanbic IBTC Holdings, Access Bank, United Bank for Africa, Zenith Bank, FBN Holdings, Skye Bank, Unity Bank and FCMB Group. Only Skye Bank, Unity Bank and FCMB Group have not submitted the three-month Q1 results. The results of the three banks are regarded as fractional figures and will not change the overall outlook of the industry.

    Guaranty Trust Bank-Nigeria’s most capitalised bank still retained the highest profit-making capability in the industry, although pre-tax profit margin slipped marginally from 48.39 per cent in first quarter 2017 to 48.29 per cent in first quarter 2018. In actual, Zenith Bank took the lead with the largest pre-tax profit of N54 billion in the period under review. Diamond Bank had the least profit-making capacity during the period with pre-tax profit margin of 2.58 per cent, a major contraction from 10.21 per cent recorded by the bank in first quarter 2017.

    Altogether, the surveyed banks recorded total profit before tax of N255.86 billion as against N229.01 billion recorded in Q1, 2017. Gross earnings for the three-month period ended March 2018 stood at N1.12 trillion as against N1.056 trillion recorded in corresponding period of 2017. After taxes, net profit also increased from N191.85 billion in 2017 to N217.85 billion in 2018.

    Many analysts and bank executives still regarded banks’ performance during the period under review as a positive outlook, expressing optimism that the banks would ramp up performance in the next quarters.

    “GTB’s Q1 2018 results are tracking slightly ahead of consensus 2018 estimated profit before tax forecast of N203 billion. Consequently, we expect to see modest upward revisions to consensus 2018 estimated profit before tax forecasts and a positive reaction from the market,” analysts at FBN Quest stated.

    Group Managing Director, United Bank for Africa (UBA) Plc, Mr. Kennedy Uzoka, said the group’s first quarter was impressive given the intensifying competition and moderation in yield environment in Nigeria and Ghana.

    According to him, the result is a good start to the year and a reflection of the bank’s capacity to sustainably grow earnings over the medium to long term.

    “We recorded 18 per cent growth in gross earnings, as both interest and non-interest income grew 18 per cent and 19 per cent respectively. Notwithstanding the moderation in sovereign yield in Nigeria and Ghana, we achieved a 60 basis points improvement in net interest margin to 7.6 per cent, as we extract efficiency gains from balance sheet management,” Uzoka said.

    He expressed optimism on the steady recovery of the economy and improving fundamentals of most African countries, where the bank operates.

    “We are committed to exceeding our 2018 deposit growth target in the year, with strategic focus on retail, low cost savings and current accounts, which is critical to sustaining our net interest margin uptrend,” Uzoka said.

    Managing Director, Sterling Bank Plc, Mr. Abubakar Suleiman, said the bank’s performance in first quarter 2018 was a promising start to the year.

    “We are pleased to be starting 2018 on a good note, by sustaining the strong performance delivered in 2017 with growth across key financial indices. This demonstrates strength and is indicative of our outlook for the financial year,” Suleiman said.

    He said the bank has continued to experience a significant improvement in asset quality as cost of risk declined by 140 basis points to 0.8 per cent by first quarter 2018 from 2.2 per cent in 2017 while the 65 per cent growth in net profit has improved Return on Average Equity by 410 basis points to 12.8 per cent.

     

  • ‘Banks lost over N12b to fraud in four years’

    The banking sub-sector lost N12.30 billion to various form of frauds from 2014- 2017, Managing Director of the Nigerian Inter-Bank Settlement System (NIBSS), Adebisi Shonubi, has disclosed.

    Shonubi made this disclosure over the weekend at the third Annual Banking Security Summit organised by MAXUT Consulting in partnership with OneSpan, global data Security Company in Lagos.

    Shonubi said that the figure was lost on 41,461 fraud volumes within the covered period.

    Specifically, he noted that 2014 fraud volume stood at 1,461, 10,743 (2015), 19,531 in 2016 and 25,043 in 2017.

    While making his  remarks at the summit, tagged: ‘Digital Channels & Open Banking Security,’ Shonubi said the industry lost N6.22 billion in 2014 on attempted fraud value of N7.76 billion.

    The NIBSS boss, who was represented by Mr Olufemi Fadairo, Head, Industry Security Services, said N2.26 billion was lost in 2015 on attempted fraud value of N4.37 billion in 2015.

    According to him, the industry lost the sum of N2.19 billion in 2016 on attempted fraud value of N4.37 billion.

    Shonubi said gender fraud analysis during the period showed male accounted for 73 per cent while female accounted for 23 per cent.

    He said that more fraud cases were reported in 2017 with an increase of 28 per cent when compared with 2016 but with less financial loss.

    On fraud channel, Shonubi said that Automated Teller Machine (ATM) accounted for the highest fraud in 2017 with an actual loss of N497.64 million with a fraud volume of 9,823.

    He said that mobile trailed with N347.65 million losses on 5,055 fraud volumes while across the counter transactions accounted for N259. 02 million losses in 314 fraud volumes.

    He said that “While fraud trend is generally on the decline, mobile fraud trend alone is on the increase.”

    Speaking further, he hinted mobile fraud would overtake ATM fraud by 2020 with the rate of increasing fraud in the channel.

    He listed the top three mobile threats in Nigeria to include phone theft, sim swaps and kidnaps.

    He, however, called on Nigerians to shield themselves by ensuring phone lock, sim lock, swap/recycle checks.

    CEO/President MAXUT Consulting, Mike Odusami, said the summit was organised for people to exchange ideas and chart a way forward to plug every hole that fraudster could take advantage of to defraud bank customers.

    “Our solution as a technology company is really about fraud prevention; safeguarding the customers, identifying and authenticating the person and making sure that this is the person the bank authorises because most of the transactions are not physical, they are done through electronic channels.

    “And also in the background, we are monitoring everything that is go on in the system that is fraud monitoring and we have helped a lot of banks and financial institutions to do that,” he said.

    Odusami said that the company was committed to make the banking system safer for people to have confidence in the system by preventing.

    He said that the Nigerian banking system was advanced and not lacking behind in terms of digital banking.

     

  • What $2.5b currency swap deal means for banks, economy

    The much-awaited guidelines for the $2.5billion currency swap deal between the Central Bank of Nigeria (CBN) and The Peoples Bank of China (PBoC) have been unveiled. The deal will widen the trade window for local banks and increase their revenues. But, it could worsen the widening trade gap between Nigeria and China. The deal, which is valid for three years in the first instance, is renewable if approved by both countries. COLLINS NWEZE writes on what the Federal Government must do to reap the benefits of the deal.

    Local banks stands to gain from the $2.5 billion currency swap deal between Africa’s largest economy, Nigeria, and the world’s second largest economy, China.

    The economies of both countries need each other, and so do their businesses and banks. The banks in both countries are not only going to be earning fees from the ensuing transactions, but will begin new lending to businesses.

    These gains and the need to keep the naira stable prompted the Central Bank of Nigeria (CBN) to sign the bilateral currency swap agreement with the People’s Bank of China (PBoC).

    In local currencies, the swap is worth 15 billion Renminbi (RMB) or N720 billion. The three-year renewable  deal  will  allow  for  the  direct exchange of RMB and naira for the purpose of trade and direct investment between both countries.

    According to the PBoC, the aim of the swap arrangement is to facilitate  bilateral  trade,  direct  investment,  and  safeguard financial market stability. The trade is expected to reduce the demand for United States dollar by Nigerians importing from China and consequently  strengthen  the  value  of  the  Naira.  The deal will reduce  certain  barriers  for  Nigerian  importers  of  goods  from China   and   reduce   the   cost   of   transactions   in   multiple currencies.

    FSDH Research has therefore reviewed the historical trade position between Nigeria and China to determine the benefits of the swap deal. Its review in the last five years shows that Nigeria’s imports from China are higher than the exports to China, leading to a negative trade  balance.

    China  has  been  one  of  Nigeria’s largest  import  partners  over  the  last  five  years, with  imports from  China  accounting  for  an  average  of  20.95 per cent  of  total imports   between   2013   and   2017.

    Imports   from   China increased  by  21.16 per cent  from  N1.48  trillion in  2013  to  N1.79 trillion in 2017. On the other hand, Nigeria’s exports to China averaged just 1.50 per cent  of  total  exports  over  the  period.  Exports  to  China increased  by  28.99 per cent  from  N171  billion  in  2013  to  N220.57 billion in 2017.

    FSDH  Research therefore considers that  while  the  currency  swap agreement may improve foreign exchange stability and aid external   reserves   management   to   a   certain   extent,   it presents downside risks.

    “The fact that it removes some trade barriers between the two countries may increase Nigeria’s imports    from    China.    This    development    without    a corresponding increase in Nigeria’s  exports  to  China  will further increase Nigeria’s trade deficit with China. Nigeria needs to develop competitive advantage in the production of certain  exportable  goods  that  China  currently  imports  in order  for  Nigeria  to  get  the  full  benefit  from  this  currency swap deal,” the research firm said.

    Speaking on the development, Chief Economist at Renaissance Capital (RenCap) Charles Robertson, said the $2.5 billion bilateral currency swap agreement is expected to boost Nigeria’s foreign reserves.

    Speaking during the investors’ conference organised by RenCap in Lagos, he said the deal would reduce the use of the third currency, mainly dollars in the transaction chain.

    Nigeria’s ability to provide support, particularly in foreign currency to commercial banks and importers was weakened by falling oil prices eroding the country’s forex reserves and foreign currency revenues.

    Also, in an emailed note to investors, Afrinvest West Africa Limited, an investment and research firm, said the currency swap deal’s impact will be noticed in periods of forex rate volatility and/or scarcity in the country.

    In the report titled: Gains of the Bilateral Currency Swap Agreement between the CBN and PBoC, Afrinvest said consequent on the opening of the “Swap Line”, both central banks would exchange a stock of their local currencies (RMB 15 billion /N720 billion), which could either be extended by mutual consent at expiration in 2021 or reversed.

    Afrinvest Managing Director, Ike Chioke, said the pact, which was as a result of over two years negotiations between both banks, would provide adequate local currency liquidity for Nigerian and Chinese industrialists and other businesses in order to reduce their difficulties in the search for a third currency.

    “We view the agreement as a positive development, given the foreign currency liquidity squeeze Nigeria frequently experiences and the strong trade and investment ties between the two countries. According to the trade statistics by the National Bureau of Statistics (NBS), merchandise trade between China and Nigeria reached a record high of N2 trillion in 2017 (8.7 per cent of total Merchandise trade), thus making China Nigeria’s third largest trading partner after India and the United States (accounting for 12.5 per cent and 10.8 per cent of merchandise trade respectively),” he said.

    Also, the Balance of Trade is heavily tilted in favour of China as imports from China in 2017 (N1.8 trillion) was eight times Nigeria’s export (N220.6 billion) and accounts for 20.9 per cent of total imports in the last five years.

    “This is clearly suggestive of Nigeria’s growing dependence on China, much like most of the rest of the world, for manufactured products and industrial inputs, reinforcing the importance of this currency swap agreement for Nigeria’s import dependent manufacturing and trade sectors which jointly contribute 27.8 per cent to Gross Domestic Product (GDP),” he said.

    Besides, given the established strategic importance of China as a major trade partner, the bilateral currency swap agreement will be beneficial to the Nigerian economy in several ways.

    “First, it would reduce currency transaction cost for importers and ease forex liquidity pressures in periods of forex rate volatility and/or scarcity. The implementation of this currency swap will also enhance financial stability and external reserves management by reducing the volume of forex interventions in the local market needed to fulfill imports demand,” he said.

    Lastly, he added that the agreement could serve as a risk management and unconventional monetary policy tool as probable losses resulting from transactions affected by volatility in the local currency could be hedged and minimised.

    “As an unconventional monetary policy tool, in managing third currencies pressures and liquidity, the importance of the bilateral currency swap agreement between Nigeria and China cannot be neglected. Whilst we are excited by the symbolism of this agreement, we also note that the impact on the economy will be limited by the relatively small size of the Swap Line, which could barely cover 40 per cent of Nigeria’s Chinese import in a single year,” he said.

    He however, highlighted a key downside risk to the agreement, which is that the ease of transaction with a highly competitive country like China could worsen Nigeria’s trade balance and weaken domestic manufacturing capacity. “We think this concern is justified, particularly in a period of heightened trade skepticism. Yet, it also emphasizes the need to deepen domestic policies on improving competitiveness,” it said.

    Former Executive Director, Keystone Bank, Richard Obire, said as middlemen, banks in both countries will earn new fees, and initiate new credit facilities for merchants. “The currency swap deal will expand the capacity on what the banks can do. Besides, customers in both countries will have their transaction base expanded, including new opportunity to import or export equipment, raw materials and finished goods,” he said.

    Obire explained that Nigeria need to take measures that will ensure it begins to export finished products to China, and such would create jobs and capacity at home. “We are currently at the raw materials exporting stage and until that is changed to finished goods export, Nigeria may not get the full benefits of the deal,” he said.

  • Ex-bankers insist CBN, others must pay N9.8bn entitlements

    Over 10, 000 ex-staff of banks have reiterated their determination to get their over N9.8billion entitlements from their former employers.

    The former bankers who hitherto filed a class action suit through the Registered Trustees of the Association of Ex-Staff of Non-Consolidated Banks of Nigeria and all ex-staff of eight banks not consolidated in the banks consolidation exercise at the National Industrial Court, Lagos Judicial Division, had last week undertaken to appear in court as individuals to press home their demand.

    They had sued the Nigeria Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria (CBN) over nonpayment of their N9.8billion gratuities 12 years after they were retrenched.

    Also joined in the suit are Ecobank Nigeria Plc, UBA Plc, Skye Bank Plc and Zenith Bank Plc.

    A breakdown of the claimants’ gratuities showed that Allstates and Hallmark Bank both acquired by Ecobank were owed over N7billion.

    Besides, UBA which acquired Gulf Bank, Liberty Bank, Metropolitan Bank and Trade Bank owed ex-staff of the respective banks over N1.3bn just as Skye Bank and Zenith Banks were owed over N600m and N22million.

    During their first appearance last week at Court 9 presided over by Justice Mustapha Tijani, the claimants’ counsel Daniel Omotilewa recalled that following the N25billion recapitalisation benchmark set by the apex for banks under the ‘Guidelines and Incentives on Consolidation in the Banking Industry,’ the CBN had assured that those whose employment would be jeopardised as a consequence of the exercise will be paid their due entitlements in line with industry standards and even provided with soft loans to set up their small and medium scale enterprises (SMEs).

    Justice Tijani while taking the claimants’ lawyer pleas observed that the defendants’ lawyers were not properly served.

    Speaking further, Justice Tijani said since the case was just brought up for mentioning enjoined all the parties to be properly served. He therefore moved for the adjournment to July 9th, 2018, since according to him, the case was just for mention.

    In a chat with The Nation, the claimants’ counsel said his clients had a prima facie case against the CBN, NDIC and their former employers. “We are coming as individual, but rather than each of us filing different cases. You know the provision allows bringing the actions together to prevent multiplicity of actions. The action is basically against CBN and NDIC. They want their remunerations to be paid.”

    Also addressing journalists, Magnus Maduka, the chairman of the group said it was disheartening to note that over 100 members of the group have faced their untimely death as a result of the inhuman conditions they had been subjected to these past years.

     

  • Banks to open Renminbi accounts in China

    The Central Bank of Nigeria (CBN) yesterday released the operational guidelines for the $2.5 billion currency swap agreement between Nigeria and China.

    The Peoples Bank of China (PBoC) – CBN) Bilateral Currency Swap (BCSA) regulations for transactions with authorised dealers in Renminbi, signed by CBN Director, Financial Markets Department, Alvan Ikoku, showed that commercial and merchant banks participating in the CBN bi-weekly Renminbi bidding are required to open Renminbi accounts with a correspondent bank in China.

    The details of such accounts, which may either be with a bank onshore or offshore China, will be given to the CBN.

    There will be no predetermined spread on Spot foreign exchange transactions executed through the CBN-Renminbi intervention. Authorised dealers may earn not more than 50 kobo on a customer’s bid, according to the guidelines.

    The deal is aimed at providing adequate local currency liquidity for Nigerian and Chinese industrialists and other businesses in order to reduce their difficulties in the search for a third currency, mainly the United States dollar.

    The guideline is backed by the statutory mandate of the CBN as set out by the CBN Act 2007. The BCSA is for a maximum amount of Chinese Yuan (CNY) 15 billion for N720 billion with a three-year tenor.

    According to the guideline, the swap agreement allows for both banks to among other purposes, make available liquidity in their respective currencies for the facilitation and promotion of trade and investments across the two nations. This will be done through the purchase, sale and subsequent repurchase and resale of the Chinese Yuan (CNY) against naira and vice versa.

     

    Also, the CBN, acting on the CBN Act, 2007, and Bank and Other Financial Institutions (BOFIA), issued regulations on the currency swap which mandated that funds from the policy should be used to finance trade, and direct investment between Nigeria and China.

    The funds will also help to maintain financial market stability, and for other purposes that both parties may agree on.

    According to the regulations for transactions with authorized dealers in Renminbi, importers intending to import from China shall obtain Proforma invoice denominated in Renminbi as part of the documents required for registration of Form ‘M’. Also, forex purchased in the window will not be used for payments on transactions in which the beneficiaries are not in China.

    Authorised dealers, deposit money banks and merchant banks, shall not open domiciliary accounts denominated in Renminbi for customers. “Modes of payment shall be in line with memorandum nine of the foreign exchange manual showing that for letters of credit transactions, all negotiating documents and or shipping documents as may be applicable, must be routed from the beneficiary/ supplier through his/her bank to the issuing bank. For the avoidance of doubt, on no account must a bank endorse or pay on documents that do not comply with the routing outlined above,” the guideline showed.

    It added that on bills for collection, documents must be routed to the issuing bank either directly from the supplier’s bank or through the offshore correspondent of the issuing bank. Also, the documents in respect of ‘Not Valid for forex transactions shall be routed by the supplier directly to the applicant’s bank that validates the underlying e-Form ‘M’.

    Besides, the CBN may conduct bi-weekly Renminbi bidding sessions even as the Renminbi sales shall be applicable only to trade-backed transactions.

    “Importers and exporters shall continue to pay applicable levies on imports and exports respectively while authorized dealers are required to utilize funds within 72 hours from the value date, failing which such funds must be returned to the CBN for repurchase at the bank’s buying rate. The CBN shall debit authorized dealers’ current account on the day of intervention with the naira equivalent of the Renminbi bid request. Bids shall be settled spot through a multiple-price book bidding process and will cut-off at a marginal rate to be disclosed after the conclusion of the Special SMIS-Retail process,” it added.

    The CBN reserves the right not to make a sale if in its opinion, the exercise does not provide an effective price for the determination of the naira/ CNY exchange rate, in which case, the CBN may choose to offer another special Secondary Market Intervention Sales (SMIS) retail or wholesale session.

    The CBN said the provisions of the regulation shall apply along with all existing CBN guidelines, circulars and directives on the operations of foreign exchange market. The regulation may also be amended from time to time as the bank may deem necessary.

  • Banks to adopt N360/$ rate for 2018 results

    Commercial banks are expected to adopt N360/$ exchange rate in reporting their 2018 financial results, a report from Exotic Capital, a developing market investment bank, has said.

    The rate contrasts with the N330/$ rate reported by the lenders in their 2017 financial accounts, but will also come with diverse implications that include raising the level of non-performing loans or  provisioning needs of the lenders.

    The report, titled: Nigerian Banks- Notes from the field: reasons to be positive made available to investors yesterday, said shifting from N330/$ to N360/$ reporting exchange rate could also be a translation gains for those banks with long-term foreign currency deposits.

    It is also likely to have a negative impact on capital ratios since non-performing loans are skewed towards foreign currency. “Banks reported financial year 2017 results at a N330/$ exchange rate, but there is an expectation that a shift to N360/$ will take place before year-end,” the report said.

    Banks had adopted diverse exchange rates in reporting foreign currency assets in their financial statements. The banks’ action falls below the International Financial Reporting Standards (IFRS) which the lenders are expected to comply with.  The IFRS guidelines state that companies operating in countries with multiple exchange rates should translate their foreign currency assets and liabilities into local currency based on the exchange rates at which they expect to settle them. But the guidelines leave room for considerable judgment and flexibility, and Nigeria operates with multiple exchange rates, which adds to the confusion.

    The need for uniform exchange rate reporting becomes exigent as exchange-rate risk warrants scrutiny for banks as about 40 per cent of assets and liabilities in Nigeria’s banking sector are denominated in dollars and not all banks operate with matched foreign currency positions.

    According to the Exotic Capital report, “Emerging market investor risk-aversion has increased, and the Central Bank of Nigeria (CBN) has recently tightened banking system liquidity in order to protect the currency. The upcoming election is limiting risk appetite for corporates, banks, and investors. Falling margins, due to lower T-bill yields, but also potentially lower loan yields (if interest rates decline)”.

    On market liquidity, the report said main focus of the CBN’s liquidity management drive via its open market operations (OMO) last year was to control foreign currency demand. It said stabilisation securities were also issued in 2017 – this involved the CBN issuing T-bills to the banks at below-market yields, meaning the banks would not be able to sell these into the market without registering a loss.

    “Another reason why liquidity was tight last year was the TSA transfers (which took place in three tranches over the year) as well as the removal of NNPC (Nigerian National Petroleum Corporation) deposits from the banking system. Additionally, while the official cash reserve ratio level is 22.5 per cent, effectively it can be as high as 30 per cent for some banks, as the CBN periodically demands higher statutory deposits from banks with rising customer deposits, without granting refunds when customer deposit levels decline,” it said.

     

     

    On treasury yields, the report said such yields  have generally been declining in response to the CBN’s less aggressive stance on liquidity tightening and the market pricing in further

    interest rate cuts. “For some banks, mix shifts (e.g. moving from large loans to smaller balances) could be a positive support for asset yields. The cost of funds is likely to fall in second quarter as some of the expensive wholesale funding that the banks took on in October/ November 2017 matures. In addition, the cost of customer deposits has declined as current/savings account deposit collection has improved. Improving cost of funds is a key management objective for several of the banks. Retail savers are being

    aggressively targeted to help achieve this goal”.

    The Exotic Capital report said volatility relating to the upcoming elections could be an issue that erodes foreign appetite for Nigerian assets in the coming months, and also potentially re-opens the door to speculative trading of the naira.

    “This is another reason why an aggressive rate cut is viewed as unlikely before the election. Aside from what is happening at the CBN, the commercial banks are focusing on attracting low cost customer deposits and shifting out of time deposits. This will help manage margin declines from falling T-bill yields. One of the key initiatives is utilising technology to get more people into the banking system, and to help generate cheaper and more stable current accounts. Banks are also embracing the use of agent networks to reach lower income customers more economically,” it said.

    On a positive note, the report said technology is helping to lower customer acquisition and transaction processing costs, potentially opening up a much larger retail customer base for the banks. It said: “Accelerating loan growth and lower interest rates, allied to higher oil prices, are key positive drivers.

    In addition, loan books have now become seasoned – most exposures are around three to four years old. The biggest stresses in the loan book took place in 2016, but now borrowers are doing better”.

  • Banks’ daily CBN loans hit N216b

    Banks’ average daily loan requests from the Central Bank of Nigeria (CBN) stands at N216.34 billion due to the apex banks’s tough monetary policy, according to a CBN’s Financial Market Department Annual Activity Report.

    The Monetary Policy Rate (MPR) – benchmark interest — has remained at 14 per cent since July 2016 despite rising calls from economic experts for a lower interest rate. This has raised banks’ demand for CBN’s loans to boost their liquidity.

    The loans, which came as Standing Lending Facility (SLF), were for each of the 246 days captured in 2017, out of which Intra-day Liquidity Facility (ILF) conversion was N130.63 billion, representing 60.38 per cent of the total request.

    The report released at the weekend, showed the average daily interest charged was N159.96 million.

    The SLF and SDF were available for market participants to square up their positions or invest excess funds at the close of business. Similarly, Intra-day Liquidity Facility (ILF) was accessible as temporary credit to the banks to meet their funding needs within the operating hours of the CBN Inter-bank Funds Transfer System (CIFTS).

    The report signed by CBN Director, Financial Markets Department, ALvan Ikoku, attributed the bank’s rising borrowing from the CBN to tough monetary policy measures, which kept the Monetary Policy Rate (MPR)-benchmark interest rate at 14 per cent throughout the year.

    “In 2016, the average daily request for SLF was N130.47 billion in 207 days, out of which ILF conversion was N84.62 billion, while average daily interest income was N94.76 million. The higher patronage at the window in 2017 reflected the effect of the tight monetary policy stance,” it said.

    Ikoku said banks requested the standing facilities to square-up their positions by borrowing from the CBN (SLF) or depositing excess funds (SDF) at the end of each business day. “The trend at the window showed more frequent recourse to the SLF, than in 2016 due to the tight monetary policy stance. The threshold for daily deposits per institution at the SDF remained N7.5 billion in the CBN thrust to curtail unbridled requests by market participants and encourage lending to the economy. Applicable rates for the SLF and SDF also remained 16 and nine per cent. The rates were anchored to the MPR,” it added.

    According to the report, patronage    at    the    SDF    window declined to an average daily amount of N41.90 billion for  the  230  days in 2017, from N76.11 billion for the 246 days in  2016.

    It said the average daily interest    payments    on the deposits decreased to N14.86 million in the review period,  from  N20.01 million  in  2016. The reduced volume of transactions in the year  was  due to tight monetary operations and the sale of foreign exchange to authorized dealers.

    “Liquidity management was conducted through the use of Open Market Operation (OMO) as the main instrument of monetary policy, complemented by discount window activities, CRR and interventions in the foreign exchange market,” it added.

    The financial market report said the challenge of curtailing inflation, promoting increased capital inflows and restoring the economy to the path of growth was paramount in the bank’s policy mix.

    “In continuation of the contractionary monetary policy stance, the thresholds of the monetary policy instruments showed that MPR was retained at 14 per cent, with an asymmetric corridor of+200/-500 basis points for the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF), respectively.

    In addition, the CRR and Liquidity ratios remained 22.50 and 30.00 per cent, respectively,” it added.

    It said the liquidity levels in the banking system were influenced by periodic fiscal injections (comprising Statutory Revenue Allocation (SRA), Value Added Tax (VAT), non-oil revenue and the refund of the Paris Club deductions, amongst others).

    The report said withdrawal of naira by the CBN through the sale of foreign exchange drained liquidity further and pushed market rates upwards

  • Banks to keep N1b collateral for OTC deals

    •CBN Deputy Governor to quit

    Commercial banks  were yesterday directed by the Central Bank of Nigeria (CBN) to pledge N1 billion collateral in Government/CBN Securities to participate in Over-the-Counter (OTC) trade settlement.

    A circular to all Deposit Money Banks (DMBs) signed by CBN Director, Financial Markets Department, Alvan Ikoku, attributed the policy to the regulator’s plan to enhance efficiency in trading and post-trade activities. The policy, it added, will also help build confidence in the financial markets.

    The pledge requirement, Ikoku said, is mandatory for all DMBs that wish to participate in OTC trade settlement. “Lack of provision for the pledge or failure to top-up a pledge when required will result in exclusion from the market. The circular takes effect from June 1, 2018 (today),” he said.

    Meanwhile, President Muhammadu Buhari has formally accepted the disengagement of the Deputy Governor in charge of Operations at the Central Bank of Nigeria (CBN), Adebayo Adelabu, with effect from July 15, 2018.

    In a letter dated May 24, 2018 and personally signed by him, President Buhari thanked Adelabu for his services to the country and wished him the best in his future ambitions.

    Mr. Adelabu formally assumed duty as Deputy Governor at the Central Bank of Nigeria (CBN) on April 9, 2014 and served at different times as Deputy Governor in charge of Financial System Stability (FSS), Corporate Services (CS), and lastly Operations (Ops), before he tendered his letter of disengagement.