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  • CBN limits banks’ Tier 2 Capital to 33%

    CBN limits banks’ Tier 2 Capital to 33%

    The Central Bank of Nigeria (CBN) has pegged Tier-2 or supplementary capital for banks at 33.3 per cent of Tier-1 Capital.

    The CBN in a circular to banks signed by the Director, Banking Supervision, Mrs. Tokunbo Martins, said, henceforth, total Tier Two capital, including Other Comprehensive Income (OCI) Reserves should be limited to 33.33 per cent of total Tier One capital.

    Tier 2 capital is supplementary bank capital that includes such items as, revaluation reserves, undisclosed reserves, hybrid instruments and subordinated term debt.

    A bank’s reserve requirements include its Tier 2 capital in its calculation, but it is considered less reliable than its Tier 1 capital.

    Mrs. Martins  pointed out that lenders are required to note that unaudited OCI gains will not be recognised as part of capital, while unaudited OCI losses shall be deducted from the institution’s capital in arriving at total qualifying capital.

    The circular, titled: ‘Exclusion of Non-Distributable Regulatory Reserve and Other Reserves in the Computation of Regulatory Capital of Banks and Discount Houses,’ said the policy is part of the ongoing reforms by the regulator aimed at ensuring more prudent assessment of the regulatory capital of Money Deposit Banks.

    She said this is also in line with global efforts aimed at raising the quality and loss absorbency of the capital base of banks.

    The regulator said that the Regulatory Risk Reserve created pursuant to Section 12.4 (a) of the Prudential Guidelines which was effective on July 1, 2010, will henceforth be excluded from regulatory capital for the purposes of capital adequacy assessment.

    Also, collective impairment on loans and receivables and other financial assets will henceforth not form part of Tier 2 capital, while OCI Reserves will be recognised as part of Tier 2 capital, subject to the limits set in the CBN Guidance Notes on the Calculation of Regulatory Capital.

    Mrs. Martins said the provisions of this circular supersede the provisions of S. 12.4 (b) of the Prudential Guidelines as well as S. 2 of our Guidance Notes on the Calculation of Regulatory Capital.

  • FBN Capital is lead arranger for Oando’s Conoco Phillips deal

    FBN Capital is lead arranger for Oando’s Conoco Phillips deal

    CBN Capital Limited acted as Joint Mandated Lead Arranger, Facility Agent and Financial Modeling Bank on the Oando Energy Resources (OER) acquisition of Conoco Phillips Facility. The facility, an Oil Mining Licences (OMLs) 60, 61, 62, 63, 131 and 145 (the Target Assets) is located in an oil and gas producing zone in the Niger Delta.

    The landmark deal of about $1.6 billion was financed with a combination of debt and equity. The debt portion comprised a $450 million RBL facility provided by both Nigerian and offshore banks and a $350 million Corporate facility provided by Nigerian banks, leveraging OER’s existing portfolio comprising OMLs 90, 13, 56 and 125/134.

    Also, the funds were provided by FirstBank of Nigeria Limited, Diamond Bank, FCMB, Ecobank, Zenith Bank, UBA, Vitol and Enterprise Bank.

    Other financial parties to the transaction include FBN Trustees as Security Agent; First Bank of Nigeria Limited as Hedge Provider; and FCMB Capital Markets also as Joint Mandated Lead Arranger.

    Chairman, OER, Adewale Tinubu said: “We believe in the significant potential that the Nigerian oil and gas industry holds and are privileged to play a pivotal role in its consolidation, growth and development. We will continue to seek strategic opportunities that provide a platform for enhanced growth and value creation for our stakeholders”.

    Chief Executive Officer, OER, Mr. Pade Durotoye said: “This transaction represents a transformational leap forward for our Company and is in keeping with our overall strategy to grow our portfolio of Nigerian-based assets by focusing on those opportunities that deliver high quality growth in reserves and production.”

    the instrumental role we played in assisting OER with structuring and arranging the financing for the acquisition”. We feel a strong sense of responsibility to support the development and growth of indigenous companies in the upstream oil and gas sector, and will continue to deploy our resources and expertise towards enabling these companies to meet their financial and strategic objectives”.

    Speaking on the transaction, Director and Head Debt Solutions, FBN Capital Limited, Patrick Mgbenwelu said: “We appreciate the responsibility and trust OER has placed with FBN Capital to advise and arrange the financing for the acquisition of the Conoco Phillips’s assets in Nigeria.  FBN Capital remains committed to further strengthening this relationship, and to supporting OER and Oando Plc in realizing their future financing goals and objectives”.

     

  • CBN to resuscitate 82acres staff estate in Ibadan

    CBN to resuscitate 82acres staff estate in Ibadan

    Work will soon commenced on the abandoned 82 acres of Central Bank of Nigeria’s (CBN) staff estate located in Owode, Apata area of Ibadan, the Oyo state capital.

    The CBN’s Deputy-Governor (Corporate Services), Mr. Bayo Adelabu gave this assurance while on the on-spot assessment of the multi-million naira property designed as housing units for its staff but which unfortunately had been abandoned and allowed to suffer neglect.

    Adelabu who led a team of staffers within Ibadan office of the CBN to the area, lamented the culture of waste and undue neglect that “this very massive property containing several blocks of housing units has been made to go through in a way that this place is in a state of neglect.”

    “But CBN under the current leadership of our Governor, Godwin Emefiele is a sensitive, responsible organization. You recall there was a news item in a newspaper about the neglect of a property which belongs to CBN last week. Immediately we read the news, we have to respond promptly because it is our belief that a very massive property containing several blocks of housing units that is in a state of neglect must be brought back to life,” Adelabu told reporters in Ibadan.

  • CBN,MfBs to meet on disbursement of N220b

    CBN,MfBs to meet on disbursement of N220b

    The Central Bank of Nigeria (CBN) is to meet operators of Finance Companies (FCs), Microfinance Banks (MfBs) and Designated Non-Financial Businesses and Professions (DNFBPs) tomorrow to finalise the guidelines for the disbursement of the N220 billion Micro, Small and Medium Enterprises Development Fund.

    The meeting, the fourth  to be held at the CBN headquarters, is meant to rejig the initial disbursement guidelines released by the apex bank after the fund was launched last year.

    Stakeholders are expected to finalise the guidelines to enable participating institutions to access the revolving loan.

    The stakeholders  met last week but could not agree on key issues,  such as allowing Deposit Money Banks (DMBs) to have access to the fund, hence tomorrow’s follow-up.

    The 80:20 ratio for on-lending to micro enterprises and Small and Medium Enterprises (SMEs) and the request that 60 per cent of the fund, amounting to N132 billion, be earmarked for providing financial services to women-owned businesses, are also being discussed.

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

    The banking watchdog said to ensure that productive sectors of the economy continue to attract more financing necessary for employment creation and diversification of the country’s economic base, a maximum of 10 per cent of the commercial component of the fund would be channelled to trading and commerce. This clause, the source said, is also under review.

    CBN Governor, Godwin Emefiele, said at the N220 billion MoU Signing Ceremony between the CBN and participating state governments, that MSMEs are globally recognised as the critical engines of economic growth due to their potential to create jobs, boost production, generate income, and reduce poverty.

    Despite this recognition, MSMEs  do not have the adequate financing needed to play this pivotal role in its development trajectory.

    A joint report by the International Finance Corporation and McKinsey, stated that as at 2010 the financing gap of this critical sub-sector  is about N9.6 trillion.

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

  • NERFUND: Govt may extend bidder exit date for interim managers

    NERFUND: Govt may extend bidder exit date for interim managers

    The Ministry of Finance (MoF) may extend October deadline for the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) to hands off the management of the National Economic Reconstruction Fund (NERFUND), The Nation has learnt.

    The extension is to enable the  interim management team complete NERFUND resuscitation.

    The team was seconded last October 14 to overhaul NERFUND following a N5.7 billion loss. Its tenure is expected to end on October 13.

    The team is headed by Muhammad Gidado Kollere of the NDIC as Managing Director/CEO; Ihua Elenwor of the CBN is the Executive Director, Operations.

    The managers are to recover outstanding loans and reconciliate all accounts with correspondent banks. They are also expected to render quarterly reports to NERFUND’s board, headed by the Permanent Secretary, MoF.

    An insider at NERFUND said the agency’s receivership is for one year, after which a substantive Managing Director will be appointed.

    The source said there is intense lobbying for the job.

    “You see, these managers from the CBN and NDIC may not want to quit when their tenure expires in October. They are more professional than the past managers of the Fund. They are also likely to seek extension of their tenure,” the source said.

    The source said the CBN/NDIC team has been able to restructure some of the ‘political loans’ that led the Fund into incurring losses. “Majority of the political loans that dented the balance sheet of the FUND has been restructured, and collateral secured,” the source said.

    The source also faulted the N5.7 billion loss claim by the government, saying the total amount NERFUND obtained from government since inception is not up to that amount. The Fund received N2.8 billion in 2010, and $141 million from the Africa Development Bank (AfDB) at an exchange rate of N9.9 to a dollar, in 1991.

    NERFUND also got another N350 million loan from the Federal Government. The source said the cumulative funds, made available to NERFUND till date, are below N4 billion.

    The source said there are also plans to restructure the operations of the Fund.

    This may necessitate the merger of NERFUND with the Bank of Industry (BoI) to deepen credit access to small and medium enterprises (SMEs).

    NERFUND was established by Decree No. 2 of 1989 to provide medium to long-term loans to participating banks (PBs) for on-lending to small medium enterprises (SMEs) for the promotion and acceleration of productive activities in such enterprises.

    The government took over the Fund following President Goodluck Jonathan’s approval of the recommendations of the CBN and NDIC Joint Special Examination report on its books. It claimed that the capital invested in the institution by the Ministry of Finance had been eroded with the gross losses.

    The Fund, it was learnt, has not been able to service loans taken for on-lending from the AfDB, the MoF and other sources. The source said the agency’s last governing board was dissolved in 1993, adding that it was being run by an Interim Management Committee headed by Permanent Secretary, MoF before the CBN/NDIC team came on board.

    The source said the firm has over time canvassed for reconstitution of its corporate governance board, recapitalisation and total restructuring. There were also previous plans to merge it with other Development Finance Institutions (DFIDs), which also failed.

    Conditions set for accessing the NERFUND Micro Enterprises Credit Scheme entail that prospecting businesses must be engaged in manufacturing, mining, quarrying, agro-allied, industrial support services, equipment leasing and other ancillary services.

    Besides, the enterprise should be wholly Nigerian owned and must source its raw materials for the project locally but could source plant and machinery either locally or from abroad. The projects to be financed must be financially and economically viable, and should have positive impact especially in employment creation in the operating environment.

    According to NERFUND statutes, the expected project could be a start-up, expansion, rehabilitation or diversification of existing business while the beneficiaries are expected to own 10 per cent equity of the proposed business. The prospective beneficiary must have a limited liability company or registered enterprise and can only access between N100,000 and N5 million.

  • Foreign reserves rise on dollar cuts

    The foreign reserves have been on the rise since the Central Bank of Nigeria (CBN) cut dollar sales to Bureaux De Change (BDCs) from $50,000 per week to $15,000.

    CBN said the BDCs’guidelines were modified to, among others, conserve the foreign reserves.

    Analyses of the reserves, based on data from the CBN, showed that they have risen by over $1.2 billion since June 24, when the CBN unfolded new requirements for BDCs operations, which also led to cut in dollar sales.

    The reserves which were $37.2 billion on June 24 rose to $3.84 billion on July 17. The rate of accretions to the reserves has been marginal but consistent since the dollar cut.

    The reserves were $37.23 billion, on June 25; $37.26 billion, June 26 and $37.31 billion, June 27. The reserves also rose to $37.54 billion on July 1 and continued the upbeat till current position.

    Further analysis showed that before the upbeat, the reserves had maintained a steady decline after closing last year at $42.85 billion.

    The year-end figure represented a decrease of $0.98 billion or 2.23 per cent against $43.83 billion at the end if December 2012. The reserves dropped to $38.79 billion by March 12. Analysts said the reserves declined as imports of fuel and foods soared.

    The CBN said the decrease was driven largely by the increased funding of the foreign exchange market in the face of intense pressure on the naira and the need to maintain stability. The CBN said the pressure on external reserves was deemed to be consistent with the seasonal annual payment of dividends to foreign investors.

    The CBN had on June 24, rolled out new guidelines for BDCs operation. The regulator raised the capital base for operators from N10 million to N35 million, plus additional caution deposit of N35 million to kept with the CBN at zero interest rate. The regulator also gave initial July 15 deadline for the operators to meet the requirements or close shops. The deadline was later extended to July 31.

    In a circular to all BDCs signed by CBN Director, Financial Policy and Regulation, Kelvin Amugo said the decision to extend the deadline was based on representations from stakeholders calling for it. He also said the mandatory caution deposit of N35 million would now attract interest at savings account rate.

  • CBN may keep rates unchanged as MPC meets today

    CBN may keep rates unchanged as MPC meets today

    The Central Bank of Nigeria (CBN) is expected to keep the interest rate unchanged at 12 per cent as the Monetary Policy Committee (MPC) meets today and tomorrow.

    If the MPC keeps the rate unchanged, it will be the 17th time in a row, it is taking such stance in an effort to control inflation and support the naira, a Reuters poll found.

    This week’s MPC meeting will be the first chaired by the new CBN Governor, Godwin Emefiele and will be closely watched by foreign investors and analysts.

    The former managing director of Zenith Bank struck a dovish tone on rates two days after taking office in June, saying he would seek a gradual reduction in borrowing costs, which have been stuck at 12 per cent since late 2011.

    That is much higher than the 5.75 percent in South Africa, which Nigeria overtook to become Africa’s largest economy earlier this year, and 8.50 per cent in Kenya.

    Investors perceived his comments to mark a reversal of the hawkish policies implemented by his predecessor Lamido Sanusi that were credited with curbing inflation and supporting the currency, and sold bonds and the naira.

    Emefiele has since said he would wait until after presidential elections next year before making any rate cut, and all 20 analysts polled by Reuters in the past week expected the MPC to keep the benchmark rate steady at 12 per cent.

    “Emefiele has laid out plans to cut rates in the medium term (but) we do not see any chance of this happening at July’s MPC, much less as inflation continues to creep up ahead of elections,” said Alan Cameron, London-based economist at Nigerian stockbroker CSL.

    Inflation  rose to a 10-month high of 8.2 per cent in June, closer to the CBN’s upper limit of nine per cent, after rising for four straight months this year on higher food prices and excess liquidity.

    “Higher risk premiums and fiscal profligacy related to the election will keep pressure on the currency and price growth and Emefiele and his team will not want to exacerbate that by loosening policy too aggressively,” said Matthew Searle, sub-Saharan Africa Analyst at Business Monitor International.

    “With the recent compression in fixed-income yields, as short-tenor maturities head south below the 10 percent levels, the risks of negative real rates on Nigerian assets will again resurface,” said Adedayo Idowu, economist at Vetiva Capital.

  • Senate moves financial intelligence unit from EFCC to CBN

    Senate moves financial intelligence unit from EFCC to CBN

    The Senate yesterday moved the Financial Intelligence Centre from the Economic and Financial Commission (EFCC) to the Central Bank of Nigeria (CBN).

    This followed the unanimous adoption of the report of the Senate Committee on Drugs, Narcotics and Financial Crimes which recommended for the creation of an autonomous unit to be domiciled in the CBN.

    Presenting the report, Committee Chairman, Senator Victor Lar, said the standard practice all over the world is for the unit to be autonomous and domiciled in the CBN or the Ministry of Finance.

    The centre according to the bill will be a body in Nigeria responsible for receiving, requesting, analysing, and disseminating financial intelligence reports and other information to law enforcement, security and intelligence agencies and other relevant supervisory authorities and for related matters.

    The EFCC had consistently opposed the move to relocate the unit, arguing that it will weaken the commission as it is critical to its operations and the fight against economic and financial crimes in the country.

    EFCC Chairman, Ibrahim Lamorde had told the lawmakers during public hearings on the bill that without the unit, the EFCC will be rendered ineffective.

    Also, some Senators has argued  that  the establishment of the Financial Intelligence Centre will amount to duplication of duties already being handled by the EFCC.

    The bill will have to receive concurrence by the House of Representatives before it is forwarded to the president for assent.

  • Emefiele emerges ECOWAS Central Bank Govs Chair

    Emefiele emerges ECOWAS Central Bank Govs Chair

    ECOWAS monetary union is not feasible from January 1, 2015

    The Governor of the Central Bank of Nigeria (CBN) Mr. Godwin Emefiele has been elected chairman of Committee of Central Bank Governors of the ECOWAS sub-region.

    Emefiele who was elected by fellows central bank governors from ECOWAS countries at the 31st Meeting of the Committee of Governors of the West African Monetary Zone (WAMZ) in Abuja on Wednesday  also hinted that the January 1, 2015 date for the sub-regions monetary union may not be realized.
     
    Nigeria’s Emefiele lamented to his fellow governors that “over the years, appraisals have continued to show that the level of macroeconomic convergence in the Zone remained inadequate relative to the set targets.”
     
    According to him, “since 2009, no two countries satisfied all the four primary convergence criteria consistently for two consecutive years.  Accordingly, we have missed several launch dates for the monetary union.”
     
    This development he said “may have informed the decision of the Heads of State and Government to approve the Modified Gradualist Approach to monetary integration by 2020.”

    Emefiele noted that “the performance of Member States’ on the convergence scale relative to that required for the establishment of a monetary union is still inadequate.
    ” Also member countries’ business cycle synchronization in terms of real GDP, inflation, broad money and interest rates remained weak, and their level of institutional preparedness for the monetary union remain inadequate.”
    He then urged other central bank governors “to objectively examine the numerous challenges before us, assess the state of preparedness of Member States for monetary integration at short notice, and realistically appraise the directive of the Heads of State and Government for a Modified Gradualist Approach to monetary Integration by 2020.”
    Their role he stated, “is to honestly appraise this directive and design strategies to ensure a sustainable monetary union in the zone.”
    In doing this, Emefiele urged other ECOWAS countries “to think outside the box, realistically assessing and providing innovative options as well as the costs and benefits of implementing the Modified Gradualist Approach.”
     
    He however said that member countries “have continued to make remarkable progress towards the establishment of a common market and the implementation of the ECOWAS Trade Integration Protocols and Convention as well as significant progress towards the reforms of their financial systems.”
  • ‘High risk’ banks

    ‘High risk’ banks

    •We need periodic assessment of our banks in the interest of the economy

    Central Bank of Nigeria’s (CBN) assessment of 14 “high risk” banks in Nigeria is a welcome development. The purpose of the exercise, which is probably overdue, is to bring sanity to the banking sector by applying stringent conditions for credit facilities obtained, especially by big borrowers. This has necessitated the introduction of risk-based supervision as a structural approach, focusing on risk profiles of banks as opposed to the “age-long compliance-based supervision mechanism and regulatory approach whose level of supervision is the same for all banks, irrespective of the size and the type of risk they take.

    Also, it has generally been observed that credit risk (the likelihood that a borrower will default on a debt or fail to meet a contractual obligation, such as the repayment of a debt) constitutes a threat to the survival of any bank. The risk assessment is important because many banks have died because of lack of supervision, especially in some banks with high risk appetite. For instance, a number of high risk loans were routinely given to high-standing politicians whose defaults in payment could have led to high cost of litigation against the defaulters, while delays in delivery of justice often compound the chances of loan recovery.

    Although the probability of loss is inherent in every loan, proper loan appraisal is made difficult when sufficient information is not available for screening and assessing the lenders in order to determine the level of risk involved in granting the loans. For this reason, banks should be periodically assessed to check their state of health and for early detection of likely collapse.

    But it is curious that at least six of the banks listed by the CBN as “high risk” banks made the list of The Banker Magazine’s (of the Financial Times Group) “Top 1,000 World Banks” for the second year running, in its 2014 ranking, based on the Tier-1 capital. In all though, 13 Nigerian banks made the list. But their positions, despite the report of increase in the profit on capital of three of the banks that are not foreign-owned subsidiaries, are nothing to write home about. For instance, the first Nigerian bank on the list is in the 293rd position, followed by the next 415th, then 424th, 532nd, 539th and 622nd, respectively. We do not need anyone to tell us that this is not good enough.

    While we support the CBN’s assessment exercise, this should not be a fire brigade approach but strictly a routine exercise. The banks should be periodically assessed to check their state of health. The situation in the past where we kept celebrating dying banks in ignorance is bad for the economy and should never be repeated.

    Of course we expect that the required mechanism to facilitate access to the information that the banks require to make them take informed decisions on the loans they grant will also be put in place. The banks’ knowledge about the antecedents and characters of borrowers is enough ammunition for the banks to effectively scrutinise the borrowers’ records in order to determine their risk levels. The efficiency of the screening approach may foreclose risky borrowers from securing loans and minimising defaults. The rise in default rates and the size of non-performing loans among Nigerian commercial banks may put into question the efficiency of our “banking system screening criteria” and the “stringency” of the bank screening measures.

    This is why the CBN’s assessment should be thorough. Yes, banking is about risk taking, but the risks must be responsible and sensible rather than the reckless risks that killed some of our banks in the past. When banks collapse, it is unlike when cards collapse because it is the hard-earned incomes of people that get trapped. The results, of course, are unintended economic and social consequences to the nation.