The Nation Newspaper

Tag: Banks

  • Banks may cut dividend payout rate

    Banks may cut dividend payout rate

    Banks may again cut their dividend payout rate in the year as  banks seek to manage credit risks and liquidity amid constraints orchestrated by the policies of the Central Bank of Nigeria (CBN).

    The latest update on the banking sector by the global finance and investment firm, Exotix, indicated that banks may cut dividend payout rate for the second consecutive year this year. Exotix has significant imprints in Africa. It coordinates its global operations through five major offices in London, New York, Lagos, Dubai and Nairobi.

    According to Exotix, it is expected that Nigerian banks would cut their average dividend payout ratio to 26.3 per cent in the 2015 financial year as against an estimated payout rate of 32.5 per cent for the 2014 financial year and 43 per cent for 2013.

    The report noted that some banks may have to raise additional capital to sustain minimum regulatory capital adequacy and liquidity ratios.

    The report outlined that most banks would likely de-risk their balance sheets this year by reducing their loan to deposit ratios.

    “Although the primary motivation for the rebalancing is to improve balance sheet liquidity and take advantage of rising government bond yields, we believe it should have the added benefit of reducing banks’ risk weighted assets to total assets ratios and thus reduce the pressure on capital adequacy. We estimate the average risk-weighted assets to total asset ratio could decline to 66.9 per cent from 71.6 per cent as the gross loan to deposit ratio reduces by 440 basis points year-on-year to 59.6 per cent,” the report stated.

    Exotix added that the lower proportion of higher risk-weighted assets and greater earnings retention should enable the banks to sustain an average capital adequacy ratio of 19.9 per cent.

    The report outlined that the profitability in the Nigerian banking industry would be driven by increased asset growth and better margins on bonds.

    The report noted that while loan growth may decline in 2015, this will be accompanied by banks reducing their loan to deposit ratios in order to reduce risk exposure as well as improve balance sheet liquidity.

    “We, therefore, estimate deposit growth will accelerate to 19.8 per cent in 2015 from 8.4 per cent in 2014, with banks investing a greater proportion of their deposits in government securities. The stronger deposit growth should also translate to asset growth accelerating to 16.9 per cent in 2015 from 12.0 per cent in 2014,” Exotix stated.

    According to the report, banks’ net interest margins (NIMs) have persistently declined over the past three years from an average of 6.9 per cent in 2011 to an estimated 5.6 per cent in 2014 due to decline in asset yields and increase in funding costs. The decline in asset yields was driven by decline in government bond yields on the back of declining inflation expectations, increase in lower-yielding foreign currency lending and a significant increase in cash reserve requirements resulting in increased asset allocation towards lower-yielding assets. Also, the increase in funding costs is attributable primarily to tightening system liquidity on the back of a significant increase in CRR.

    The report, however, expected an upswing in assets yield this year. According to the report, higher asset yields will be driven by three factors, including banks increasing lending rates on their loan portfolio by 100 to 200 basis points following the 100 basis points increase in monetary policy rate in November, last year, increasing yields on government securities and conversion of low-yielding foreign-denominated loans to naira loans.

     

  • DataPro hosts banks’ compliance officers’ confab

    DataPro hosts banks’ compliance officers’ confab

    DataPro will  host this month’s meeting of the Committee of Chief Compliance Officers of Banks in Nigeria (CCCoBIN).

    Its  Managing Director,  Abimbola Adeseyoju, in a statement, said the meeting would hold at Colonades Hotel, Ikoyi, Lagos on January 29 as part of activities to kick-start its 20th anniversary.

    DataPro is Nigeria’s first indigenous Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance consulting and training firm,

    CCCoBIN was established in 2007 by the CCOs of all deposit money banks in Nigeria in collaboration with other development partners and stakeholders including DataPro.

    CCCoBIN has the largest pool of experts, practitioners, professionals and stakeholders within the AML/CFT community in Nigeria.

    Its membership cuts across all other development banks, merchant banks, Discount Houses, International Banks in Nigeria, Law Enforcement Agencies (LEAs), The Central Bank of Nigeria (CBN), other banking regulators and supervisors, the Nigerian Financial Intelligence Unit (NFIU) and the Economic and Financial Crimes Commission (EFCC).

    Adeseyoju said DataPro is regarded as the leading and most experienced AML/CFT compliance training and consulting firm in the country.

    He said: “Since its inception in 1995, DataPro has remained committed to its vision of providing Compliance Solutions, 3rd Party Verification Services, Business Information Reports and Credit Risk Services to end-users not only in Nigeria but also all over the world. DataPro also operates as a Credit Rating Agency in Nigeria.”

  • No longer at ease with weak mortgage banks

    No longer at ease with weak mortgage banks

    The revocation of licenses of over 25 mortgage banks unable to meet the new minimum capital requirement stipulated by the apex bank is an attempt to separate the boys from the men, reports Ibrahim Apekhade Yusuf 

    These are certainly not the best of times for a good number of the mortgage banks operating in the country presently.

    Reason: their attrition rate these days is becoming as rapid as they are fighting hard to survive the biting credit crunch in the system.

    For economic watchers particularly, the revocation of the operating license of over 25 mortgage banks by the Central Bank of Nigeria (CBN) is a pointer to hat fact that all is not well in the sector.

    The revocation was communicated by the CBN via its gazettes dated 14 and 19 November, 14 and 19, 2014.

    Specifically, among the licenses withdrawn is 16 Primary Mortgage Institutions that failed to meet CBN’s stipulated 30-days deadline to show proof of their existence and/or evidence of operations in the immediate past one year, recently.

    In the course of the recent examination of all licensed Primary Mortgage Institutions (PMIs) carried out by the CBN, 16 PMIs were not found at their last known addresses.

    The Nation however learnt that the firms most affected were those that have unexpectedly closed shops or have ceased to carry on the business for which they were licensed for a continuous period of six months, as well as failed to render monthly returns to the CBN for at least six consecutive months, in contravention of Section 58 (1) and (4) of the BOFIA, 1991.

    The NDIC has subsequently been appointed the provisional liquidator to wind up the affairs of the closed financial institutions, according to a public notice by the corporation, a copy which was made available to The Nation.

    The corporation said it would soon make public announcement and publication on the verification and payment of insured deposits for depositors, creditors and shareholders of the affected banks.

    Affected PMBs

    According to the CBN, among the affected institutions are Alliance and General Mortgage Limited, Benhouse Building Society, Consolidated Estate Building Society, Cymon Savings and Loans, Euro-Banc Savings and Loans, First Amalgamated Building Society, First Capital Savings and Loans, Global Building Society as well as Harvard Trust Savings and Loans.

    Others are Home Foundation Savings and Loans, Jubilee Building Society, Lagoon Homes Savings and Loans, Leverage Home Savings and Loans, Mid Land Mortgages, Mortgage PHB, MultiBlanc Savings and Loans and Mustard Seed Mortgage.

    Others include Omega Savings and Loans, Password Savings and Loans, Post Service Savings and Loans, TMC Savings and Loans and Crystal Edge Microfinance Bank.

    Problem of mortgage banks

    To many analysts, among the mortgage operators, it is known fact the sector is facing a harsh economic downturn, notwithstanding the global economic crisis as the scarcity of long-term funds is hitting them hard. The short-term funds are mostly sourced from the money market, where commercial banks also complete for funds.

    Their cash flow is also hampered by their inability to tap into the National Housing Fund (NHF) for their contributors through FMBN, and becoming a window for the collection of the fund, which has prompted umbrella body of the mortgage banks -Mortgage Banking Association of Nigeria (MBAN) to liaise with CBN and local financial institutions and international development agencies in planning to float a liquidity facility company.

    Official estimates show that about 65 PMBs were in operation before the recent withdrawal of licenses, which may have further dip the number of operators to about 40 banks. But operators say the figures are much lower than that number. About 292 PMBs were licensed between 1990 and 1998.

    In July 1997, the Federal Mortgage Bank of Nigeria (FMBN), which later handed over 195 firms to CBN in 1998, revoked the licenses of 97 of the firms. The initial minimum share capital for PMBs was N5 million, rising first to N20 million and later N100 million.

    Statistics released by CBN shows that loan and advances in the sector between 2008, 2009 and 2010 are N108, 531,488, N121, 290,217 and N124, 165,992 respectively; deposits for he same period are N166, 234,932, N151, 122,301 and N168, 577,083 respectively and shareholders’ funds are N70, 345,140,N86, 614,813 and N80, 341,095 respectively.

    Worries over new capital benchmark

    Under a new guideline, mortgage firms had been categorised into national and state mortgage firms. While the former are allowed to operate in any or all parts of the federation after the payment of a new N5billion minimum paid up capital, the state PMBs are restricted to only one state if they satisfy payment of N2.5billion capital requirement.

    Several PMBs were believed to be lagging in terms of meeting up with the new capital requirement, thus making them easy target for the CBN’s sledge hammer.

    Speaking exclusively with The Nation recently, Mr. Anthony Okechukwu Ewelike is the pioneer Managing Director/Chief Executive, AG Homes Savings & Loans Plc while noting that his firm is a fledging primary mortgage bank with an asset base of over N8billion, he also admitted that shoring up their capital base has been a rather herculean task.

    “The toughest challenge for me has been how we recapitalise the company. It’s quite a tough thing because it’s by government fiat, Central Bank fiat. You must capitalise or you go under,” he said.

    Expatiating, he said: “Today, it’s been difficult with the climate of investment we have. You see what is happening in the oil market, what the capital market is doing, as such, investors are very skeptical and we have seen a lot of banks shut down. So before you can convince someone to come, he must believe that you have something to offer him or her. So, the toughest challenge I have had as the CEO AG Homes Savings & Loans Plc is how to recapitalise the bank.”

    Nigerian Mortgage Refinance Company to the rescue

    It is however instructive to note that the federal government in its determination to turn the tide in the mortgage sub-sector had at last quarter conceived the idea of a special refinancing vehicle called the Nigerian Mortgage Refinancing Company (NMRC). The NMRC vehicle was set up by the government in collaboration with the Federal Ministry of Finance and the CBN, after several postponements in the past.

    The company is also supported by the World Bank, which approved $300 million (about N48 billion).

    The NMRC is expected to help increase liquidity in the housing sector, provide secondary market for mortgages and thereby increase the number of people able to purchase or build homes at an affordable price in the country.

    A report by the Federal Ministry of Finance said 14 pilot states had been earmarked for the programme, adding governors of the states had agreed to provide and fast-track land titles, foreclosure arrangements and service plots.

    The company is also expected to help create more than 200, 000 mortgages in the next five years at an affordable interest rates.

    “To provide for those at the lower end of the economic ladder, there will be an expansion of mass housing schemes through a restructured Federal Mortgage Bank and other institutions to provide rent-to-own and lease-to-own options,” it said.

    The ministry said that the idea would help many Nigerian families to own a home.

    On the modus operandi of the NMRC, the Chief Executive Officer NMRC, Mr. Sonnie Ayere said mortgage loan applicants must provide 20per cent equity.

    “Right now, we say 20 per cent for a normal salary worker, and for payment, people have to pay through deduction at source for the public sector and even possible for the private sector.”

    According to Ayere, the criteria will be the guidelines that a mortgage lender will have to meet to be eligible for loan, adding that for a property to be eligible for refinancing, it must have tenure of 20years.

    Vote of confidence for NMRC

    In the view of Managing Director of ASO Savings and Loans, Hassan Musa Usman, he believes the NMRC will open a new vista of hope in helping developers in the country have funds to provide more housing units.

    He expects that the company would help in the quest to increase housing stock in the country.

    According to him, “it means that we as mortgage bankers can now create more mortgages for 10 to 20 years or so, knowing very well that whatever we create, we can sell up to the Mortgage Refinancing Company.

    “The NMRC will in turn issue long-term bond in the market, as it can afford to wait for the entire money (loan given out) to be paid. But we (mortgage banks) can pay up our own cash, go back and access new loans. What this means is that, for instance, with just N100 million, I can conveniently go and create loans worth N100 billion, package them, and after three months, sell them off to MRC. Then I can get loan worth N100 million from them and afterwards go back and create fresh loans. This can be done over and over again.”

    Echoing similar sentiments, Ewelike said the advent of the NMRC is a welcomed development for a sector in dire need of a lifeline.

    “I can tell you that the special purpose vehicle for mortgage which the NMRC is all about will help to boost the sector to a large extent, especially help achieve the federal government’s quest to improve housing delivery for the growing populace, ” he stressed.

    President, Mortgage Banking Association of Nigeria, Femi Johnson is also on the same page with Ewelike.

    According to him, the recapitalisation of mortgage banks was a pointer to a better mortgage finance system in the country and that with the NMRC, “loans at lower interest rates of 13 to 15 per cent for 20 years. So, definitely, there will be an improvement when all these monies come into the system. There will be new long term funds that are going to come into the system and so these banks will be able to finance mortgages for longer terms.”

    The NMRC, Johnson noted, already has loan of about $250 million at 0.75 per cent interest for 40 years and with a 10-year moratorium from the World Bank. The mortgage company will raise money from the capital market through government guaranteed bonds.

    He stated, “The NMRC will be able to raise money that pension fund will be able to invest in. Today we have about N4 trillion to N5 trillion of pension funds in the market, and once the fund is government guaranteed, Pension Fund administrators will be able to invest in it; so, this money will be channelled into housing.

    “So, definitely there will be a lot of money channelled into housing and housing finance this year; the outlook is bright.”

    A mortgage broker, Mr. Oloyede Obatoyinbo was also optimistic that the recapitalsiation of the mortgage sub-sector by the government in form of the special vehicle will help the cause of the sector tremendously, as more mortgage loans will be available as there will be more competition in the industry. “There may likely see a drop in interest rates, but the success of this whole thing depends largely on the activities and performance of the Nigerian Mortgage Refinance Company (NMRC),” he said.

    Defining moments for mortgage banks

    According to analysts, the new rule of engagement set by the apex for mortgage banks may be a good omen for the sector after all.

    It will be recalled that recently, following the recapitalization exercise of the CBN, 36 mortgage firms got licenses to administer mortgage portfolio in Nigeria. 10 mortgage firms were approved to remain in business with a national license having met the N5billion minimum capital; 26banks to operate with a state license for meeting up with only N2.5billion capitalisation, while others were delisted.

    A circular issued by the CBN revealed the following PMIs namely Abbey Platinum, Mayfresh, Jubilee Life, Aso, Trust Bond, Sun Trust, Infinity Trust, Haggai and Imperial Homes attained the National License status.

    On the list of the remaining approved 26PMIs by the CBN since only ten names were released, a source in CBN which asked not to be named because he is not authorised to speak on behalf of the bank said no list has actually been released to the public by the CBN for the 26PMIs and it will be incorrect for anyone to speculate.

    “There is really no official list from the CBN yet and it will be incorrect for me to say this PMI is on the list and that one is not there. We can only wait till an official list comes out from the CBN,” he said.

    As to whether the public should expect a significant impact now that the recapitalisation process seems to have been concluded and approved PMIs given the nod to start operations, the MBAN boss downplayed the expectations of market watchers about what had happened.

    “There can’t be any serious impact. The mortgage banks have recapitalised since December last year and if there has not been any serious impact on mortgage administration in the country since then I don’t think anything will change with just the national or state approvals given to PMIs,” the further explained.

    “Although it is expected that with the recapitalisation there will be more mortgage loans available, there will be more competition in the industry that may likely see a drop in interest rates, but the success of this whole thing depends largely on the activities and performance of the Nigerian Mortgage Refinance Company (NMRC).”

  • BoI, 10 banks to underwrite SMEs projects

    BoI, 10 banks to underwrite SMEs projects

    The Bank of Industry (BoI) has signed a Memorandum of Understanding (MoU) with 10 SME-friendly banks.

    This is coming on the heels of the success of the accreditation of 122 Business Development Service Providers (BDSPs) to assist the Small and Medium Enterprises (SMEs) in the development of bankable business plans and proposals to facilitate their access to finance,

    Managing Director, BoI, Mr. Rasheed Olaoluwa, explained that 10 commercial banks that are renowned for their SME-centric activities were chosen to partner with them in the financing of their SME customers.

    He listed the banks as Access Bank, Diamond Bank, Ecobank, Fidelity Bank, First Bank, First City Monument Bank, Skye Bank, Stanbic IBTC Bank, Standard Chartered Bank, and United Bank  for Africa.

    He said the activities in which BoI and the SME-friendly banks would collaborate include the provision of long-term loans to qualified SMEs by BoI based on its Risk Acceptance Criteria (RAC) and the provision of working capital to the SMEs by the SME-friendly banks also based on their individual RAC.

    According to Olaoluwa, the MoU is geared towards the development of a virile SME sector in Nigeria, besides acting as a platform for the realisation of the economic transformation objectives of the Federal Government.

    He said with over 17 million Micro Small Medium Enterprises (MSMEs) in Nigeria, according to the National Bureau of Statistics, accounting for over 90 per cent of all companies, employing over 30 million people and accounting for an estimated half of Nigeria’s Gross Domestic Product (GDP), the importance of SMEs to the nation’s economic development cannot be overemphasised.

    He said access to affordable finance is one of the major challenges inhibiting the growth and development of SMEs. He however, noted that investigations revealed that the main factor responsible for the current low level of financial support to SMEs by banks generally and BoI inclusive is the fact that their loan requests are poorly packaged and their business plans non-bankable.

    Pointing the way forward, he said: “BoI has decided on a multi-pronged approach to addressing the problem of poor loan packaging and access to finance.

    “Another strategy is to approach SME-friendly commercial banks to partner with BoI in co-financing the SMEs.”

    Sectors to be financed shall include agro-processing, solid minerals and metals, light manufacturing, logistics, etc. identified under the Nigeria Industrial Revolution Plan (NIRP) launched by the Federal Government recently.

    On the terms of the loans, he said it would be in accordance with BoI term loan with a tenor of three to five years. While the moratorium will be six-12 months, interest rate is between nine and 10 per cent per year. On the other hand, working capital facilities by SME-friendly banks will be on a tenor of 6-12 months; interest rate:  MPR + 6 per cent per annum. Moratorium:    As may be applicable.

    The BoI boss further said: “The synergy that has evolved between BoI and the SME-friendly banks  is unprecedented between a development finance institution and commercial banks, will undoubtedly foster greater access to finance for SMEs, financial inclusion for Nigerians and also engender wealth creation and accelerated job creation for Nigerians.

    ‘’It is also our expectation that the SMEs that will benefit from this partnership will be good corporate citizens and meet their financial obligations to the partnering banks. This will stand them in goodstead for consideration for larger loan amounts with the hope that they will in the near future metamorphose into large enterprises.”

    He commended the SME-friendly banks for exhibiting a developmental orientation, which the economy requires at this point in time.

    Responding, UBA Chief Risk Officer, Mr. Uche said the relationship offers huge opportunity and opens up a new vista for banks in this sector of the economy. He said the synergy with BoI will also address the problem of fund –mismatch, which has bedevilled the sector for a long time, leaving the SMEs to their fate.

    Also, Access Bank Plc Executive Director, Mrs.Titi Osuntoke, said SMEs contribute less than five per cent to the GDP and as a bank will wish to contribute their quota to drive the economy with their firm belief that it is the engine of growth of any economy.

    For the Deputy Managing Director of Diamond Plc, Mrs Caroline Anyanwu, her bank has been in the fore front of SMEs support in the last five years.

    She said the involvement of BoI brings a fresh vista and they were willing to run with vigour more than ever.

    Skye Bank Executive Director, Mrs Ibiye Ekong, pledged the support of the bank for the SMEs and their wish for the real sector to grow and contribute of the economy.

  • Agent banking: Banks, agents get 72 hours to resolve complaints

    Agent banking: Banks, agents get 72 hours to resolve complaints

    Banks and agents have 72 hours to resolve customer-related issues in agent banking, according to a Central Bank of Nigeria (CBN) guidelines.

    CBN said financial institutions will be responsible for setting up dispute resolution mechanisms for their agents to facilitate resolution of customers’ complaints.

    It pegged the minimum shareholder fund for Super Agents in Agent Banking at N50 million.

    In a circular to Deposit Money Banks, Mobile Money Operators (MMOs) and switches, signed by its Director of Banking & Payments Department, ‘Dipo Fatokun, CBN insisted that to be licensed, a Super Agent must be a company with an existing business operational for at least 12 months and registered with the Corporate Affairs Commission (CAC).

    It said the agent must also have a minimum shareholders’ fund unimpaired by losses of N50 million and obtain a reference letter from a financial institution as part of its documentation for licence request.

    The Super Agent must also have a minimum of 50 agents, while applications for such position shall be accompanied with board approval, certificate of incorporation, shareholding structure of the consortium and feasibility study for the agent network, among other conditions.

    “The Nigeria Interbank Settlement Scheme (NIBSS) shall provide the switching infrastructure at all agent locations. The super-agents’ platform shall be for the management and monitoring of the activities of their agents only and shall not hold electronic money value, whereas, the financial institutions shall provide and operate the Mobile Money platform and hold electronic money value,” the circular said.

    It said all MMOs operators platforms must be up to date (inclusive of mandatory integration to NIBSS), tested and active to ensure interoperability between MMOs. Also, all licensed MMOs shall ensure that their platforms are upgraded as needed, tested and active within 30 days from the release of this document.

    For over-the-counter (OTC) transactions, it said the period for holding funds not withdrawn by a receiving customer shall be 30 days. Thereafter, the fund shall be reversed to the sender even as notifications sent to the receiving customer shall indicate the expiry date for the transaction.

  • Mobile money target: The banks’, telcos’ connection

    Mobile money target: The banks’, telcos’ connection

    The controversy over who controls the mobile money market seems to be stalling the project. If not resolved, it could hamper stakeholders’ target of raising the value of mobile money transactions by 2015, COLLINS NWEZE writes.

    The success recorded in mobile money business so far is below expectation. The platform which allows mobile phones to be used to send and receive money, buy recharge cards, pay subscription fees for DStv, pay electricity bills, use of Point of Sale (PoS) terminals to pay for goods and services, among others, is under threat.

    For the Head, Payments & Oversight at the Central Bank of Nigeria (CBN), Musa Jimoh, the mobile money framework identifies the roles of every participant in the mobile money operation in the country. He said the apex bank excluded telcos from leading any of the mobile money schemes due to certain reasons.

    Firstly, he said the telcos are not regulated by the CBN, and that  the Nigeria Communications Commission (NCC) and  the telcos are not banks that enage in settlement schemes.

    These hiccups, not withstanding, stakeholders in the mobile money business expect transactions to hit N1.1 trillion by 2015. Data from the Central Bank of Nigeria (CBN)  showed a rise in mobile money transactions to N93 billion in January-October 2013, from N31.5 billion in 2012. It said that sustained growth at this pace would meet analysts’ aggressive forecast of N1.10 trillion in 2015.

    Head Equities Markets at FBN Capital, Olubunmi Ashaolu, said the rapid expansion of e-payments, have resulted in major fiscal and developmental benefits as well as new revenue streams for Information Technology providers, mobile operators and banks.

    He agreed that there is a momentum, but nonetheless explained that the expansion is at a low base, saying an estimated 46 per cent of the adult population has no access to financial services. CBN data showed total e-payments of N2.1 trillion in 2012, of which Automated Teller Machine (ATM) transactions accounted for N1.98 trillion, or 94.7 per cent of the total.

     

    Role of stakeholders

    Jimoh explained that Mobile Money Operators (MMOs) are to issue, store and process the e-money which is kept in subscribers’ wallets. They also recruit and manage agents; deploy, operate and manage risks associated with the technology for providing the mobile money services.

    He added that settlement banks manage the pool of funds for the subscribers, provide settlement on behalf of mobile money operators and provide monthly statement of pool account transactions to the MMOs. Also, the telcos provide the telecommunications infrastructure, and agent network services.

    Analysts insist that the Telcos and banks which are expected to jointly drive the process are working at cross roads. In other countries, the process could be: operator-led model, bank-led model, collaboration model and peer-to-peer model. The Central Bank of Nigeria (CBN) chose the bank-led model in which case a bank deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (PoS) acceptance capability to carry out the transaction.

    Mobile network operators’ network merely serves as vehicle through which transactions take place. This is based on the regulatory framework for mobile payment services issued by the apex bank in 2009, which disenfranchised telcos from operating mobile money, except through strategic partnerships with licensed operators.

    The Telcos, have consistently advised the CBN to allow them participate in the regulation of the subsector, but nothing has come out of the demand. The apex bank, which solely regulates the business, has given the Telcos little or no opportunity for control.  This model has deprived the business the needed technological and infrastructural backing critical to its success.

    The disagreement has adversely impacted on implementation process of the mobile money platform in the country. General Manager, IBM Africa, Taiwo Otiti, said strategy being adopted by the key stakeholders is stifling the success of mobile money operation in the country.

    Speaking during an interview with The Nation, he said: “The approach we have taken in mobile money is the challenge. We have over 30 million unbanked, compared with over 100 million mobile phone users. The guys who are unbanked, they may have mobile phones, but how would you get them into the financial system. You must be able to get into his lifestyle for you to be able to get him subscribe to mobile money scheme. Many of the stakeholders are doing that.”

    Otiti said that getting the mobile money scheme running requires both the payment and supply chain properly defined and implemented by the stakeholders. He said there is need for a paradigm shift that sees all the stakeholders working together. “The telcos can’t also do without the banks, so also are the banks. It is only by collaboration, will the mobile money project begin to deliver the needed results,” he said.

    He said the stakeholders should not think of who owns the customer, but focus on products and services that can attract more customers into the scheme because nobody owns the customer. “Nobody owns the customer. What is important is collaboration that ensures that end-user gets what he wants. We need to see mobile money in terms of what the customer can get and use in improving his lifestyles,” he said.

    The CBN said regulation of the telecom sector is not within its control, making it difficult for it to guide mobile money operations under the telco-led model being advocated by telecom operators.

    It said the risk involved in mobile money operations are so high, that regulation has to be closely implemented. It added that it does not control what the telcos are doing, unlike in the existing bank-led model where it provides the operating guidelines.

    He said mobile money operators are being encouraged to increase access to financial services through mobile phones that are either directly linked to a bank account or use of mobile wallets as intermediary virtual money accounts.

    Experts insist that the current regime of mobile money regulation, which is being bank-driven, is not friendly to telecoms companies who provide the mobile payment platform. They said that though there was a lot that telecoms companies could contribute in a cashless economy, their current mandate was limiting.

    The thinking is that since the mobile payments business is 90 per cent dependent on the mobile industry, it was unfair that the mobile networks are prevented from advertising their various mobile payment products which are the foundation on which the bank products operate.

    From the customer’s mobile phone, to the mobile payments system and feedback to the mobile phone, the mobile payment transaction utilises mostly mobile resources, makes use of mobile time and is supported largely by mobile engineers, but unfortunately the CBN has restricted telecom companies from advertising in the mobile payments space.

    Analysts also think that telecom companies should be allowed to speak about the capabilities of their networks, the quality of user experience and the choice of mobile payment services available on their networks.

    It is now roughly two years since the first mobile money went live and approaching a year since cashless economy came into operation. Meanwhile, none of the individual players can boast of having more than 10,000 active subscribers.

    The CBN said over the next few years, the focus of the regulator will be to strengthen the institutional and regulatory frameworks to achieve improved financial inclusion.  The application of mobile technology for financial services especially in rural areas will ensure that a large percentage of the population outside the formal banking system would have access to financial services using one of the three models of card-based, account-based and virtual account.

    CBN statistics showed that only 26 million Nigerians own a bank account out of a population of 167 million populations. With telecoms subscriber base put at about 120 million by the Nigerian Communications Commission (NCC), there are indeed limitless opportunities for the country to achieve financial inclusion by bringing the large numbers of the unbanked to the banking sector through mobile money,” he said.

    The NCC said critical success factors for mobile payment in the country are the integrity and security of the end-to-end transition during a payment transaction process. He said the chain of transaction must be secured from initiation to authentication. Therefore, confidentiality and integrity of the data transition are critical factors in mobile payment.

    The Nigeria Deposit Insurance Corporation (NDIC) has called on stakeholders in the mobile money business to seek ways of extending the service to a larger proportion of the population.

    NDIC’s chief, Umaru Ibrahim who made this known during a roundtable discussion on mobile money services held in Lagos, said that there are over 100 million mobile phone lines in the country.

    He said: “According to Enhancing Financial Innovation and Access (EFiNA) survey, the rural population is 71 per cent, while 76.2 per cent of the population remains unbanked. Mobile phone ownership is 55.6 per cent in the rural areas.”

    He explained that effective rendering of mobile banking financial services can be a key mechanism in achieving the objective of National Financial Inclusion Strategy (NFIS) based on the huge success recorded by Kenya, Uganda and South Africa in enhancing financial inclusion through mobile financial services.

    Ibrahim said mobile banking subscribers will soon get deposit insurance coverage, with each subscriber guaranteed up to N200,000, or N500,000 as applicable to Microfinance Banks/Primary Mortgage Banks and Deposit Money Banks(DMBs) respectively, in the event of bank failure.

    He explained that if a bank fails, the insured mobile account can be transferred to another sound bank, to further engender public confidence in the system and promote financial stability.  According to him, the framework for extending deposit insurance to individual customers of mobile payment services is being finalised.

    Razak Olaleye, a mobile money analyst said Telcos are licensed to offer telecoms services and not banking services. According to him, the decision was made because the CBN does not regulate telcos and if the telcos are allowed to lead mobile money, it will mean putting two critical segments of Nigeria’s economy in the hands of a few companies. This, they believe, portends great risk for the country.

    World Bank said the global remittance market has grown rapidly over the past decade. In 2010, remittances through official channels amounted to $440 billion, of which, developing countries received an estimated $325 billion. The majority of these transactions are still cash-to-cash transactions, but the share of digital transactions is steadily increasing.

    Driven by the development of mobile money systems in emerging markets, experts estimate that $16 billion worth of international money transfers will be received with mobile phones in 2015.

    In Nigeria, the scheme is however, confronted with many problems but the CBN said the draft National Payments System Bill, which is undergoing legislative passage, is expected to address the legal barriers to electronic payments such as the admissibility of electronic evidence in the law courts.

    Managing Director, Mobile Money Africa, Mr Emmanuel Okogwale, agrees that there are still challenges. According to him, most of the companies licensed to do mobile payment are yet to have accredited agents who will reside in urban, semi-urban and rural areas. He argued that without well trained mobile money agents, the implementation would not be seamless as agents with the requisite tools and handsets are the infrastructure needed to deliver the money to the customers.

  • FRC to begin audit quality inspection of banks

    FRC to begin audit quality inspection of banks

    The Financial Reporting Council of Nigeria (FRCN) will in the first quarter of next year, begins audit quality  of banks, its Chief Executive Officer, Jim Obazee, has said.

    Obazee, who spoke at the weekend during a three-day media retreat in Lagos, said the time had come to hold auditors more accountable for their works.

    He said the Council would pay more attention to the quality of work done by audit firms and their executives for quoted and non-quoted companies, particularly those considered as being of national importance.

    Speaking on the theme: ‘Financial reporting regulation: Issues and challenges,’ Obazee said auditing standards are high-profile issues in the light of recent events globally, and national surprises.

    “Auditing standards are a high-profile issue in the light of recent events globally and obvious national surprises. Auditors play a crucial role in ensuring that financial statements can be relied upon by users.

    “Given current international trends and the critical role that auditors have, it seems desirable to embrace some degree of changes being considered internationally, might be required in the Nigerian space,” he said.

    The FRC helmsman, said he wants professionals to be more careful while doing their jobs, as they risk personal liability for misbehavior.

    He explained that in line with the FRC enabling Act, where an audit firm qualifies a report, it must be accompanied “with detailed explanations for such qualifications within 30 days from the date of such qualification. Such reports shall not be announced to the public until all accounting issues relating to the reports are resolved by the Council”.

    Obazee said the FRC’s bid to undertake audit of  banks was in line with the desire of the body to become a member of the International Forum of Independent Audit Regulators (IFIAR), explaining that this will be a booster to the capacity of the Council to monitor audit quality.

    He said: “The first phase of the adoption of International Financial Reporting Standards in Nigeria, has started producing enhanced perception for Nigeria, adding that the FRC is currently carrying out IFRS readiness test for entities in the second phase- (Other Public Interest entities including Not-for-Profit Organisations)”.

    Obazee explained that part of FRC’s role in this year, would be to carry out audit quality inspection in banks and other publicly quoted companies, stressing that there is urgent need to check what the internal auditors are doing at all times.

    “We are to look at who is checking the checker (internal auditors). This will be done through the external auditors, but there are international audit control rules that will be followed,” he said.

    He explained that the FRC is a unified independent regulatory body for accounting, auditing, actuarial, valuation and corporate governance practices in both the public and private sectors of the Nigerian economy.

    He said the body will address institutional weaknesses in regulation, compliance and enforcement of standards, as well as the development of robust arrangements for monitoring and enforcing compliance with financial reporting standards in the country.

    He said the implementation of the FRC Act was expected to lead to increased management credibility, more long-term investments, lower cost of capital, improved access to new capital and higher share values.

    “For investors and lenders, better disclosure provides more relevant information for making sound investment decisions and risk assessment respectively. This is especially so because merchants do not have a country,” he said.

    He said the National Code of Corporate Governance will be operational in the first quarter of 2015, adding that this will  strengthen the compliance with Section 44 (3) of the FRC Act, and enhance the inflow of Foreign Direct Investment and arouse greater interest from local investors.

    He said the required platform for the implementation of internal systems/Information systems control with independent attestation, in accordance with Section 7 of the FRC Act, shall also be laid.

    “We are also confident that the much awaited IFRS Academy shall at the last commence its operation. The implementation of the International Public Sector Accounting Standards (IPSAS) by Governmental Funds shall be a priority,” he said.

  • Banks’ ranking in MSMEs’ financing

    Banks’ ranking in MSMEs’ financing

    Many banks are not lending to the Micro, Small and Medium Enterprises (MSMEs’) sector because of poor margins and risks involved. Some banks are, however, taking lending to the subsector seriously now. A survey by KPMG Nigeria and Enterprise Development Centre of the Pan Atlantic University, says FirstBank, GTBank and United Bank for Africa are keading lenders to MSMEs for both deposit transaction and lending, writes COLLINS NWEZE.

    Globally, access to finance is a critical factor in the growth and development of the Micro, Small and Medium Enterprises (MSMEs’) sector. This has prompted many banks to make lending to the subsector a priority.

    The Central Bank of Nigeria (CBN) is also encouraging banks to lend to the sector, prompting it to earmark N220 billion to it.

    The role of MSME in economic development prompted KPMG Nigeria and Enterprise Development Centre of Pan Atlantic University to conduct a survey that highlighted banks’ performance in the subsector.

    Partner and Head, Management Consulting at KPMG Nigeria, Bisi Lamikanra, said the survey which polled over 3,000 entrepreneurs, 18 banks and government/multilateral agencies reflects both the SMEs and banks’ perspectives on the primary issues affecting the growth of this critical sector. The survey, conducted between November last year and March this year highlighted key roles of banks in the sector.

    For the survey, this simple question was asked: Which bank(s) do you carry out transactions with?

    Thirty-six per cent of the respondents picked FirstBank; 22 per cent picked GTBank; 19 per cent went for United Bank for Africa; 18 per cent chose Ecobank; 15 per cent picked Diamond Bank while 14 per cent went for Access Bank.

    When the respondents were asked: Which bank(s) do you now or have in past obtained a loan? They responded in this order. Twenty- six per cent of the respondents said they obtained their loans from FirstBank; 10 per cent said they got theirs from United Bank for Africa; Ecobank got 10 per cent; GTBank eight per cent; Diamond got seven per cent while Zenith got seven per cent.

    Director, Enterprise Development Centre, Pan-Atlantic University, Peter Bamkole, said the finding suggests that there is scope for banks to improve on their relationships with MSMEs, particularly on deepening their understanding of the various segments/sub-segments.

    He explained that in terms of ease of doing business, the study revealed that about 50 per cent of MSMEs do not find it easy to access relevant services from their banks. This could be due to banks not having specialised MSME relationship managers at branches, preferring to rely on retail relationship managers to serve MSMEs.

    He said: “The survey revealed that only about five Nigerian banks have SME business managers in their branches, however, focusing largely on financial targets (revenue, deposits and loans), instead of developing products that address the needs of MSMEs.

    “Among alternate sources of funds for MSMEs, Development Financial Institutions (DFIs) are not necessarily preferred by the MSMEs. The study also revealed that only two per cent of MSMEs have obtained loans from a development bank such as NEXIM, Bank of Industry, Bank of Agriculture among others either directly or through some other bank.”

     

    Govt’s role

    The government and banks brainstorm on initiatives which will encourage banks to lend to this segment. Banks, therefore, need to intensify their engagement with the government to improve the business environment necessary for facilitating bank lending to the MSMEs.

    One government initiative that could be beneficial to banks and the MSME segment is its participation in risk sharing facilities.

    Bamkole said Nigeria must support the sector if she intends to be one of the top 20 economies of the world by 2020, according to Vision 20:2020, the nation’s economic blueprint. However, the development of MSMEs in Nigeria and their contributions to the economy are hampered by the fact that access to finance still constitutes a major obstacle to growth.

    He explained that for over a decade, the firm had been supporting SMEs, adding that access to finance is critical to SMEs’ success and that it has evoked passion, debate and in extreme cases, frustration.

    He said: “Of the six broad constraints that limit the growth of SMEs in Nigeria, lack of access to finance has drawn more venom especially from SMEs than any other.”

    He said the majority of the financial institutions claim that lending to SMEs is risky and that some of these SMEs are not ready for the rigours that go with access to finance. According to him, while it may be fair to acknowledge that this position is somehow true, from the lens of an enterprise development agent, this is an opportunity in waiting.

    He asked: “Why is there no concerted effort to de-risk the sector? Why are the financial institutions constantly introducing banking products and outpacing each other in branding their institution as SME focused bank rather than understanding the SMEs and deepening their absorptive capacity to access capital? Why are we not coming up with policies that favour those supporting the sector?

    Analysts say over the years, traditional sources of financing for MSMEs have revolved around personal savings, loans from friends and family, and other informal sources.

    This scenario presents a conundrum as the impact of these sources of funding altogether represents only a fraction of the available potential when banks and the government become major contributors of MSMEs financing.

     

    SMEs in Nigeria

    FirstBank of Nigeria Limited has reiterated its commitment to providing cheap and long-term funding for the subsector.

    Its Executive Director, Retail Banking South, Mr. Gbenga Shobo, said SMEs remain the engine of growth for the economy creating millions of jobs for the population. He, however, reiterated the need to create successful SMEs that would help the economy achieve its full potential.

    He spoke during the bank’s maiden edition of its SME Conference titled: “SMEConnect”.

    He said: “Definitely, there is a lot of large buzzword right now as a lot of banks are saying they want to do SMEs finance. But we have been relatively successful in financing SMEs. A recent survey showed that FirstBank, more than double than any other bank, had given SMEs finance in the last four years.”

    Shobo said SMEs in Nigeria have to grow; because that is the only way the economy can grow because the subsector is the key driver of any economy. “So, it must grow and that is why we are doing the national conference and after that, we are going to have regional conferences. After that, we are going to have industry specific conferences to make sure that we take the SMEs to another level,” he said.

    He said experience in SMEs financing is what separates the lender from others.“We have the most SMEs; we have had them for a long time; we understand their needs better than anybody else and clearly that informed the way we approach them. The SMEs, most other banks don’t even focus on them. We have relationship managers who focused on them. We have products that support SME operators that do not have collateral, which a lot of other banks don’t have. I think what we haven’t done well in the past is the capacity building and that is where we want to focus on now. As I said earlier, we like double the other banks in terms of support to SMEs,” he said.

    He said the bank listens to SMEs to know their problems and address them. “We are the number one SMEs’ bank in Nigeria, but we do not want to stop there. We want to create value for our SMEs. In listening to them, survey and focus discussions and all that, we found out that capacity is a big problem. When I say capacity, I mean being able to develop proposals which banks can finance or, indeed, which anybody can put money to finance for them. A lot of people have dreams on what they like to do, but how do I actualise those dreams? You find out that a lot of SMEs cannot do that successfully. That is one,” he said.

     

    CBN policy on SMEs

    The CBN has set up guidelines for the management of the N220 billion MSMEs fund it launched last year to support SMEs’ financing. The CBN said the fund will be managed by a Special Purpose Vehicle (SPV) while it will commence the management of the fund pending the establishment/appointment of the SPV or Managing Agent (MA).

    It said a large number of un-served and under-served clients are in the MSME sub-sector, stressing that to address the funding requirements of this critical segment of the economy, 80:20 ratio for on-lending to micro enterprises and SMEs has been designed.

    The CBN said women’s access to financial services should increase by 15 per cent yearly to eliminate gender disparity. It also said to achieve this, 60 per cent, that is, N132 billion of the fund, had been earmarked for providing financial services to women.

    The regulator said in operating the fund, special consideration would be given to institutions that will provide financial services to graduates of the Central Bank of Nigeria’s Entrepreneurship Development Centres (EDCs).

    Also, the Senior Manager at KPMG Nigeria, Adetorera Banjo, said the survey, with theme: ‘Strengthening access to finance for Micro, Small and Medium Enterprises (MSMEs) in Nigeria’, identified the three top challenges facing MSMEs as: non- conducive enabling environment (80 per cent), inconsistent government policies (56 per cent) and lack of access to finance/ capital (45 per cent).

    Besides poor infrastructure and financing constraints, taxation, corruption and regulatory bottlenecks are other issues that impede growth in the MSME segment. For instance, India imposes indirect taxes on transit of goods from one state to the other within the country; the government has made effort to introduce a uniform pan-India tax on goods and services long bureaucracy and political compulsions have not let that happen so far.

    Many of these problems are faced by MSMEs in developed economies as well, albeit in different order of severity than their emerging markets counterparts. These challenges also vary by region, sector and size of the firm.

     

     

  • S&P to rate banks, regional firms

    Standard & Poor’s expects to rate a number of Nigerian banks this year and is talking to some Kenyan banks and companies about future credit ratings, its managing director for sub-Saharan Africa, Konrad Reuss said.

    He said borrowers across the continent are looking to tap international capital markets following successful bond sales by African countries. A long-awaited rating for Tanzania is not likely to be assigned any time soon.

    “More Nigerian bank ratings will be coming out later this year. We are working on a number of corporates in the region,” Reuss said.

    Borrowers in frontier markets such as Africa have turned to capital markets as aid funding dries up and monetary easing across the western world keeps interest rates low.

    A flood of new issues from sub-Saharan Africa in the past couple of years includes a recent debut dollar bond from Nigerian bank Diamond Bank, First Bank of Nigeria is holding a bond road show this week, according to Thomson Reuters service IFR.

    These bonds follow sovereign dollar debt issuance from Nigeria, which analysts say helped to familiarise investors with the West African economy. Kenya issued a well-received $2 billion bond last month, its first in international markets.

    “We are reaching out to Kenya. “On the back of a very successful sovereign bond, a benchmark has been set,”Reuss said, referring to plans to discuss ratings with local banks and corporates in the East African country.

    Tanzania, which also said it plans to launch a debut Eurobond, has not yet gained a rating. “Time and time again, the government has made announcements, time and time again those plans were delayed,” Reuss said, adding that any ratings timescale was difficult to predict “because of the many delays that we have seen so far.”

  • Experts to banks: Avoid desperation for deposits

    Experts to banks: Avoid desperation for deposits

    WORRIED by what it described as the ‘craze for deposits’ by some money deposit banks operating in the country, some economic and financial experts have warned that such tendencies should be discouraged as it could plunge the nation’s banking sector into further recession in no distant time.

    Giving this warning was Chief Isaac Olusola Dada, Managing Director/Chief Executive, Anchoria Investment & Securities Limited, a frontline securities and investment company in Nigeria.

    Dada who spoke at a public forum organised by the Institute of Credit Administration in Lagos, recently, said it was disheartening to note that the circumstances that led to the stock market bust in mid 2009 was already rearing its ugly head.

    According to him, “You will recall that in the build up to the stock market bust in 2009, many money deposit banks in the country in their quest for deposit were practically dangling ‘carrots’ in form of margin loans to prospective investors. I got quite a handful of such offers. But what happened at the end is better imagined that, explained.”

    The former president, Institute of Directors (IoD) and erstwhile national president, Nigerian-American Chamber of Commerce, said it is worrisome that many banks are hell-bent in getting deposits at all cost rather than concentrate more on other banking operations with less risks.

    “What is, however, worrisome is that we don’t seem to have learnt much from that sad episode because many banks are already showing similar tendencies. Banking is supposed to be conservative and should be devoid of the unprecedented level of crass materialism being flaunted by these money deposit banks,” he stressed.

    Echoing similar sentiments, Dr. Makilolo Isaac Goddey, an economist, said unless concrete steps are taken the nation’s banking sub-sector may suffer the worse kind of recession in history.

    While noting that the Assets Management Corporation of Nigeria (AMCON) was packaged to take care of the toxic assets of the distressed banks during the aftermath of the 2009 credit crunch, he lamented that. “We see the same thing replaying itself again because nothing has changed in the terrain of the banking industry.”

    Going down memory lane, Goddey recalled that back then, bankers were just pressurising businessmen to come and take margin loans.

    Raising a poser, he asked: “What do you think was driving that tendency? The answer is, of course, profitability. Today the same thing has not changed.”

    Expatiating, he said: “Two things that were driving the banking sub-sector then profitability and balance sheet size are still very paramount. Everybody’s concern is how much profit does my bank make? The more profit your bank make they use it as a marketing tool to say oh, my bank is doing very well. But that shouldn’t be the focus of banking. Banking is conservative exercise.

    “The question is, what value have you been able to add to the real sector of the economies? How much of new business have we been able to bring up and entrench within the system? From what I have observed, in the next three-four years, AMCON would have to do another work. So the question that the initial lifespan of AMCON is 10 years is not going to be. Because there are some risk assets now that would still bubble in another five years.”