The Nation Newspaper

Tag: Banks

  • 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.

  • Cyber attacks imminent on telcos, banks, corporations

    Cyber attacks imminent on telcos, banks, corporations

    Information Systems Audit and Control Association (ISACA) has raised the red flag for banks, telcos, other financial institutions and large corporations over renewed cyber attacks on their servers by crooks as the year runs to a close and desire to make quick cash increases.

    Its Abuja Chapter President, Opeyemi Onifade, who spoke to reporters as part of preparation for ISACA’s 10th anniversary and yearly conference in Abuja, warned that as a member of the global society, Nigeria cannot be insulated from the opportunities and threats of globalisation.

    To overcome cyber-attacks, he warned, the banks would need to strengthen their cyber resilience through implementation and adoption of process-oriented practices, technology and standards, and engagement of right skills and competencies.

    “We need to understand that we cannot succeed by accident. The cyberspace is now recognised as the fifth domain of warfare in addition to land, air, sea and space. Unfortunately, in Nigeria, our cyberspace domain is still a neglected and unprotected territory. Yet, we depend so much on mobile telecommunications, electronic banking and electronic commerce for our socio-economic survival,” he said.

    Onifade said the internet has become imperative to address Nigeria’s collective capacity to respond to the inevitability of cyber threats, especially Advanced Persistent Threats (APT).

    “The purpose of the majority of APTs is to extract information from systems-this could be critical research, enterprise intellectual property or government information, among other things. Talking about the shift in the motive for hacking (that is compromising the security profile of information systems), you will find that there is an evolution in the motivation for attacks.

    “Motivation for attacks can be explained as being attacked because you are on the internet and you have vulnerabilities. Or because you are on the internet and you have information of value or because of who you are, what you do or the value of your intellectual property (IP). These would include state-sponsored attacks and corporate espionage. According to recent research, Cyber security is a top global concern as 82 per cent of enterprises will experience a cyber-incident in 2015,” he said.

    To him, the government should declare an emergency in the cyber security education domain of the country in order to promote cyber security expertise and create a formidable “army” that would ensure effective national cyber defense.

     

  • States’ bailout: Banks to release funds for salary arrears

    The Central Bank of Nigeria (CBN) has approved the request by Deposit Money Banks (DMBs) to provide financial accommodation to state governments to enable them pay the backlog of salaries of their workers.

    A statement yesterday by the CBN Director, Corporate Communications, Mr Mu’azu Ibrahim, said the statement, the approval was based on the CBN’s decision to collaborate with stakeholders to consider ways of liquidating the outstanding staff salaries owed by state and local governments.

    “The conditions for accessing the loan facility include State Executive Council authorisation, state House of Assembly consenting to the loan package, as well as issuance of Irrevocable Standing Payment Order (ISPO) to ensure timely repayment.

    “Out of the 27 states involved, funds have been disbursed to two states, namely Zamfara and Kwara states, that met the requirements as agreed with their respective banks.

    “Efforts will be made in the coming days to conclude disbursements to other states so that all outstanding salaries to civil servants can be cleared.”

    Earlier in the week, Director-General, Debt Management Office (DMO), Dr. Abraham Nwankwo, said bonds had been released to 14 commercial banks to enable them aid states.

    The DMO boss said the debt restructuring was open to all the 36 states of the federation and the Federal Capital Territory.

    The decision for states to borrow money from commercial banks is sequel to the decision by the National Economic Council (NEC) at its meeting of June 29, requesting the CBN, “in collaboration with other stakeholders to appraise and consider ways of liquidating the outstanding staff salaries owed by State and local Governments.”

    Last week, 11 states recently had their commercial debts to DMBs restructured with a proviso to pay 14.83 per cent of the value of their bonds which their  commercial debts were converted to.

    Dr Nwankwo said: “the restructuring was effected using a re-opening of the FGN-Bond issued on July 18, 2014 and maturing on July 18, 2034. The pricing was based on the yield to date of the bond at a 30-day average, resulting in a transaction yield of 14.83 per cent.”

    The impact of the restructured states’ commercial debts to domestic bonds he said is that “management operations will include: monthly debt service burden will drop by a minimum of 55 per cent and a maximum of 97 per cent, among the eleven; and interest rate savings for the eleven States ranging from 3 per cent to 9 pee cent per annum.”

    Yesterday, Benue State Governor Samuel Ortom said the State Government would access N28 billion facility from the CBN.

    Speaking at the Evangelical Church Winning All (ECWA), Pastor’s conference holding at the Bethany Resort, Gboko, Ortom said loan was approved with single digit interest of nine per cent by the Federal Government as bail out to states owing salary arrears.

    He said N2.5 billion would be for the payment of state government workers’ salary arrears while N15.5 billion would be for local government staff.

    He assured that the money would be used strictly for the purpose for which it was intended adding that repayment had been spread over many years to enable states to stabilise on payment of salaries.

    “ I’ve taken over a state with a debt burden of over N169 billion but I have the faith that God will help us to overcome this and other challenges to the glory of his name at the end of the day,” the Governor stated.

    “I’ll leave Benue better than I met it, by the grace of God”.

     

  • Banks’ dive into auto loans

    Banks’ dive into auto loans

    Many commercial banks are deepening their vehicle finance drive, launching new products and signing pacts with leading automobile firms. From Stanbic IBTC Bank, Access Bank, Skye Bank and others, vehicle financing is the next way to empower consumers, writes COLLINS NWEZE.

    Abiodun Orebiyi, a civil servant based in Lagos, has always dreamt of driving a new car popularly called ‘tear rubber’. But his poor cash flow keeps denying him that pleasure. When he visited the Auto Loan Unit of his bank, he was bluntly told to forget the idea and go for a fairly-used car (Tokunbo).

    All efforts to get the bank to approve the loan were futile because his salary was not sufficient to keep the vehicle in good condition and repay the loan. Orebiyi’s assurances that he has other sources of income fell on deaf ears.

    This is the plight of many Nigerians who are tired of driving used cars but lack the resources to buy a new one. The thirst for second-hand cars is linked to poor income streams and low Gross Domestic Product (GDP). Besides, Tokunbo cars, despite the multiplicity of challenges they pose, are adjudged better than not having a car at all.

    Constant breakdowns and the attendant visits to the mechanic take a huge toll on the pockets of those using Tokunbo cars. It also means that the vehicle owner usually has to jettison more productive activities while awaiting the vehicle’s repair; and for those who rely on the vehicles for livelihood or business, such frequent breakdowns translate to loss of time and revenues.

    Under a partnership scheme unveiled in Lagos involving Coscharis Motors Limited, Stanbic IBTC Bank and Access Bank, fimamce will be provided  for the acquisition of new cars by interested Nigerians, whether unit or fleet buyers, on concessionary terms.

    These include a competitive interest rate,  payment by instalment  and flexible repayment period, simple documentation, speedy approvals and a minimum of 90 percent finance on the value of the vehicle. The scheme covers a wide range of brands under the Coscharis stable. Coscharis Motors distributes brands such as Ford, BMW, Land Rover, Rolls Royce, Jaguar, MINI, Joylong and MG, among others.

    Coscharis said the uniqueness of the financing scheme, which runs for an initial period of 12 months and renewable for another year, is that the customer will contribute a minimum of 10 per cent of the cost of the vehicle while the participating bank will provide the balance.

    According to the company, the scheme thus frees the customer from the difficult task of raising a lump sum, which may run into several millions of naira. In addition, the monthly repayment period is spread over four years, depending on the customer’s preference, which does not only eases the burden of repayment, but ultimately determines the actual amount for repayment monthly.

    It said the package also includes free vehicle registration, maintenance and service support as well as vehicle recovery and emergency assistance.For the vehicles financed, comprehensive insurance has been negotiated at a concession and payment made easy for the clients.

    He explained that the common denominator in this partnership is its potential to accelerate economic empowerment and self-actualisation. “The enthusiasm displayed by the partners at the MoU signing ceremony in Lagos was not misplaced; with the potential to increase the number of new vehicles plying Nigerian roads, economic activities are expected to proceed more efficiently, with the attendant job and wealth creation,” the firm said.

    Coscharis Group Managing Director, Josiah Samuel, said: “The need for the collaboration was informed by some key factors: many corporate Nigerian workers, including the small and medium enterprises, want new vehicles from Coscharis but have inadequate financial capacity to effect outright payment; and most of the SMEs buy fairly used vehicles to run their businesses in order not to drain their working capital.” Implementing the initiative alone, he stated, would have required considerable capital outlay by Coscharis as well as an extensive lead time. The involvement of Access and Stanbic IBTC banks to perform the financing role has solved the challenge.

    The Coscharis chief added that the finance scheme, in offering Nigerians a competitive source of finance to buy new cars, would boost patronage of automobiles, enhance the social status and quality of life of Nigerians, create employment opportunities for many and drive economic development. “What makes this scheme enticing is the fact that it brings within the reach of Nigerians the ownership of brand new and affordable cars, which will in turn enhance economic productivity, protect life and ensure peace of mind, especially against the backdrop of the high fatality rate associated with rickety vehicles plying Nigerian roads.”

    • CEO Stanbic IBTC Holdings, Mrs. Sola David-Borha
    • CEO Stanbic IBTC Holdings, Mrs. Sola David-Borha

    Executive Director, Personal and Business Banking, Stanbic IBTC Bank, Obinnia Abajue, said it dovetails into the bank’s commitment to Nigeria’s economic development as well as building a sustainable environment for people and businesses. He said the main motivation for the deal was to bring the acquisition of new cars within the reach of more Nigerians, with the multiplier effect on social status and economic wellbeing.

    “This partnership is unique in being the first time two financial institutions will be partnering with a leading automobile company, Coscharis Motors, to empower people by making the acquisition of new vehicles of choice stress-free. A dedicated team of experienced professionals from our Vehicle and Asset Finance unit is available round the clock to deliver to Coscharis Motors and its customer’s excellent service and professional advice, in line with the terms of the partnership,” said Abajue.

    With Nigeria’s positive economic outlook and further growth of the middle class, Abajue said  Stanbic IBTC Bank will continue to strengthen its position as the preferred destination for vehicle and asset acquisition financing, including the leasing of assets.

    He said: “We set out with a clear objective to make the acquisition of assets for qualifying businesses and individuals easy and without undue pressure. Also, individuals and corporate organisations are able to acquire or lease assets through the Stanbic IBTC Bank Vehicle and Asset Finance product across a tenor of between six to 60 months.

    “We remain confident that our strategy of building relationships in the automobile marketplace will continue to deliver long-term value to customers and partners, with its attendant positive impact on Nigeria’s economic development. Our partnership with Coscharis Motors is testament to our commitment to the development of Nigeria’s automobile industry.”

    Attracting banks that understand the import of such initiatives and are willing to undertake the risks involved, illustrate the length to which Nigerian banks are willing to go in supporting individuals and businesses. For instance, Stanbic IBTC Bank recently financed the acquisition of Tata buses by Southdrift Investment Limited for operation under the Bus Rapid Transit (BRT) scheme of the Lagos State government.

    The bank’s aim, according to the Head of Business Banking, Mr. Lloyd Onaghinon, is to engender an efficient transport system in the state and across Nigeria, adding that Stanbic IBTC Bank offers short- to medium-term vehicle and asset finance (VAF) facility to qualified customers as well as non-customers. The bank is committed to supporting the BRT scheme and there are other similar requests that are in process. The offer is extended to operators in the agriculture, manufacturing, transportation sectors, and other businesses, for the acquisition of moveable assets such as vehicles for personal or commercial use on competitive and flexible repayment terms.

    Similarly, Stanbic IBTC Bank and Caterpillar Financial Services (Dubai) Limited (Cat Financial), an indirect subsidiary of Caterpillar Inc., a few years ago launched a partnership in which the bank provides a range of financial services to the Mantrac Unatrac Group of Caterpillar dealerships in Nigeria and other markets across Africa, including Ghana, Kenya, Tanzania, Uganda and Sierra Leone. A similar collaboration subsists with Tata Africa Services and John Deere Financial, a division of United States-based John Deere, one of the leading manufacturers of agricultural machinery and heavy equipment globally.

    The bank obviously understands that the major pillars of economic growth and development are infrastructure and transportation. When critical infrastructure in the form of power, transportation and communication are in place, this  stimulates efficiency in economic activity and consequently, drives productivity. In the long run, it is a win-win situation for all stakeholders. In an environment where perceived risk of funding certain projects is very high and where banks and financial institutions would rather fund short-term projects, it is especially commendable that the Stanbic IBTC Bank and Access Bank have chosen to play a pivotal role in revamping Nigeria’s transport industry via the funding of new cars and other equipment.

    Skye Bank Plc has partnered RT Briscoe by providing financing for the Ford brand of cars for people who may not have the bulk cash needed to purchase such cars.

    Under the arrangement, the bank will provide 70 per cent of the cost of the car to its existing and prospective customers during the six-month promo organised by RT Briscoe. The customer contributes 30 per cent of the cost.

    The special arrangement is to complement RT Briscoe’s attractive incentives for aspiring car owners in commemoration of its 10th year anniversary as Ford auto dealers in Nigeria.

    According to a statement, the financing window is available to as many Nigerians who earn a regular income, including business owners with viable and thriving businesses under its Skye Auto finance scheme.

    “All a prospective buyer needs do is make his or her choice from any RT Briscoe outlet and visit any Skye Bank branch with the purchase invoice, 30 per cent of the purchase price and evidence of income,” the bank explained.

    It further said customers who purchase Ford vehicles during the promo period through the bank will enjoy some exclusive benefits such as discounted vehicle prices, two per cent interest rate discount on loans granted for vehicle acquisition, and four-year free labour service on such cars.

    Other benefits include free car delivery on purchase, three-year warranty, eligibility to win another Ford vehicle in a raffle draw, among others.

    Skye Bank has an auto loan scheme for its customers through which such customers can buy a wide range of vehicles after paying their equity contribution of 30 per cent, leaving the bank to provide the balance of 70 per cent.

  • Akwa Ibom admits owing banks N64.5b

    The Akwa Ibom State government has admitted owing commercial banks N64.5 billion.

    This followed criticisms by civil rights organisations and the All Progressives Congress (APC), which urged Governor Udom Emmanuel to make public the state’s debt profile.

    Finance Commissioner Akan Okon addressed reporters yesterday in Uyo, the state capital.

    He expressed the government’s desirability to convert the state’s debt to Federal Government bonds.

    Okon said Akwa Ibom State was taking advantage of the opportunity the Federal Government offered to convert the N64.5 billion debt to bonds.

    According to him, Emmanuel, being a financial expert, adopted the financial engineering method to free up more funds to finance development and other basic services in the state.

    Okon said: “Whereas Akwa Ibom State was paying N3.6 billion monthly to service its loans, going by the short-term instruments of such loans, the Federal Government bond, with long-term financing, will reduce the payment to a mere N300 million a month. This will free about N3 billion for developmental projects. We wrote to the House of Assembly for approval and an enabling law on this arrangement.

    “This is one of the requirements from the Debt Management Office (DMO) for the state to enjoy the approval of benefiting from the Federal Government bond facility.”

    The commissioner said the debt repayment would last 20 years, adding that it would not choke the state’s financial system.

    He dismissed the rumour that the government had barred other commercial banks from operating its account.

    Okon said all commercial banks were allowed to maintain the government’s account, adding that they would only maintain a single unit account that must be captured by the Pay Direct System (PDS).

    Information and Communications Commissioner Aniekan Umanah restated Emmanuel’s commitment to completing ongoing projects.

     

     

  • Equities lose N283b as banks, insurers slump

    It was another major rout for Nigerian equities last week as intense selling pressure dwarfed impressive corporate earnings and bargain-hunting by long-term investors to shave off N283 billion from quoted companies’ market capitalisation.

    Both the aggregate market value of quoted equities and the All Share Index (ASI), the value-based benchmark indices that tracks prices of all quoted companies on the Nigerian Stock Exchange (NSE), indicated a week-on-week decline of 2.69 per cent last week. The market had lost 2.34 per cent in the previous week.

    The downtrend last week further depressed the negative average year-to-date return at the Nigerian stock market to -13.79 per cent. With inflation at 9.2 per cent, inflation-adjusted return opens today at -22.99 per cent. The recession has been compounded by foreign exchange crisis and high cost of funds, which have kept many foreign and domestic investors on the sideline.

    With 61 losers, 11 gainers and 118 stagnant stocks, aggregate market value of all quoted companies on the NSE nose-dived to N10.241 trillion at the weekend as against its week’s opening value of N10.524 trillion. The ASI, which doubles as Nigeria’s sovereign stock market index, closed below its 30,000 psychological point at 29,878.33 points, 827.29 points or 2.69 per cent below its week’s opening index of 30,705.62 points.

    Price trend analysis showed that financial services stocks were the worst in the market-wide depreciation, losing nearly twice the average loss for the market. In spite of half-year earnings and interim dividends by banks, including Guaranty Trust Bank and Access Bank, the NSE Banking Index indicated a week-on-week decline of 4.46 per cent, the highest by any tracked sectoral group. The NSE Insurance Index trailed with a negative return of -4.41 per cent, an unusually large discount for an industry mostly trading at nominal values.

    All other indices showed widespread price depreciation across the sectors. The 40-stock NSE Pension Index, which has significant exposure to financial services stocks, dropped by 4.17 per cent. The NSE 30 Index, which tracks the 30 most capitalised stocks, and the NSE Industrial Domestic Index, which contains Dangote Cement, NSE’s most capitalised stock, mirrored the overall market position with average decline of 2.68 per cent and 2.69 per cent respectively. Losses by Oando and Seplat Petroleum Development Company pressured the NSE Oil and Gas Index to a negative close with average return of -2.73 per cent. The NSE Consumer Goods Index dropped by 0.39 per cent while the NSE Lotus Index, which tracks Islamic-compliant stocks, and the NSE ASem Index, which tracks second-tier stocks, declined by 0.20 per cent and 0.21 per cent respectively.

    Level of activities was above average, driven largely by acquisition trading in the insurance sub-sector and large-volume transactions in the banking sub-sector. Total turnover rose to 4.30 billion shares worth N20.05 billion in 20,219 deals last week as against a total of 1.36 billion shares valued at N12.48 billion traded in 17,867 deals two weeks ago.

    With the acquisition deal on Equity Assurance, the financial services sector accounted for 4.01 billion shares valued at N11.01 billion through 12,655 deals; representing 93.26 per cent and 54.91 per cent of the total equity turnover volume and value respectively. The conglomerates sector staged a distant second with a turnover of 106.98 million shares worth N342.65 million in 1,151 deals. The third place was occupied by the consumer goods sector with 53.38 million shares worth N4.69 billion in 2,856 deals.

    The trio of Equity Assurance Plc; Access Bank Plc, and United Bank for Africa Plc jointly accounted for 3.25 billion shares worth N4.08 billion in 2,830 deals, representing 75.53 per cent and 20.36 per cent of the total equity turnover volume and value respectively.

    The other non-ordinary shares segments continued to tag along. A total of 2,556 units of Exchange Traded Products (ETPs) valued at N981, 146 were traded in 17 deals last week compared with a total of 55,201 units valued at N2.905 million traded in 30 deals in previous week.

    At the Federal Government’s bond market, a total of 7,375 units of Federal Government’s bonds valued at N7.766 million were traded in seven deals last week in contrast with a total of 11,000 units valued at N12.346 million exchanged in four deals two weeks ago.

    Analysts at Financial Derivatives Company (FDC) said the market position had been worsened by many unimpressive corporate earnings. “The half-year 2015 earnings season commenced in the month of July and many listed companies released their corporate results for the period. In line with expectations, most results were unimpressive. Equity markets starved-off system liquidity as fixed income securities became the preferred investment instruments if investors,” FDC stated.

    Analysts at Afrinvest Securities said the market trend could remain unchanged in the meantime. “Given the sustained run of losses in the market and the absence of a catalyst to excite investors, performance is expected to be driven by speculations in the short term, thus, we advise investors to maintain medium to long term investment horizons,” Afrinvest Securities said at the weekend.

     

  • VAT on services of banks and other financial institutions

    VAT on services of banks and other financial institutions

    The Value Added Tax Act Cap V1 LFN 2004 (as amended) imposes a tax known as Value Added Tax (VAT) on taxable goods and services.  Part 2 of the First Schedule to the Act only exempts services rendered by Community banks, Peoples bank and Mortgage institutions from VAT. Accordingly, all banks and financial institutions, except those exempted are required to charge VAT on services rendered by them to their customers and account for same to the Federal Inland Revenue Service.This is in line with Section 2 of the Act, which stipulates that “the tax shall be charged and payable on the supply of all goods and services (in this Act referred to as “taxable goods and services”) other than those goods and services listed in the First Schedule to this Act.

     

    Definition of Bank and other Financial Institutions

    These are legal entities incorporated under the Companies and Allied Matters Act (CAMA)of 1990 and engage in banking and financial activities as defined by the Banks and other Financial Institutions Act(BOFIA), 1991.  They are companies within the financialsector of the Nigerian economy and are either publicly quoted or private companies.  Banks will ordinarily include commercial banks, merchant banks and development banks while other financial institutions will include; finance houses, insurance companies, re-insurance companies,stock-brokerage firms, investment companies and financial consultants.

     

    VAT Liability

    Banks in particular, charge commission, fees, or other charges for services rendered to theircustomers.  VAT calculations are expected to be based only on the charges made forservices rendered.  It should however, be noted that the focus of VAT is on the charges leviedon customers for the consumption of services rendered by Banks.

    The provision of loans and advances does not in itself constitute a vatable service but thereare other ancillary services to the provision of bank loan/advances or bank overdrafts, which arevatable.  The documentation and perfection of loan/overdraft agreements are examplesof such ancillary services and fees charged,which would attract VAT. The resultant interest chargeable on the loans and overdraft is however not vatable.

    Insurance companies’ brokers/agents earn commission, loss adjusters earn fees, surveyors earn fees, brokers earn commission and agents earn commission for various services rendered to the Insurance Companies.  The services which generated these income are vatable services, andeven though the premium received on policies is not vatable as it represents cost of risk tothe insured, the commission paid to brokers/agent from premium will attract VAT; with theburden of VAT being borne by the insurance company itself.

     

    Vatable Services Rendered by Financial Institutions

    In arriving at what constitutes vatable financial services, a distinction should be made betweenactivities that constitute return on investment and consumption of services rendered by financialinstitutions.All charges arising from the services of banks and financial institutions will ordinarily attract VAT and they include among others, the following:

    • Commissions/fees charged on forex trading or remittance;
    • Commission on turnover (COT), ledger fees etc;
    • Legal and other fees chargeable on lease arrangements;
    • Fees charged for advisory services e.g. mergers and acquisition, financial strategy counseling etc;
    • Fees chargeable on public/private issues;
    • Debt conversion fees;
    • Fees/commission on asset trading;
    • Fees earned on fund management;
    • Fees and commissions earned on letters of credit/documentary collection to finance import/export;
    • Commissions on sale of Bank drafts/certified cheques;
    • Fees chargeable on stock-brokerage and trust services;
    • Commissions paid to brokers, reinsurers, underwriters and other insurance agents by an insurer.

     

    Services of Banks and Other Financial Institutions not Liable to VAT

    A simple criteria for determining whether a service is vatable or not is the identification of those activities that constitute return on investment as distinct from those that represent consumption of services. The services of Banks and other Financial Institutions that willnot attract VAT include:

    • Premium on insurance policies;
    • Interest on loans/advances and overdraft facilities;
    • Interest on savings accounts;
    • Interest on bank deposits;
    • Dividends;
    • Interbank placements; and
    • Profit/gain on disposal of government securities.

     

    VAT Registration and Rendition of Returns

    Banks and other Financial Institutions are taxable persons within the provisions of the VAT Act and all services rendered by them are taxable with the exception of the servicesof Peoples Bank, Community Banks and Mortgage Institutions, which are exempted by theVAT Act. These Banks and Other Financial Institutions are to register for tax with the relevant tax office and obtain TIN. VAT returns are tobe made regularly to the relevant tax office within twenty one (21) days after the month oftransaction.

     

    Accounting Procedure and Records to be kept by Banks

    The mode of operation in the banks does not permit the issuance of tax invoices to customers. The VAT charges therefore have to bereflectedin the customers’ statements of accounts in order to enhance disclosure and easy verificationby tax officers. Banks and other Financial Institutions are required to adopt the following simple methods of recording their transactions for VAT purposes:

    (i)      When any service is identified as vatable, internal entries are raised by the Bank for the cost of the service plus 5% VAT.

    (ii)     The Bank is expected to debit the account of the customer accordingly with the cost of the service plus the 5% VAT charged.

    (iii)    Credit the Income account of the Bank or Institution with the income elementof the charge excluding the VAT

    (iv)Credit the FIRS VAT account in the particular Bank or Institution with the 5% VATdeducted from (ii) to arrive at (iii).

    Section 16 subsection (b) provides that where input tax exceeds output tax, the taxpayer will be entitled to refund of the excess tax from the FIRS on production of such documents as theFIRS may, from time to time require.  With regards to banks and otherfinancial institutions, thisis not applicable because of the provision of Section 17 of Value Added Tax Act on allowable input tax, which provides that input tax on any overhead, service, and general administration of any business which otherwise can be expended through the income statement (profit and loss accounts) shall not be allowed as a deduction from output tax.

    It is a common knowledge that the bank and other Financial Institutions render services; they do not produce goods and therefore regarded as final consumer of those goods purchased or servicesrendered to them.  In this connection, all input VAT payable in respect of assets purchasedfor use in the banks and other Financial Institutions should be added to the cost of the assets on which capitalallowances may be claimed.  Similarly, all VAT payable in respect of services consumed by the bank should be regarded as part of normal operational expenses chargeable to Statement of Profit or Loss Account. Under no circumstance should input tax on such items be claimed or deducted from output tax collected.  Banks and other Financial Institutions cannot claim or deduct any input tax suffered.  The entire amount collected on behalf of the FIRS should be promptly remitted in whole as prescribed by the law.

     

    The Central Bank

    The position of the Central bank with regards to VAT payment is not different from that of otherbanks in the system.  The Central Bank performs nearly all the services listed in paragraph 4 aboveand also acts as banker to other banks.  It is therefore expected that VAT would be charged on payments made to it by the banks for vatable services rendered to them.  This makes it necessaryfor the Central Bank to register for VAT purposes.

     

    Offences and Penalties

    Banks and other Financial Institutions have obligations to fulfill under the VAT Act like other taxable or registered persons.  Part V of the Act contains the list of offences and penalties to be imposed.  These include among others:

    • Failure to register within six (6) months of the existence of a bank;
    • Failure to issue tax invoice (debit note showing amount of VAT collected in the case of banks); failure to charge and remit VAT collected;
    • Failure to keep proper records and accounts;
    • Rendition of incorrect or false returns.

    For these offences, stringent penalties are imposed to check possible defaults.

    Banks and other Financial Institutions are taxable persons within the provisions of the VAT Act and all their services are vatable except those specifically mentioned in the First Schedule. Bank officials are strongly advised to familiarize themselves with the provisions of the VAT Act.  Whatever is peculiar to any Bank or Financial Institution in terms of procedures which has not been dealt with in this circular should be referred to the FIRS without delay.

    Finally, where computerization has been established and it is likely to skip these procedures, the FIRS should be notified of the system in operation and how it would take care of all procedures without leaving out anything uncaptured.

     

  • Banks to pay $2b on US foreign exchange settlement

    Nine banks have agreed to pay $2bn (£1.3bn) in settlements to US investors over claims they rigged foreign exchange rates, according to lawyers.

    They are taking action on behalf of investors, including hedge funds and pension funds, who accuse banks of conspiring to manipulate rates.

    The banks include HSBC, Barclays, BNP Paribas, Bank of America, JP Morgan, Citibank, Goldman Sachs, RBS and UBS.

    Lawyer Michael Hausfeld said this was just the start.

    Seven other banks are also being pursued and Mr Hausfeld added that the firm was also considering “concerted” action in London and Asia.

    “While the recoveries here are tremendous, they are just the beginning,” he said.

    “Investors around the world should take note of the significant recoveries secured in the United States and recognize that these settlements cover a fraction of the world’s largest financial market.”

    Traders used their banks’ closed chat rooms, instant messaging systems and emails to manipulate prices.

    Using the kind of colourful language typical in the spate of market rigging cases involving the banks, traders assumed names such as “The Cartel,” “The Bandits’ Club,” and “The Mafia” to communicate and place confidential orders.

    Many of the world’s leading banks have paid hefty fines for fixing rates in the £5.5 trillion a day currency trading markets.

    In May, US and UK regulators ordered $6 billion in fines on six major banks for rigging the foreign exchange market and Libor interest rates.

    The agreements, which have not been broken down into the amounts individual banks will pay, are preliminary and need to be agreed by the district judge.

     

  • ISPON to banks: invest in tech start-ups

    The umbrella body for indigenous software companies in the country, the Institute of Software Practitioners of Nigeria (ISPON), has urged Nigerian lenders to emulate their foreign counterparts by investing in technology startups.

    As technology startups increasingly penetrate traditional banking segments, including payments, wealth management and billing, major global banking giants are not sitting on the sidelines. Six major American banks – Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo – have made strategic investments in 30 technology companies since 2009, according to data from CB Insights.

    A statement endorsed by its President, Pius Okigbo, praised the banks for their foresights in funding various tech startups in the 1990s and 2000s such as Interswitch, ValuCard (Unified Payments Limited), ATMC, Nigeria Interbank Settlement System (NIBSS), Credit Registry and CRC Credit Bureau, all financed by various consortia of Nigerian banks.

    ISPON suggested that a second wave of investments in tech startups would require the establishment of Special Purpose Vehicles [SPVs] following global precedents, as was the case with Citi Bank that incorporated Citigroup Venture Capital business through which it invested in i-Flex Solutions Limited, driving the “FLEXCUBE’ suite of products to adoption by more than 100 financial institutions in over 40 countries.

    Out of the six banks, he added, Citigroup has been the most active primarily through its Citi Ventures, which has invested in fintech startups ranging from Betterment, Jumio and Square. Goldman Sachs has already ventured into fintech startup with thematic investments across payments technology and big data finance.

    ISPON urged the banks to study how Deutsche Bank is building a strong ecosystem for innovations and take a lesson from it. Deutsche Bank would open three innovation laboratories in Berlin, London and Silicon Valley, as part of a EUR1 billion spend on digital initiatives over the next five years.

    According to him, the giant German bank would help the organisation to develop new products and services from three global tech hubs, strengthening its ability to innovate and deepening relationships with smart tech startups.

    He said: “Nigerian banks should take advantage of the huge innovation awakening that is sweeping across Africa and particularly Nigeria to refocus their plans and place their bets on fintech startups. It is particularly sad that no bank is participating in DEMO Africa, a flagship launch pad for emerging technology and trend hosted in Lagos in 2014.  Many venture capitalists from around the world were present.”

    Okigbo said DEMO Africa has already released a list of 30 technology start-ups from across Africa that will pitch at this year’s edition of the event.

    Topping the list of the technology startups with eight representatives is Nigeria and followed by Kenya with six. South Africa is third with three representatives while Ghana, Egypt, Cameroon and Zimbabwe each have two. Uganda, Tanzania and newcomer, Ivory Coast has one start-up each.

    The presence of Ivory Coast on the list of giants is “a strong signal that more African nations are warming up” to the ability of the continent to craft own solutions to various needs.

    The highest represented category on the 2015 list is finance and banking with eight products. Other categories are education, transport and logistics, retail, communication and media and entertainment. “We expect Nigerian banks at the Demo Africa 2015. There is no better opportunity for the banks to cherry pick the nascent tech startups they can place their bets,” he said.

     

  • NIMC to deploy authentication, verification service link to MDAs, banks

    The National Identity Management Commission (NIMC) said it has completed plans to deploy the National Identification Number (NIN) authentication and verification service link to all Ministries, Departments and Agencies (MDA’s) and banks.

    Its General Manager, Information Technology and Identity Database (IT/IDD), Mr. Chuks Onyepunuka, in an interview, said the deployment was part of the commission’s strategy to ensure the success of the  proposed September commencement of  mandatory use of NIN.

    According to him, all government institutions and agencies that require the biometrics of individuals to offer functional services or for security reasons are required by law to key into the NIMC National Identity Database for the purpose of identity management and verification.

    He noted that NIMC has before now, deployed the authentication and verification service link to the office of one of the security agencies and would soon after extend to other security agencies. The NIMC is now set to deploy a pilot phase to MDAs and banks.

    Mr. Onyepunuka further said NIMC is discussing with the MDAs and banks to enable them ascertain the infrastructure to achieve the deployment of the NIN authentication and verification service link to their various offices nationwide.

    He said: “These institutions include the banks, Nigeria Immigration Service (NIS), Ministry of Aviation, Joint Tax Board (JTB), State House, National Universities Commission (NUC), National Pension Commission (PenCom), Joint Admissions and Matriculation Board (JAMB), National Health Insurance Scheme (NHIS), Federal Road Safety Commission (FRSC), Federal Inland Revenue Service (FIRS), and many others.”

    At a commercial demonstration session held at NIMC headquarters, Mr. Onyepunuka said the verification and authentication of the NIN can be done at two levels: the online, which has two approaches, and the offline platform.

    “The online version has the web portal approach used for NIN verification alone; while the desk top is a robust windows based approach that allows an individual or organisation to conduct the NIN, Fingerprint, demographics and document number verification,” he explained.

    He said that on presentation of the NIN or the fingerprints, the individual or organisation requesting such proof shall utilise the online National Identity Management System (NIMS) NIN verification service through the authentication and verification Clearing House to confirm such identity.

    He added: “For the offline platform, on presentation of the National Electronic Identity Card, the individual or organisation requesting such identity, shall authenticate the identity by conducting a Match on Card (MoC) verification an irrefutable offline confirmation by requesting the person to provide his finger prints on a card reading device to enable the matching of the finger print provided with the finger prints stored in the chip of the National eID Card.”

    He further explained that the individual or organisation requesting such a proof has access rights and privileges to determine what category of verification he is allowed to conduct on the individual and what category of data he is allowed to view.

    He urged Nigerians to take advantage of the over 400 enrolment centres nationwide to enrol for the NIN because no government agency/institution, bank, or insurance company, and others offering services and/or involved in transactions requiring the identity of an individual, will be allowed to conduct such a transaction without first demanding for the NIN.

    “Eligible applicants are urged to utilize the NIMC pre-enrolment portal, https://penrol.nimc.gov.ng, to pre-enrol for the NIN before proceeding to any NIMC enrolment centre closest to them for biometrics data capture,” he explained.