The Nation Newspaper

Tag: Banks

  • Banks move to safeguard power sector loans

    Banks move to safeguard power sector loans

    Money Depoait Banks have committed over N320 billion as loans to DISCOs and GENCOs, while the Federal Government realised N400 billion from the sale of the assets of the defunct Power Holding Company of Nigeria (PHCN). But the lenders are worried over persistent gas shortage, which has put operators’ cash-flow in jeopardy. To address the issue, the Bankers’ Committee has unveiled plans to pay the N25 billion PHCN debts. COLLINS NWEZE reports that this may bring reprieve to the banks.

    The plans by the Bankers’ Committee to pay the N25 billion PHCN legacy debt has opened a new vista of hope in the funding of the power sector. The lenders decided last month at their meeting in Lagos, that leaving the gas supplying firms bogged down with the debt, will make nonsense of the huge funds already committed to the power projects.

    Hence, the Bankers Committee opted to pay the debt until such a time that the power companies will attain maturity and make repayments on agreed terms.

    The measure will boost gas supply and enable the lenders wriggle out of the rising non-performing loans granted power firms.

    Findings showed that many of the banks that raised the capital to fund the power projects are counting their losses because of poor cash flow due to gas shortage. The lenders, it was learnt, are being more cautious in lending to the power sector until the gas challenge is resolved. A quick resolution is expected to revive the attractiveness of the sector to the lenders and create room for fresh loans.

    The Managing Director, Ecobank Nigeria, Jibril Aku, said the committee resolved to  service the debt, admitting that doing so would enhance gas supply and boost power output in the country. Aku said the banks will recover the fund from the Multi-Year Tariff Order (MYTO) deductions.

    He said the Bankers’ Committee is willing to support the initiative with government, where a Special Purpose Vehicle (SPV) will be set up to provide loans to clear the debt, and overtime, the loan would be recovered through MYTO tariff deduction.

    The Ecobank chief said the essence of the power transformation programme is to achieve efficiency and improve power supply, which was constrained by gas shortage.

    He said: “Obviously, gas coming into the power stations would affect the revenue. Many of the operators have not raised their production capacity because of shortage of gas.”

    According to him, the gas companies have always been agitating that this debt be paid, otherwise, they will not produce and will begin to accumulate new debts.

    He said the committee believes that most of the problems associated with gas-to-power would be resolved and Nigeria will begin to see a generating company that is inspired to increase power generation.

    In line with its Vision 2020, which seeks  to place the country among the 20 leading economies in the world, the government has set a rather ambitious target of 40,000 Megawatts (Mw) of electricity generation.

    With a population surpassing over 170 million, its current maximum electricity generation capacity is approximately 4,500 Mw. This is inadequate to meet demand estimated at 10,000Mw.

    The World Bank and other local and international lenders have equally showed renewed commitment to power sector funding in Nigeria.

    President/CEO, African Finance Corporation (AFC),Andrew Alli, said sub-Saharan Africa would need more than $300 billion in investment to achieve universal access to electricity by 2030. The governments of Nigeria, Ethiopia, Ghana, Kenya, Liberia and Tanzania are in the “Power Africa Countries” initiative where the investments are expected.

    In a statement on the lender’s website, the AFC chief said the bank will provide additional investments in energy projects annually, far in excess of its commitment to the Power Africa initiative.

    “AFC aims to provide Power Africa Countries, not only access to finance, but deal structuring and sector technical expertise,  advisory services, project development, capacity funding to bridge the power infrastructure investment, seen as acritical pillars for economic growth across Africa,” the statement said.

    The AFC, recently participated in the US Presidential Power Africa Initiative meant to accelerate investment in Africa’s power sector over the next five years.

    The key goal of the Power Africa Initiative is to increase access to clean, geothermal, hydro, wind and solar energy. It will help African countries develop newly-discovered resources responsibly, build out power generation and transmission, and expand the reach of mini-grid and off-grid solutions, by providing the capacity and resources to generate an additional 10,000Mw of power.

    The Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iwaela said the World Bank Group has pledged to provide $1.4 billion to Nigeria in support of efforts aimed at improving power infrastructure.

    The minister said the global lender is planning to set up an infrastructure facility and that Nigeria would be among the first set of countries to benefit from it, given the nation’s large size and the scope of its infrastructure needs.

    “They (the World Bank) want to concentrate on power, and are already actively working with several private sector companies that want to invest in Nigeria. They are promising to give Nigeria about $700 million under the International Bank for Reconstruction and Development (IBRD) guarantees for the power sector, as well as a willingness to invest another $700 million to support transmission,” she said.

    She explained that the power infrastructure support finance was derived from the initiative of the World Bank Group and its affiliate, the International Finance Corporation (IFC) which listed Nigeria as one of the focused countries in sub-Saharan Africa to benefit from the funding.

    She said government was prepared to execute and implement the negotiated projects, allaying fears that they might be abandoned midway and become white elephant projects. The World Bank Group hardly participates in any white elephant project, she said, adding that it has its teams that “normally come every six months to supervise what is going on, and when they see (that) the project is not performing well, they stop disbursing, cancel it and take the money elsewhere”.

    Also, the Board of Directors of the African Development Bank Group (AfDB) has approved an African Development Fund (ADF) Partial Risk Guarantee (PRG) programme of $184.2 million to support Nigeria’s power sector privatisation. It also provided an ADF loan of $3.1 million, for capacity building for the country.

    The Director, AfDB’s Energy, Environment and Climate Change Department, Alex Rugamba, said the PRG programme in the country would increase its electricity generation by catalysing private sector investment and commercial financing in the power sector through the provision of PRGs.

    He said: “The PRGs will mitigate the risk of the Nigeria Bulk Electricity Trading Plc (NBET), a Federal Government of Nigeria entity established to purchase electricity from independent power producers (IPPs), not fulfilling its contractual obligations under its power purchase agreements with eligible IPPs. This in turn will increase the comfort level of private sector financiers and commercial lenders investing in the Nigerian power sector privatisation programme.”

    Rugamba said an effective and steady power supply is critical to the sustainability of the country’s development. He said the ‘Board’s decision today will allow the AfDB to support the Nigerian government’s efforts to reform the power sector and position the country for sustainable and inclusive growth.’

    Again, there was another  $350 million infrastructure financing agreement for Africa between global infrastructure giant, General Electric (GE) and Standard Bank. The bank said the partnership seeks to provide affordable access to power infrastructure to augment traditional large scale grid capacity development. The bank said the partnership will target Nigeria, Angola, Tanzania, South Africa and Ghana. Others are Kenya, Mozambique, Uganda, Ethiopia and South Sudan. Financing activity will center on project finance, equipment finance, trade finance and advisory.

    Speaking during a ceremony to announce the partnership, President and CEO of GE Africa Jay Ireland said the partnership comes at the right time when there are concerted efforts to boost access to energy across the continent. He said partnerships of this nature would certainly support efforts by respective governments in finding captive power solutions to meet the growing demand for alternative fuels.

    Mr Ireland said the partnership is in line with the country-to-company agreements, which GE has signed with a number of African governments aimed at generating incremental power and increasing access.

    Chief Executive, Stanbic IBTC Holdings (Standard Bank trades in Nigeria as Stanbic IBTC Holdings), Mrs Sola David-Borha, said the bank was committed to partnerships of this nature that help energise the sector.

    She said the power challenges identified in the focus countries for this partnership were opportunities for growth through sustainable investment. According to her,   through the partnership, financing will also be available for off-grid solutions that rely on cleaner fuels such as biomass and biogas across sub-Saharan Africa.

    Another international lender, Ecobank Nigeria said it will invest $25 billion in five years to help solve Nigeria’s power sector crisis.

    Its Country Head, Power & Energy, Olufunke Jones said the investment is in line with its policy to support the growth and development of the power sector in the country.

    She said it has played a major role on the buy-side of the power sector privatisation exercise by providing financial advisory services, lead arranger role,  acquisition financing and guarantees to Distribution Companies (DISCOs) , Generating Companies (GENCOs) and National Integrated Power Plants (NIPP).

    She said:”Nigeria has one of the largest gaps between demand and supply for electricity. To bridge this gap, the country requires a combination of favorable government policies, private sector participation and Foreign Direct Investment (FDI) as well as transparency and persistent monitoring that will guarantee an improved business environment.”

    According to her, the current power sector reforms have created opportunities for Capital Expenditure (CAPEX) and Operating Expenditure (OPEX) funding which is a consequence of the handover to the new owners. “There is the urgent need to rehabilitate the distribution networks in order to make them  robust and flexible enough to accommodate the nation’s demand for power,” she said.

    Also commenting, its Local Account Manager, Corporate Banking Group, Mrs. Funmilola Ogunmekan said the power sector is faced with the challenges of upgrading most of its obsolete equipment and processes under a traditional technology framework. This, among others, is the immediate challenge before the potential of the industry is fully manifested.

    Mrs. Ogunmekan reiterated that this year, the lender will leverage its position as a bank with the third largest branch network to provide effective utility collections and cash management services while providing the required additional CAPEX/OPEX funding requirement for at least five of the DISCOs across the country.

    Also, the United Bank for Africa (UBA) said it has so far extended $700 million (about N113 billion), in funding to different investors towards the acquisition of power assets in the privatised power sector. Its Group Managing Director and Chief Executive Officer, Phillips Oduoza said: “It is a growth sector we are playing very big.”

    Zenith Bank  said it expects to increase loans to the privatised power companies. The lender said loans to the power sector may rise to 10 per cent of its loan book by year-end.

    The value of the lender’s loans to power companies was about N40 billion in the third quarter after the handovers.

    It gave loans to power firms such as Eko Electricity Distribution Company and Ikeja Electricity Distribution Company both in Lagos State. “As we review the companies and we see viable propositions, yes we will” expand loans to the industry,” the lender affirmed.

     

     

  • Two ‘large banks’ record zero liquidity ratio, says CBN report

    Two ‘large banks’ record zero liquidity ratio, says CBN report

    Three banks have recorded a negative liquidity ratio in a liquidity stress test conducted by the Central Bank of Nigeria (CBN) on 21 deposit money banks and 14 foreign subsidiaries.

    Of the three, two are among those categorised as “large banks”.

    Liquidity ratios measure the ability of  banks to meet short term debt obligations.

    The CBN Financial Stability Report released at the weekend said the zero liquidity ratio recorded by the lenders followed a cumulative 30-day shock conducted by the regulator to assess the resilience of the industry to liquidity and funding shocks. The test was conducted using the Implied Cash Flow Analysis (ICFA) and Maturity Mismatch/Rollover Risk approaches.

    The ICFA test, the CBN said, assessed the ability of the banking system to withstand unanticipated substantial withdrawal of deposits, as well as short-term wholesale and long-term funding over five-day and cumulative 30-day shocks, with specific assumptions on fire sale of assets.

    However, the stress test conducted, based on their end-December 2013 call reports indicated that the banking industry is stable and resilient. The key challenges in the industry, however, remain corporate governance and risk management practices.

    The test assumed a gradual average outflow of 3.8, five and 1.5 per cent of total deposits, short-term and long-term funding, during a five-day assessment.

    The test also showed a cumulative average outflow of 22, 11 and 1.5 per cent of total deposits, short-term and long-term funding,  on a 30-day balance.

    The test revealed that, after the five-day and cumulative 30-day shocks were applied, the industry liquidity ratio declined to 12.2 and 10.4 per cent,  from 50.53 per cent. Most banks’ liquidity ratios were also below the 30 per cent threshold after the two scenarios.

    The worst-hit were the three unnamed lenders that recorded a negative liquidity ratio, following a cumulative 30-day shock. Two of these banks were among the categorised “large banks”.

    However, the report said the banking industry was resilient to liquidity stress, although the test results indicated deterioration in the banks’ resilience, compared with the position in the preceding period.

    The CBN also conducted a solvency stress test on the industry to assess the stability of the sector under various hypothetically strained macroeconomic conditions.

    The pre-shock Capital Adequacy Ratios (CAR) for the entire banking industry, large, medium and small banks stood at 17.20, 16.24, 18.05 and 18.33 per cent. These, the report  said, reflected decreases of 1.49, 2.62, 0.2 and 0.5 percentage points over the June 2013 positions.

    The CBN said its actions were focused on ensuring that the banks maintain healthy loan portfolios by creating high quality assets that will ensure sustainable growth. The regulator added that the proactive actions taken to resolve the distress situation in the system had achieved the desired results and contributed to the overall stability of the financial system.

  • Banks, switches get deadline for data security standards

    Banks, switches get deadline for data security standards

    The Central Bank of Nigeria (CBN) has extended banks, switches and processors’ compliance with the Payment Card Industry Data Security Standard (PCI DSS) standard till November 30.

    The PCI DSS is a proprietary information security standard for organisations that handle cardholder information for the major debit, credit, prepaid, e-purse, Automated Teller Machines, and Point of Sale (PoS) cards.  The standard was created to increase controls around cardholder data to reduce credit card fraud via its exposure.

    A circular to banks, switches and processors, signed by CBN Director, Banking Payment System, ‘Dipo Fatokun, said the need to extend the deadline followed requests by many banks seeking more time to enable them to complete the certification process.

    He said to determine the readiness of various operators, the CBN engaged the services of three Qualified Security Assessors to conduct pre-certification assessment of the banks.

    The result, he said, showed that while many banks had complied with the certification, many are still at different stages of compliance.

    He said with this extension, banks, processors and switches are expected to comply before the end of the deadline.

    The validation of PCI DSS compliance is performed yearly, either by an external Qualified Security Assessor (QSA) that creates a Report on Compliance (ROC) for organisations handling large volumes of transactions, or by Self-Assessment Questionnaire (SAQ) for companies handling smaller volumes.

    The CBN had earlier released card issuance and use guidelines for the financial services sector. Fatokun said power to issue the guideline was derived from Section 47 (3) of the CBN Act 2007. He said industry stakeholders who process, transmit, and or store cardholder information should ensure that that their terminals, applications and processing infrastructure comply with the minimum requirements for the sector.

    The CBN director said that all terminals, applications and processing infrastructure, should also comply with the standards specified by the various card schemes.

    Fatokun said only banks licenced by the CBN with clearing capacity shall issue payment cards to consumers and corporations in the country. He said banks without clearing capacity can issue in conjunction with those with clearing capacity.

    Also, all banks should seek approval from the CBN for each card brand they wish to issue.

  • Banks may raise $2.5b in bonds

    Banks may raise $2.5b in bonds

    Banks may raise about $2.5 billion this year, compared with the $2 billion it raised in 2013, according to FBN Capital, the investment-banking unit of Nigeria’s largest bank by assets, FBN Holdings Plc.

    Analysts said international debt sales are becoming more common as yields on Nigerian Eurobonds due July, 2023, declined 96 basis points this year. That compares with an average 35 basis-point drop in emerging-market yields, according to Bloomberg indexes.

    The Central Bank of Nigeria (CBN) last month changed the way lenders calculate capital buffers. The regulator ordered banks it considered too big to fail to boost minimum capital ratios to 16 per cent last year, compared with 10.5 percent for South African lenders, which control most of the continent’s banking assets.

    “Capital adequacy for many of the banks will be close to the minimum” once the changes are taken into account, Mike Nwanolue, an analyst at Lagos-based Greenwich Trust Group Ltd. Told Bloomberg.

    The CBN removed some assets lenders can count as capital in preparation for the implementation of Basel II and III, while limiting Tier 2 capital to 33 percent of Tier 1 capital, according to an August 5 circular from the regulator.

    Minimum capital requirements for lenders with operations outside the country was kept at 15 percent and at 10 percent for those with interests only in Nigeria.

    The changes will shave 100 to 400 basis points off the capital adequacy ratios of most banks, Adesoji Solanke, an analyst at Renaissance Capital in Lagos, said.

    Policy makers in 2010 set up the Asset Management Corp. of Nigeria, which spent N5.6 trillion  buying bad loans while taking over three of the eight banks it rescued with a N620 billion.

    Two of the lenders, Mainstreet Bank Ltd. and Enterprise Bank Ltd., will be sold to new owners by September 15, AMCON Chief Executive Officer Mustafa Chike-Obi said in June. Divestment of Keystone Bank will follow.

  • How reporting standards can enhance banks’ profitability

    How reporting standards can enhance banks’ profitability

    Banks which adhere to transparent and efficient reporting standards and improve risk management structure, will be rewarded with higher returns on investment. COLLINS NWEZE writes on steps taken by banks to achieve enhanced and sustainable reporting standards amid declining earnings.

    In recent times, banks’ profits have come under intense pressure due, mainly, to tight regulatory policies. But there is reprieve around the corner. The solution, many analysts said, lies in their ability to adopt improved reporting standards.

    The practice, the proponents said, remains a condition for them to achieve higher profitability, and ensure responsible as well as sustainable business practices.

    Such acts are expected to enhance banks’ overall risk management, reduce cost of operations, create more avenues for fresh capital inflows and ability to attract and retain talents.

    Although the lenders are facing tougher regulatory environment based on the Central Bank of Nigeria (CBN) commitment to corporate governance and accountability, the easiest way to meet regulatory expectations remains, largely, adopting and implementing sound reporting standards. Some of the lenders’ second quarter results showed that the regulatory headwind is impacting negatively on their profitability.

    For instance, the half-year ended June 30 result of Skye Bank indicated that its Profit Before Tax (PBT) dropped to N7.266 billion as against N10.545 billion during the corresponding period in 2013.

    Profit After Tax (PAT) also decreased to N5.786 billion as against N8.428 billion the previous year.

    For Fidelity Bank Plc, the PBT dropped by 16 per cent from N11.2 billion to N9.43 billion. Total customer deposits also declined by five per cent to N766 billion.

    GTBank recorded a 6.92 per cent drop in PBT to N53.40 billion, compared with N57.36 billion last year June, while PAT stood at N44.01 billion, lower than N49.01 billion in June 2013.

    Although UBA Plc got 8.7 per cent increase in gross earnings from N127.25 billion in 2013 to N138.32 billion this year, its profit before tax dropped by 13.1 per cent to N28.89 billion, compared with N33.25 billion in 2013.

    FirstBank of Nigeria’s result showed that PBT dropped by 12 per cent to N48.25 billion against N54.81 billion recorded in same period of last year. Likewise, PAT declined by 19.4 per cent to N37.18 billion from N46.1 billion in 2013.

    Speaking at the G4 Sustainability Reporting Guideline Training Workshop recently held in Lagos, Access Bank Group Managing Director, Herbert Wigwe said for a business to be truly sustainable, it must maintain not only the necessary environmental resources, but also its social resources, including employees, customers (the community), sound reporting standards and its reputation.

    He said Access Bank has been collaborating with the Global Reporting Initiative (GRI) Focal Point South Africa, Swedish International Development Cooperation Agency, (SIDA) and Thistle Praxis on sustainability capacity building workshop in the country.

    He said the workshop was designed to provide participants with requisite knowledge of sustainability reporting, help them manage the reporting process and benefit from the transparency of adopting such standards.

    “Additionally, the programme provides a strategic opportunity for advancing the shared mission of mainstreaming sustainability reporting into business practices Nigeria and Africa as well as enhancing the presence of the Global Reporting Initiative in Nigeria at the national and regional levels,” he said.

    Wigwe who was represented by the bank’s Chief Risk Officer, Gregory Jobome, said sustainability and responsible business practices are important to the bank and consistent with its vision, in championing and supporting such initiatives across Africa.

    Access Bank had in the past, organised several workshops and conferences, notable amongst which are the Nigerian Sustainability Banking Principles (NSBP) Steering Committee Meeting in partnership with IFC and Access Conference 2013 where global leaders deliberated on the theme “Embracing Sustainable Leadership.

    “These corporate actions are a testimony to the bank’s sustained efforts at nation building and support for the Nigerian financial services sector in achieving a seamless integration of sustainable business practices into the core of its business operations,” Wigwe said.

    Head, GRI Focal Point South Africa, Douglas Kativu, encouraged Nigeria banks and government agencies to improve on the standard, in the practice of sustainability reporting, given the size and relevance of the country to global economy.

    These have prompted campaigns that the global community should consistently review business decisions and their environmental impact to make the earth truly sustainable in the long term.

    Chief Executive Officer, Thistle Praxis Consulting, Ms. Ini Onuk, said the workshop was able to improve participants’ capacity to present sustainability reports in a manner that demonstrates linkages between strategies and commitment to sustainable global economy.

    This, she said, would help organisations measure, understand and communicate their economic, environmental, social and governance performance accurately, the world will become more accountable.

     

    Stakeholders’ roles

    The GRI Focal Point South Africa, works to promote the importance of transparency for markets and better knowledge of sustainability reporting (SR) in key target markets on the African continent, as well as in the SADC region.

    It is also committed to building and strengthening sustainability performance and reporting capacity as well as shaping the reporting environment by influencing public policy and market initiatives.

    Also, the SIDA is a government organisation under the Swedish Foreign Ministry that administers almost half of Sweden’s budget for development aid while the ThistlePraxis Consulting is a Strategy and Assessment Management Consulting firm that assists organisations of all sizes and in all sectors through the delivery of innovative solutions from effective strategies.

     

    IFC partnership

    Access Bank Plc, International Finance Corporation (IFC) and other signatories of the NSBP last year advocated a holistic implementation of the policy in order to contribute to the development of the economy.

    The stakeholders noted the need to encourage knowledge and experience sharing among industry players and other international organisations if the objective of the NSBP would be achieved.

    According to the Chairman of the committee, Jobome “the conference was convened to foster a holistic implementation of the NSBP by encouraging knowledge and experience sharing amongst industry players and other international organisations like the IFC and Sustainable Finance Limited.”

    He explained that the bank’s objective as the Chair of the NSBP Steering Committee, and Co-host of the event was to encourage practices that would aid the actualisation of the objective of the committee in ensuring the successful implementation of the Nigeria Sustainable Banking Principles across Nigeria’s financial institutions.

    Jobome added that the NSBP was developed by and for the banking sector in Nigeria to signal the industry’s commitment to economic growth that is environmentally responsible and socially relevant, noting that the bank has successfully embedded sustainability into the core of its operations by initiating capacity development of its employees. This, he said would ensure that all staff understand what sustainability means.

     

    Regulatory backing

    The CBN and Nigeria Deposit Insurance Corporation (NDIC) have provided regulatory support and framework for the sustainable banking practice in the country.

    The CBN and NDIC want banks to shift focus from profitability alone and consider also other issues around sustainability, before lending.

    The United Nations Environment Programme (UNEP), through its UNEP Financial Initiative on the Environment and Sustainable Development at the Earth Summit in 1992, placed it as pertinent concern for financial systems across the world.

    It said sustainable banking in Nigeria, therefore, is focused on energising the influence of the banking sector (being financier of economic and social activities) towards transforming the longer term interest of environmental preservation and societal balancing into key parameters for allocation of capital.

     

    Oil sector funding

    The CBN said if the oil companies that degrade the environment and their cohorts in other sectors are starved of funds from both local and international banks, they will have no choice than to comply.

    It called for an urgent need for a policy ensuring that people who do not carry on their businesses in environmentally unfriendly manner and get away with it. It  said the agenda would be presented to the Bankers’ Committee to agree on the way it can be realised. The reason is that as an industry, banks cannot continue to take savings and deposits from Nigerians and then, lend to companies that are destroying the environment.

    “Why must Nigeria bring multinational oil companies to destroy our environment? How do we feel about it? They can get the funds and still use it in a responsible manner. I want to see more banks coming to identify with issues of sustainability and protection of the environment,” it said.

    It said banks should not just look at profitability of lending decisions, but should also consider contributions of the borrower to the environment.

    The apex bank however, admitted that such might be an uphill task in a highly competitive banking sector ‘where dog eats dog’. “How can banks do that when they are competing for accounts? Banks should stop looking at size of balance sheet but on how to build sustainable finance,” it said.

    For the regulator, competition in the sector has drastically risen, compared with what was obtainable in the 80s. It therefore admitted that the policy may be stalled by banks not wanting to lose businesses to competitors that care less about the environment, where a borrower has not adhered to set standards.

    Besides, the global environmental impact of businesses, which are largely financed by the banking industry, suggests that the sector has not given adequate attention to environmental impact of their funding activities. It said the tendency to view banking as an environment friendly business is commonplace as it seemed, on the surface, not to be harming the environment and society directly.

  • Ship owners owe banks $3b

    • Seek removal of waiver clause

    Indigenous shipping firms are owing  Banks a whopping $3billion, the Nigerian Shipowners Association (NISA) has said.

    The group said the inclusion of the waivers clause in the Cabotage Act has added to their problems as it has boxed them into a disadvantaged corner. They, therefore, urged the Federal Government to expunge the clause from the Coastal and Inland Shipping Act (Cabotage Act of 2013).

    The group said the removal of the waiver clause would improve the business of indigenous shipowners.

    Its Chairman, Chief Isaac Jolapamo, told The Nation that about 50 per cent of indigenous shipping firms have been thrown out of business due to poor implementation of the Cabotage Law.

    He said NISA made the same appeal at the stakeholders’ meeting they held with the Minister of Transport, Senator Idris Umar on policy guidelines for the granting of ministerial waivers under the Cabotage Law.

    “The removal will help to address the plight of indigenous ship owners whose businesses have been damaged,” Jolapamo said, adding that it was sad that indigenous ship owners were not doing well in spite of the fact that they started maritime business in the country.

    Its Secretary, Capt. Niyi Labinjo, also called for the removal of the waiver clause, arguing that their members were owing banks several billions of naira. The waiver clause, according to Labinjo, has been made more important by the government at the detriment of implementation of the Cabotage Law itself.

    “I am alarmed at the kind of vessels that are granted waiver in Nigeria. Instead of giving waivers to specialised vessels in consonance with the dreams of the initiators of the Act, we end up giving waivers to anchor handling and tankers, which the Act did not envisage  for waiver.

    “In other climes, they do not leave the administration of waiver to be handled by busy government officials, rather an all-inclusive exercise where applications were received by the agency concerned and forwarded to the stakeholders who do the needful and make recommendations to the implementing agency, which now carry out the recommended action,” Labinjo said.

  • ‘Industry risk for securities firms generally higher than banks”

    Securities firms generally have higher industry risk than traditional banks that focus on commercial banking and not investment banking, Standard & Poor’s Ratings Services has stated.

    In a report on ongoing efforts to increased rating criteria for securities firms, Standard & Poor’s (S & P) outlined that the main reasons for the higher level of risks in the securities business are typically because of securities firms’ lower level of regulatory oversight, lack of access to central bank funding or other ongoing support compared with prudentially regulated banks, and higher competitive risk.

    The report generally described securities firms to include firms that engaged in a wide variety of securities-related businesses, most notably retail and institutional securities brokerage, debt and equity underwriting, mergers and acquisitions and corporate restructuring advisory, securities sales and trading, and principal investing and proprietary trading.

    According to the report, securities firms’ financial performance is typically more volatile than traditional banks because their often less-diversified businesses are more subject to prevailing capital markets and competitive conditions.

    “Securities firms’ economic and funding risks are typically higher in countries with structurally less liquid or more volatile capital markets. In countries with historically more liquid and less volatile markets, the sector is still more exposed to market downturns and economic conditions. For instance, an uncertain economic outlook that tempers corporate activity and investors’ risk tolerances has historically contributed to greater earnings volatility for securities firms than traditional banks,” S & P stated.

    The report noted that revenue volatility hinders the ability to generate stable and recurring earnings sufficient to offset risk of capital losses due to trading activities adding that excessive leverage and risk or large holdings of illiquid assets further increase vulnerability to confidence erosion, potentially large losses, and liquidity constraints during times of financial stress.

    The report pointed out that the industry risks for securities firms are exacerbated when securities firms use excessive short-term wholesale funding, leverage, or holdings of less liquid, higher risk assets, as investment banks demonstrated during the financial crisis.

    “In times of financial stress, we believe that such a funding profile renders a firm more vulnerable to sudden confidence erosion and liquidity constraints than retail deposit-funded institutions, and such a portfolio exposes the firm to potentially large and rapid asset write-downs. Conversely, those firms with largely agency business models; limited leverage, principal credit, and market risk; and mostly recurring revenue can potentially overcome their higher industry risk to be rated as high or higher than the anchor of a traditional bank. However, we anticipate that only a few independent securities firms are likely to achieve this,” the report stated.

    The report outlined that the past 20 years have provided examples of how the securities firms sector’s cyclicality has played out. The most severe recent downturn in the securities industry began in 2007, before the downturn in the general economy, and started to recover sooner–as the surge in fixed-income trading revenues and improved results in equities trading, helped by the rebound in many stock markets, in 2009 attest. The downturn of most of the United States securities industry in 2001 and in many Asian countries in 1997 coincided with general recessions. However, investment banks were uniquely affected by the sharp rise in interest rates in 1994, the Russian default, and the industry rescue of the long-term capital management hedge fund in 1998, while retail and other securities firms in many markets were much less affected by these events.

    “The perils of migrating from distributors of securities to large holders of risk were made evident in the massive losses many investment banks sustained during the most recent crisis. The experience of the large US independent investment banks in 2008 is an extreme example of this and shows the high volatility and confidence sensitivity that investment banking can be subject to. By the end of that year, the five formerly independent investment banks, which were among the largest in the world, had either converted to bank holding companies, failed, or were acquired by a larger banking group,” the report noted.

    The report estimated that for countries with mature securities industries, the peak-to-trough decline in revenue in the 2006-2009 cycle was typically about 50 per cent more severe for the securities industry than it was for banks.

    S & P stated that the competitive dynamics of securities firms are frequently weaker than those of traditional banks given their typically less diversified businesses, less stable revenue, and higher vulnerability to competition as new companies enter the market.

    “In addition, since securities firms are both buying and selling, securities firms run the risk of real or perceived conflicts of interest that may raise litigation risks and, if poorly managed, can damage a firm’s franchise and revenue streams. In particular, we view the competitive dynamics of investment banking as unfavorable given the overcapacity and incentive to increase risk that emerges as part of the business cycle. Securities firms’ investment banking and trading activities can deliver attractive headline returns, but as a cycle turns, firms tend to take on more risk to maintain market shares and revenue,” the report stated.

    It noted that securities firms are often at the cutting edge of financial innovations with new products that make risk management more difficult and dependent on mathematical models and assumptions adding that this complexity, coupled with the myriad transactions firms often enter into and the need for them to protect proprietary trading strategies, may result in a lack of transparency from the perspective of analysts and investors, which can exacerbate the market’s reaction to surprises.

    According to the report, where securities firms do not have a central bank to act as a “lender of last resort,” it increases their funding risk relative to banks. Lack of such a liquidity backstop increases the confidence sensitivity of securities firms’ creditors, particularly in times of systemic stress. When the market loses confidence, collateral requirements can increase as counterparties demand credit protection, revenue can dry up if customers walk away, and access to wholesale funding can become more expensive as investors charge a higher risk premium–or access can disappear if they refuse to take the firm’s credit risk.

    “For better or worse, lack of central bank access makes securities firms more dependent on local capital markets, banks, and any government or industry funding mechanisms. The extent to which securities firms fund themselves in the organized capital markets is higher than that of the average bank, which makes them more vulnerable to local securities market liquidity, particularly short-term funding dislocations,” S & P stated.

     

  • Banks mount disinfectant points

    Banks mount disinfectant points

    With the mounting fears of possible outbreak of the deadly Ebola virus disease in states across the country, banks in Kogi State appear to have devised counter-measures to check the menace.

    The Nation observed that some of the banks around Lokoja, the state capital, have put in place measures to keep the disease out of the state and from disrupting their operations.

    At the Access Bank branch located along the ever busy Murtala Mohammed Road in the commercial heart of the city, customers who entered the premises were made to advance to a point where they wash their hands before proceeding into the banking hall.

    At the point where a water dispenser, a wash hand basin, liquid soap and serviette  are on display, customers are politely asked by a team of staff stationed there to wash their hands before they are allowed to proceed.

    Inside the banking hall, tellers and other staff attend to customers with gloved hands and other protective gears across the lower part of their faces.

    The pattern was observed in other banks visited around the area, where sundry sanitary measures were put in place to keep away the dreaded Ebola virus disease.

  • Banks, others rush for N220b MSME’s fund

    Banks, others rush for N220b MSME’s fund

    The Central Bank of Nigeria (CBN) has been inundated with requests to draw from the N220 billion Micro Small and Medium Enterprise (MSME) fund, The Nation has learnt.

    The loan applications are money deposit banks, microfinance banks (MfBs), finance companies (FCs) and designated non-financial businesses and professions (DNFBPs).

    They sent the applications following a meeting with stakeholders at the CBN Headquarters in Abuja last week to review the drawdown guidelines, sources said.

    It was learnt that beneficiary institutions can come for fresh applications when the previous loan is paid. The source said no one has benefited from the fund since it was released last year because CBN wanted to agree with stakeholders on the drawdown criteria.

    The 80:20 ratio for on-lending to micro enterprises and Small and Medium Enterprises (SMEs), and request that 60 per cent of the fund, representing N132 billion be earmarked for providing financial services to women-owned businesses, is being reviewed in the final guidelines approved at the meeting.

    The clause that participating financial institutions can only finance agricultural value chain activities; trade and general commerce; cottage industries and artisans, among others, is also on the table for review.

    CBN said to ensure that productive sectors continue to attract more financing necessary for employment creation and diversification of the economy, a maximum of 10 per cent of the commercial component of the fund will be channelled to trading and commerce. This clause, the source said, is also under review.

    CBN Governor Godwin Emefiele said MSMEs were globally recognised as the critical engines of economic growth due to their potential to creating jobs, boost production, generate income, and reduce poverty. Despite this recognition, MSMEs in the country do not have the adequate financing needed to play this pivotal role in the development trajectory.

    A joint report by the International Finance Corporation (IFC) and McKinsey said the financing gap of this critical sub-sector of the country is about N9.6 trillion as of 2010.

    The N220 billion, they said, is meant to address this gap and unlock the potential of the MSMEs  as an innovative way of improving their access to finance, thereby shoring up their potentials for job creation, and enabling them to reduce poverty within the country.

    Emefiele said the CBN would be committing human, material, and financial resources to monitoring both the disbursement and utilisation of the funds by participating financial institutions. These stakeholders, he said, will be required to submit periodic returns on disbursements as well as an analysis of the social impacts of the Fund adding that the regulator will also undertake regular on and off site checks to ascertain veracity of the reports received.

    “This effort is in furtherance of the bank’s earlier endeavor at establishing six Entrepreneurship Development Centres (EDCs) in each Geopolitical Zone to support the mandate of the 23 Industrial Development Centres (IDCs) under the purview of the Small and Medium Enterprises Development Agency (SMEDAN),” he said.

    Emefiele said while the micro-loans will be administered through private or state owned microfinance institutions, Finance Houses, and Cooperative Finance Agencies, the SME loans will be disbursed through the DMBs. State governments will be able to access up to N2 billion each for on lending to eligible beneficiaries through participating financial institutions in their states.

    He said the fund is also in conformity with CBN resolve to create a professional and people-centred Central Bank that will act as a financial catalyst for job creation and inclusive economic growth.

    “While these are our ultimate goals, our main intermediate objective is to ensure that these funds get to people at the very bottom of our social pyramid at single digit interest rates. Without achieving this intermediate objective, I have no doubt that it would be impossible to achieve the ultimate goal of job creation and poverty reduction,” he said.

  • New CBN policy may spur new fund raising as banks readjust capital

    A recent directive on exclusion of non-distributive regulatory reserve and other reserves in the computation of the capital base of banks and discount houses could quicken the pace of fund raising by banks and other financial institutions.

    Many banks have been raising funds in recent period. Diamond Bank is currently raising N50.4 billion new equity funds. Unity Bank had recently closed application list for a combined new equity issue of N39 billion. Wema Bank and Sterling Bank had earlier raised new equity funds.

    The Central Bank of Nigeria (CBN) last week in a circular to all banks and discount houses highlighted details on the exclusion of non-distributable regulatory reserves and other reserves in the computation of regulatory capital of banks and discount houses.

    The highlights of the circular indicated that the regulatory risk reserve will be excluded from the regulatory capital when computing the  Capital Adequacy Ratio (CAR), collective impairment on loans and receivables and other financial assets will henceforth not form part of Tier-2 capital, other comprehensive income reserves will be recognised as part of Tier-2 capital but limited to 33.3 per cent of total Tier-1 capital and while unaudited other comprehensive income gains will not be recognised as part of capital, unaudited other comprehensive income will be deducted from total qualifying capital.

    The circular, which implementation started immediately, was part of efforts to ensure more prudent assessment of the regulatory capital of Nigerian banks and in line with global efforts aimed at raising the quality and loss absorbency of the capital base of banks.

    Capital market pundits said the new policy would significantly impact on the capital adequacy ratios of banks and might spur them to seek additional equity funds to bolster their capital base.

    Increased fund raising by banks, which represent the most active block in the capital market and control nearly one-fifth of total market capitalisation at the Nigerian Stock Exchange (NSE), is expected to enliven the primary market.

    Analysts at Afrinvest (West Africa) noted that the new policy would further exert pressure on the banks’ capital adequacy ratios in the third quarter of 2014, when the policy will be used in calculating third quarter earnings and financial statements.

    The capital adequacy ratios of tier 1 banks had declined to 20.0 per cent by the end of 2013 as against 23.3 per cent in 2012.

    Analysts pointed out that the regulatory risk reserves accommodates the difference between the allowance for impairment losses on loans and advances based on CBN’s prudential guidelines compared with the loss incurred model used in calculating impairment charges under International Financial Reporting Standards (IFRS).

    A review of the banks’ capital adequacy ratios (CAR) as at first half 2014 showed that Ecobank Transnational Incorporated (ETI) has the lowest CAR at 16.0 per cent, at par with the 16.0 per cent regulatory requirement for systemically important banks (SIBs). FBN Holdings has 17.6 per cent, slightly above the requirement for SIBs. Among tier 2 banks, Diamond Bank has the lowest CAR with 17.3 per cent, which underlined the strategic importance of the bank’s ongoing rights issue.

    “The recently introduced 33.3 per cent Tier-2 ceiling of total Tier-1 capital, places a restriction on some of the banks that intend to raise further Tier-2 capital in the second half of 2014, hence, they may be forced to explore the Tier-1 capital’s equity raise option,” Afrinvest stated.

    Analysts noted that the new policy would increase confidence of foreign banks in Nigerian banks, based on the stringent capital requirement, which is in tandem with global counterparts, noting that in the light of Nigerian banks’ exposure to the Eurobond market, the prospects of volatility or depreciation in foreign exchange can be significantly absorbed.

    The new CBN policy comes in the wake of impending implementation of the Basel II by the Nigerian financial services authorities. The Nation had recently reported that Nigerian banks might raise some N400 billion in the current capital raising phase to strengthen their capital base in view of the impending implementation of the Basel II.

    Basel II seeks to strengthen banks’ risk and capital management through three main areas, otherwise known as pillars. The first pillar deals with minimum capital requirements, the second pillar deals with supervisory review process while the third pillar deals with processes relating to market discipline. The pillars generally ensure that the greater the risk to which a bank is exposed, the greater the amount of capital and required supervisory framework.

    After initial delay, Nigeria has set October 31, 2014 as the cut-over date for the implementation of Basel II.

    Market sources had noted that while the average capital adequacy ratio in the Nigerian banking industry is currently high and most banks are above regulatory benchmark, banks might need to support their adequacy ratios, which are expected to fall after the cut-over.

    Several analysts’ reviews on the banking sector have outlined capital raising as a major theme for the Nigerian banking sector citing new regulations and emerging business opportunities.