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All for a stronger naira

The naira remains unpredictable despite the efforts of the Central Bank of Nigeria (CBN) at defending it. CBN is to poised to stabilise the naira, even at the expense of exernal reserves, writes COLLINS NWEZE.

When the Central Bank of Nigeria (CBN) Governor Sanusi Lamido assumed duties about five years ago, one of his major plans was to achieve exchange rate stability. While the currencies of most emerging markets lost appreciable value, in double digit range, as at January 30, the naira has lost only 1.3 per cent of its value in the last one year.

The currency’s stability was partly driven by CBN’s direct intervention, and to a lesser extent, improved dollar supplies from its twice weekly Retail Dutch Auction System (RDAS) window. The currency closed at N162.4 to a dollar last Friday. Still, the currency remains under pressure because of structural imbalance between dollar supply and demand; and lower United States oil demand.

Sanusi described as unnecessary and uninformed, the occasional criticism that the CBN has been unduly protecting the naira exchange rate, to the detriment of other macro-economic variables. The critics, he said, did not give due consideration to the negative implications of the attendant loss of confidence by international investors in the economy.

Managing Director, Financial Derivatives Company, Bismarck Rewane, said the divergence between the official and parallel markets had widened to N20 or 12 per cent of the official exchange rate, adding that the economy is more exchange rate sensitive than interest rate. This, he said, means that a depreciating currency will have a direct impact on inflation and could be counterproductive.

External Reserves

The economy had last year recorded some impressive macroeconomic achievements despite some challenges. In specific terms, the country recorded strong Gross Domestic Product (GDP) growth, single digit inflation, exchange rate stability and capital market recovery.

However, contrary to the government’s projection of a $50 billion gross external reserve, it managed to close the year at $42.85 billion. The figure represented a decrease of $0.98 billion or 2.23 per cent compared with $ 43.83 billion at end- December 2012.

The Monetary Policy Committee (MPC) meeting of January 17, 2014 noted that the decrease in the reserves level resulted largely from a slowdown in portfolio and foreign direct investment flows in the fourth quarter of last year. This also led to increased funding of the foreign exchange market by the CBN to stabilise the currency.

The MPC, again, expressed concern over the continued depletion of the Excess Crude Account (ECA), which balance stood at less than $2.5 billion on January 17, 2014 compared with about $11.5 billion in December 2012. “This absence of fiscal buffers increased our reliance on portfolio flows thus, constituting the principal risk to exchange rate stability, especially with uncertainties around capital flows and oil price,” the committee noted.

It said accretion to external reserves remained low while much of the previous savings have been depleted, thereby undermining the ability to sustain exchange rate stability. The Committee, therefore, urged the fiscal authorities to block revenue leakages and rebuild fiscal savings needed to sustain confidence and preserve the value of the naira.

Currencies analyst at Ecobank Nigeria, Olakunle Ezun said by raising the public sector deposit, the CBN raised concerns about rising inter-bank liquidity and huge cost of monetary operations. “While there was no change to exchange rate policy, the CRR effect will be positive for the naira given the expected reduction in liquidity,” he said.

He said there was no immediate impact of the policy on interbank rate, since market liquidity is still over N1 trillion. According to him, the short end of the curve remain attractive, as concerns over naira and inflation outlook continue to influence CBN’s monetary policy regime in short term.

Global economy

Emerging markets, including Nigeria, that were major beneficiaries of cheap money from the developed nations stimulus could experience financial market instability as tapering begins. However, the United States authorities have made it clear that they remain sensitive to the impact of their domestic policies on global markets and will, therefore, aim to minimise disruptions.

Besides the concerns over the United States quantitative easing plan, Nigeria’s heavily reliant on oil revenues which at the time was witnessing a fall back in prices, were of grave concerns to stakeholders and key operators of the economy. Nigeria depends on oil shipments for 80 per cent of government revenue and 95 per cent of its export income, according to data from the Federal Ministry of Finance.

Policy measures

The MPC had left its policy rate unchanged at a record 12 per cent for more than two years consecutive meeting on January 17, concerned that excess naira in the system would trigger dollar demand, weaken the naira and exacerbate inflation.

Also, the CBN raised the level of Cash Reserve Ratio (CRR) on public sector deposits from 50 per cent to 75 per cent. Despite these measures, the naira declined as dollar inflows slowed.

Also, last month, the CBN removed the maximum weekly forex sales to Bureau De Change (BDC) operators. The action, contained in a circular to Authorised Dealers and BDC operators, said the step was meant to shore up liquidity in the forex market. Dollar scarcity in the market had affected naira exchange rate in recent months, hence, the policy review.

The circular, signed by CBN Director, Trade and Exchange, Batari Musa, said the policy review followed the circular of September 26, last year in which a limit of $250,000 was put in place.

“All authorised are hereby informed that the provisions of paragraph (1) of the circular under reference have been reviewed with immediate effect. Consequently, the limit of $250,000 as the maximum weekly forex sales to BDC is hereby removed in order to shore up liquidity in that segment of the foreign exchange market,” he said.

Henceforth, authorised dealers are free to sell forex to BDCs subject to compliance with the provisions of extant Anti-Money Laundering/Financing Terrorism laws and regulations in the disbursement of forex.

“Furthermore, all transactions between authorised dealers and BDCs as well as the latter and end-users must be supported with appropriate documentation,” he said.

Musa said authorised dealers and BDC operators are to continue to render weekly returns on their transactions to the CBN and other relevant regulatory agencies, failing which appropriate sanctions, including revocation of operating license shall be imposed.

RDAS

In September, the regulator replaced Wholesale Dutch Auction System (WDAS) with Retail Dutch Auction System (RDAS) because of the ineffectiveness of the former in addressing hitches in the forex market.

It also withdrew the licences of 20 bureaux de change (BDCs) operators for violating forex rules, an indication that more licences withdrawal may be seen in future, should the violation continue.

Under the RDAS, banks and other authorised dealers place bids on behalf of individual clients who qualify to buy forex at the official auction. The change from WDAS to RDAS allows the authorities to monitor more accurately various sources of forex demand and any potential duplication of forex demand in the system. Banks will remain responsible for all documentation requirements.

By adopting the RDAS in place of WDAS, the CBN is now able to closely monitor forex utilisation of each customer and sectors of the economy for documentation and policy formulation. This protects foreign reserves from depletion and saves the naira.

Inflation

Even though inflation has stayed under 10 per cent for more than a year, somehow meeting CBN’s target, analysts are of the opinion that it would return to its familiar double-digit terrain, if the bias towards weaker naira continues. This, mainly a fallout of the import dependent economy.

Rewane said the pressure on the naira will persist in the absence of foreign capital inflows, and especially if there are further outflows.

He insists that there is no reason markets cum economy should swerve to the slightest wind emanating abroad. Whether one likes it or not, the impact of external forces on Nigerian markets is still pronounced, and will remain so until there is paradigm shift that considers other sectors of the economy, outside oil.

Managing Director, Afrinvest West Africa, Ike Chioke said the pressure on the naira arose from a combination of falling oil production and portfolio outflows as foreign investors adjusted their positions in light of Fed comments.

“The import of that is; could there have been multiple foreign exchange earning sources, nobody would have lost sleep over oil as an oil price tumble wouldn’t have created undue uncertainty about future external reserves position and the ability of the CBN to defend the naira,” he said.

He said there is need to consistently monitor the impact of hot money in Nigeria’s markets and to grow local participation from nationals and in the Diaspora.

Naira’s long history of depreciation

The naira depreciated by N101.50 to N102.10 to dollar in 19 years, from 1980 to 2000, when compared with N0.6 to dollar it traded as at 1981, Afrinvest Research said.

In a report obtained by The Nation, the firm said not even the Structural Adjustment Programme (SAP) introduced in 1985 could have predicted this steep slide. It said the naira first hit double digits moving from N9.9 to dollar in 1991 to N17.2 to dollar in 1992, a significant 73.7 per cent change. Thereafter, a gradual slide ensued, attaining triple digits in year 2000.

It said though, the local currency was considerably stable between 2000 and 2003, below N120 to a dollar, the recent adverse global capital flows among other factors has culminated in the current all time low of N164 to a dollar rate at the interbank market.

Afrinvest listed potential strategies for more effective exchange rate management to include the incorporation of a long term diversified strategy in fiscal policy which would help cushion shocks in various segments of the economy.

It called for diversification of the economy, adding that the current over reliance on oil receipts which constitute about 96.8 per cent of the country’s total exports by the government, poses a huge threat to the stability of the economy.

It said Nigeria’s dependence on crude oil, 70 per cent of total forex earnings, makes economic growth susceptible to oil price shocks. “A decline in crude oil price therefore leads to a corresponding decline in oil receipts; which forestalls the accumulation of external reserves, creating a negative signaling effect that leads to capital flight, thus depreciating the naira,” it said.

The research firm said it has been able to establish a strong positive correlation between the exchange rate and crude oil price in Nigeria. “Based on our model, when oil price declines by $1 per barrel, the naira depreciates by about 10 cents. Assuming oil price reduces to $100 per barrel from the current $117.80 price, we should expect the naira to depreciate by N11.53 to N173.33 to a dollar,” it said.

February 5, 2014
Banks lose N750b to CRR policy

The Central Bank of Nigeria (CBN) may today start the implementation of 75 per cent Cash Reserve Ratio (CRR) policy on public sector funds.

The exercise, which would be completed by the close of work today, will see over N750 billion public sector funds leaving banks’ vaults for the apex bank.

The CRR is a portion of banks’ deposits kept with the CBN as reserves. It was formerly 12 per cent for all deposits until last July when the regulator raised that of public sector funds to 50 per cent. It was hiked again to 75 per cent at the January 17 Monetary Policy Committee (MPC) meeting.

Analysts said these policy direction in less than a year represent a major challenge for lenders, especially those that are heavy on term deposits.

A market analyst, Biodun Ekundayo said the CBN may further raise the CRR on public sector deposits from 75 per cent to 100 per cent adding that the naira has not fared better despite the hike. He said the stability of the naira is the most significant threat to the current CRR figure.

“We believe that even with the 75 per cent CRR on public sector deposits, a policy aimed at increasing the scarcity of the naira, the local currency still remains vulnerable. Market still hurts from the 75 per cent CRR on public sector deposits,” he said.

Also, pressure on the naira will continue despite the scarcity of the currency. Output leakages leading to a shortfall in government revenues, increased demand for United States (US) dollars by fuel importers will serve as pressure points for the naira. But the CBN has demonstrated that it has options.

“We believe the 75 per cent CRR on public sector deposit is a stop-gap measure on the International Monetary Fund (IMF) prescribed Single Treasury Account (STA). If the pressure on the naira persists, we believe the CBN can increase the CRR on public sector deposit even to 100 per cent which would ultimately mean it has achieved the objectives of the STA, a tool for consolidating and managing governments’ cash resources, thus minimising borrowing costs,” he said.

A report by Renaissance Capital (RenCap) showed that across its four sub-Saharan African countries, Nigeria’s banking sector has the highest CRR at 12 per cent for private-sector customer deposits plus 75 per cent for public sector deposits.

It added that it cannot rule out the possibility of further CRR hike as the regulator appears to be using the CRR as the primary monetary tool for mopping up excess liquidity.

The report read in part: “Our reading of the above is that the risk of a further hike in the CRR cannot be ruled out if the MPC sees renewed pressure on the naira. The worst-case scenario, we believe, is that the CRR on public-sector deposits could be raised as high as 100 per cent, increasing our estimate of the blended CRR in Nigeria to 23 per cent. On our numbers, the hit to interest income over a year would increase to three to 14 per cent.”

February 4, 2014
CRR hike: N750b withdrawal may unsettle market stability

Market liquidity may be threatened this week following plans by the Central Bank of Nigeria (CBN) to implement its 75 per cent hike in Cash Reserve Ratio (CRR) on public sector deposits tomorrow. COLLINS NWEZE writes on key market developments and impact of the policy on the financial sector.

The inter-bank rate, which remained steady last week, and continued to reflect improved market liquidity, may be affected by the Central Bank of Nigeria’s (CBN) plan to withdraw N750 billion from the financial system.

The fund represents about 5.09 per cent of money supply, and will be removed based on CBN’s Cash Reserve Ratio (CRR) policy in which banks must keep 75 per cent of their public sector deposits with the apex bank.

The CBN at the last Monetary Policy Committee (MPC) meeting raised the CRR on public sector deposits from 50 per cent to 75 per cent. That was after initial increase from 12 per cent to 50 per cent in July last year.

Last week, the call/overnight and seven-day money market rates were at an average of 10.5 per cent and 10.8 per cent, throughout last week. The three-month Nigeria Interbank Offered Rate (NIBOR) was also steady on 12 per cent, though fewer activities are done on the tenor. The inter-bank secured lending (Open Buy Back) was also broadly steady on 10.2 per cent on January 30.

Meanwhile, the CBN liquidity management remained active, supported by the change to CRR on public sector deposits on January 21, 2014.

The naira strengthened 0.3 per cent against the dollar in the Inter-bank but has lost 1.3 per cent of its value on January 30.

Recent stability was partly driven by CBN’s direct intervention, and to a lesser extent, improved dollar supplies from its twice weekly Retail Dutch Auction System (RDAS) window. It closed at N162.4 to a dollar.

Meanwhile, the twice-weekly CBN’s RDAS continues to be influenced by 26 Sep circular regarding USD sales to small scale importers. The naira remains under pressure due to structural imbalance between dollar supply and demand; and lower US oil demand.

Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said the MPC left all other parameters including the Monetary Policy Rate un-changed at 12 per cent, with an asymmetrical corridor of plus or minus 200 basis points. The CRR on private sector deposit was retained at 12 per cent and the liquidity ratio was unchanged at 30 per cent.

Rewane said the global economic recovery and likely impact of tapering in the US on investment flows, shows some limited amount of vulnerability on the external sector of the economy.

He said impact of this decision on money markets will be a shock effect in the short run and a re-turn to equilibrium rates within six weeks. “The first time the MPC increased the CRR on public sector deposits in August 2013, an estimated N1 trillion or 6.84 per cent of money supply was debited. At that time, the impact was a spike in interbank rates of approximately 800bps to an average of 21 per cent. Also, it coincided with the failure of two discount houses, which exacerbated the situation,” he explained.

He said the key variable that drove this decision remains the protection of the value of the naira in the foreign exchange markets. “The CBN Governor expressed some concerns about the declining trend in foreign portfolio flows. This in addition to the leakages and falling fiscal buffers made the CBN take a more aggressive position to defend the naira,” he said.

According to Rewane, the divergence between the official and parallel markets had widened to N20 or 12 per cent of the official exchange rate adding that the Nigerian economy is more exchange rate than interest rate sensitive. This, he said, means that a depreciating currency will have a direct impact on inflation and could be counter-productive.

Head, African Research at Standard Chartered Bank, Razia Khan, said in view of increased market liquidity following the AMCON bond maturity in December, as well as an increased spread between the interbank foreign exchange rate and BDC rates, the move is not surprising.

“It is a clear demonstration of the CBN’s continued commitment to foreign exchange stability, even in a more difficult environment. Should the foreign exchange rate come under further pressure, key threats might be related to quantitative tapering, concern over the transition at the CBN, and ongoing concern about oil receipts as well as Nigeria’s political cycle – then more tightening cannot be ruled out,” she said.

Currencies analyst at Ecobank Nigeria, Olakunle Ezun, said by raising the public sector deposit CRR the CBN raised concerns about rising inter-bank liquidity and huge cost of monetary operations. “While there was no change to exchange rate policy, the CRR effect will be positive for the naira given the expected reduction in liquidity,” he said.

Ezun said there was no immediate impact of the policy in interbank rate, since market liquidity is still over N1 trillion. According to him, the short end of the curve remain attractive, as concerns over naira and inflation outlook continue to influence CBN’s monetary policy regime in short term.

GDP rebasing

Chief Economist, Renaissance Capital (RenCap), Charles Robertson, has said that Federal Government’s plan to rebase the Gross Domestic Product (GDP) by next month could raise this year’s budget deficit by N400 billion to N1.9 trillion.

In an emailed report, the economist said the GDP revision may affect the 2014 budget too. “It does nothing to improve budget revenues or expenditure. It does mean, however, that a nominal federal government budget deficit of N912 billion could be raised by about N400 billion to N1.3 trillion and still remain at 1.9 per cent of GDP, using the new 2014 GDP estimate we have. This may be very tempting to politicians in pre-election mode,” he said.

Robertson said the wider budget deficit would then require additional borrowing, via either Eurobonds which Nigeria’s debt office is trying to move towards, or domestic debt. Higher supply might offset the benefit to debt holders of the improved debt ratios and a possible rating upgrade.

“We must emphasise that while per capita GDP would appear to rise from around $1,700 to $2,400, in fact the National Bureau of Statistics (NBS) is just doing a better job in measuring the output that is already happening. No one in Nigeria should suddenly find 53 per cent more naira in their pocket,” he said.

Forex market

The maximum weekly forex sales to Bureau De Change (BDC) operators were, removed by the Central Bank of Nigeria (CBN). The action, contained in circular to Authorised Dealers and BDC operators said the action was meant to shore up liquidity in the forex market. Dollar scarcity in the market had affected naira exchange rate in recent months, hence, the policy review.

The circular, signed by CBN Director, Trade and Exchange, Batari Musa, said the policy review followed the circular of September 26, last year in which a limit of $250,000 was put in place.

“All authorised dealers are hereby informed that the provisions of paragraph (1) of the circular under reference have been reviewed with immediate effect. Consequently, the limit of $250,000 as the maximum weekly forex sales to BDC is hereby removed to shore up liquidity in that segment of the foreign exchange market,” he said

Henceforth, authorised dealers are free to sell forex to BDCs subject to compliance with the provisions of extant Anti-Money Laundering/Financing Terrorism laws and regulations in the disbursement of forex. “Furthermore, all transactions between authorised dealers and BDCs as well as the latter and end-users must be supported with appropriate documentation,” he said.

Musa said authorised dealers and BDC operators are to continue to render weekly returns on their transactions to the CBN and other relevant regulatory agencies, failing which appropriate sanctions, including revocation of operating license shall be imposed.

Finance Houses

New guidelines for Finance Houses (FCs) operations said operators in the sub sector are allowed to raise funds from foreign investors or parties for recapitalisation of their entities, but such funds are subject to CBN’s approval.

The draft guideline obtained exclusively by The Nation at the weekend, said the FCs were envisioned to operate within the middle tier of the financial system, with a focus on the Micro, Small and Medium Enterprises (MSMEs) segment.

The sub-sector was to play complementary roles to banks, bridging financing gaps and meeting the financial needs of its target customers. However, Finance Companies have not demonstrated the necessary capability to thrive in this space, which has resulted in a largely under-performing sub-sector – a situation of concern to the CBN and other key industry stakeholders.

It said as part of the initiatives to establish financial stability within the financial eervices industry and the Finance Company sub-sector in particular, the CBN undertook a review of the Guidelines for Finance Companies. These Revised Guidelines are issued by the CBN in exercise of the powers conferred on it by the CBN Act of 2007 and the Banks and Other Financial Institutions Act of 2004 (BOFIA).

The Revised Guidelines are to regulate the establishment, operations and other activities of Finance companies. It said the Revised Guidelines replace the existing Guidelines for Finance Companies and should be read in conjunction with the provisions of the CBN Act, the BOFIA, as well as written directions, notices, circulars and guidelines that the CBN may issue from time to time.

Agric credit

The Federal Government plans to double agriculture’s share of banks’ credit to 10 per cent in two years as it seeks to cut food imports, Agriculture Minister Akinwunmi Adesina said.

“We made a fundamental shift that agriculture is not a developmental activity, agriculture is a business. And so it shifted the mind-set of the banks. It’s a new agriculture sector in which they can actually invest money and make money,” Adesina said in a report.

Loans to agriculture as a share of total credit rose to N320 billion ($2 billion), or five per cent, at the end of last year from less than one per cent in 2011, Adesina said.

He said the Agriculture Ministry is partnering the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL), a unit of the CBN to provide credit guarantees to enable banks lend to farmers.

Nigeria, he said, is trying to reverse decades of neglect of its farming industry and push agriculture as its “new frontier for growth” because it can no longer depend on oil to drive its economy, President Goodluck Jonathan said in July.

The government’s efforts to boost food supply by 20 million metric tons from 2011 to 2015 has seen the country’s food import bill drop by more than half to $5 billion from $11 billion two years ago, Adesina said.

Bank to bank report

FBN Holdings Plc has unveiled a refreshed corporate identity for the group, including all its subsidiaries.

Designed to reflect the company’s strategic direction and position it to meet the future needs of the market, the identity will be rolled out across all the group’s operations, including First Bank of Nigeria Limited.

Speaking at the event, the Chief Executive Officer, FBN Holdings, Bello Maccido, said the business environment is getting tougher and there is need to review the brand in line with realities.

He said refreshed identity will preserve the lender’s heritage as a leading player in the financial services sector, which also plays major role in the retail market segment.

United Bank for Africa Plc (UBA) has extended $700 million (about N113 billion) in funding to different investors towards the acquisition of power assets in Nigeria’s recently privatised power sector.

The bank’s Group Managing Director and Chief Executive Officer, Phillips Oduoza, made this known this at the sidelines of this year’s World Economic Forum (WEF) in Davos, Switzerland.

“It is a growth sector we are playing very big” said Oduoza. Besides power, he said UBA is also heavily involved in Nigeria’s telecommunications sector where the bank has taken part in most of the major big ticket transactions.

‘’On agriculture, the UBA Chief Executive said the bank has continued to channel resources to the sector, given that it remains the mainstay of most economies in Africa.”

February 3, 2014
Hard times ahead for tier-two banks, says RenCap

•Diamond, Fidelity, Stanbic, others assessed

As the Central Bank of Nigeria (CBN) continuously tightens monetary policy environment, tier two banks have struggled to improve their returns and will definitely face difficult times ahead, Renaissance Capital (RenCap), an investment and research firm, has said.

According to a report released at the weekend, some of the tier-two banks include: Diamond Bank, First City Monument Bank, Fidelity Bank, Stanbic IBTC Bank, and Skye Bank, among others. It said that some top performers have emerged and made best use of a bad situation in the evolving Nigerian banking landscape.

It said Diamond Bank and Stanbic IBTC Bank have been the positive outliers among the tier two banks, delivering 20 per cent Return on Equity (RoE) in 2013.

However, the significant tightening of monetary policy since then has made it tougher for the other tier two banks to deliver improved returns. “Nevertheless, these two have beaten the odds – with a combination of strategic focus, driving scale in their respective niches and improving asset quality, they managed to reach the 20 per cent RoE mark,” it said.

RenCap said that tier two banks not only need to have a clear strategic focus, but they also need to communicate this clearly to investors. It said success in this area is a function of management having both clear strategic business goals and the right people in place to drive the communication process.

“Although we think the tier two banks ideally must lead the drive into retail/Small and Medium Enterprises, given that they are structurally disadvantaged on funding costs, this is not the golden ticket. They need to realise that with the high level of market concentration at the top, tier two banks cannot compete successfully simply by replicating the tier one banks’ model on a smaller scale,” it said.

It said Diamond Bank has successfully built an enviable business by remaining focused on the SME/retail segment, even when other banks repeatedly changed their strategic focus.

“With 80 per cent of its deposits sourced from SME/retail and 75 per cent of its deposits in current and savings accounts in September 2013, Diamond Bank operates with a 3.4 per cent funding cost, which compares favourably with all tier one banks,” it said.

It also said Stanbic has solid non interest revenue-generation capabilities built on its market-leading non-banking subsidiaries. “We have observed that niche plays on a small scale will not move the needle for the tier two banks; they must start developing these niche focus areas today, particularly the pure-play commercial banks,” it said.

“We have identified an underlying cost focus and, upon looking more closely at the tier two banks’ efficiency metrics, concluded that there simply has not been enough focus on cost control while pursuing revenue growth. Overall, Diamond Bank has delivered the biggest bang for its buck over time, while Fidelity and Stanbic have the most room to catch up with peers in terms of efficiency,” it said.

It said 2013 was a remarkable year for Stanbic, being the first year since the Standard Bank takeover that it recorded RoE in the 20 per cent range. Also, strong capital market performance and solid trading revenue were the key drivers.

“We will monitor progress on this front as we think it is core to Stanbic’s RoE remaining comfortably north of 20 per cent going forward. On our cost of equity estimate, we believe the market is pricing Stanbic on 26 per cent sustainable RoE,” it said.

RenCap said that in July 2012, it took a closer look at the tier two banks following a series of mergers and acquisition activities, and concluded that competition would be more intense for the tier two banks; returns were set to improve; and the deposit mix will be a key earnings differentiator among tier two banks in the emerging banking landscape.

The Nigerian banks have had to operate in an environment of tightening monetary policy for the past three years, which in relative terms has been unfavourable to the tier two banks. Their heavier reliance on term deposits has left them competitively disadvantaged as against the scale banks, and the concentration of market share by tier one banks has forced tier two banks to work harder to deliver improved returns in this environment.

February 3, 2014
CBN gives finance houses 18 months to recapitalise

• How policy will affect SMEs/MSMEs

The Central Bank of Nigeria (CBN) has given finance houses 18 months to raise their capitals to a yet-to-be disclosed amount. This is contained in a guideline released by the bank, which was obtained by The Nation at the weekend.

The CBN and operators have been bickering over the issue. An insider at the Finance Houses Association of Nigeria (FHAN), who asked not to be named, said operators want the capital base raised from N20 million to N100 million, but the CBN prefers N200 million.

The source said investors were interested in knowing the capital base before putting in money.

In 2012, CBN reviewed finance houses’ operations, resulting in the closure of 47 “inactive” firms. 55 were found to be active and four undergoing restructuring. The CBN, in statement, said it recognised only the 59 finance companies with CBN licenses.

The affected Finance Houses included Asset Management Group; Cal Finance Investment Limited, Capri Martins Finance Limited; Corporate Finance Group Limited; Equator Capital Assets Management Limited; Eston Funds Limited; First Bond Finance Limited; First Spring Finance and Investment Limited; Grand Bond Finance & Securities Limited; Intel Trust Limited and Leo Investment Limited, among others.

The CBN, therefore, commenced comprehensive reforms of the Finance Houses subsector. The regulator said the sector, still wallowing in neglect and lacking clearly defined operational structure, has been relegated to the background in recent years.

It said it now wants to see Finance Houses that are strong, efficient and able to perform their constitutional roles in the economy.

Achieving this requires comprehensive reforms of the subsector that would enable it carve a niche for itself in the financial services sector.

Meanwhile, analysts have argued that this policy may rub off negatively on the fortunes of Small and Medium Enterprises (SMEs) as well as Micro, Small and Medium Enterprises (MSMEs) as finance companies provide services to consumers, industrial, commercial and agricultural enterprises in terms of credit and loans. They also manage funds for customers/clients on agreed tenor and rate.

According to the guidelines, finance companies can access SME funds subject to compliance with minimum prudential norms, as defined by the CBN and may assist clients access SME funds. This can be done through vehicles such as the SME Credit Guarantee Scheme, MSME Development Fund and the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) funds for clients in the Agric value-chain business.

It also said that in addition to the specific requirements defined for the SME funds, these funds may only be accessed for asset finance, working capital and export finance transactions.

February 2, 2014
CBN Gov laments non-accessability of N220b intervention fund for SMEs in Edo

The Governor of Central Bank, Sanusi Lamido Sanusi, has lamented the failure of the Small and Medium Enterprises (SMEs) in Edo to access the N220 billion intervention fund floated by government.

Sanusi expressed his concern at the Government House in Benin at the weekend when he paid a condolence visit on Edo Government on the death of wife of Oba of Benin, Esther Erediauwa.

He said that the high interest rate on the loan prevented enterprises from accessing the loans, noting that high interest loan was not a way of alleviating poverty.

He said that there were 30 microfinance banks across the country mandated to grant the loans to the SMEs at low interest rates.

The CBN governor said that the fund was targeted at the most excluded segment of the society, adding that 60 per cent of it was dedicated to women.

Sanusi, who also condoled with Gov. Adam Oshiomhole on the death of his wife, said that he had a close relationship with the palace and treasured the memories of the queen mother.

Responding, Oshiomhole thanked the CBN governor for the visit, adding that the death of the queen mother was painful.

The governor described the late queen as a mother who showed interest in the development of the state.

He also commended the CBN boss for repositioning banks in the country in the interest of the masses.

Oshiomhole said that poverty in the country was as a result of wrong policies, adding that there was the need for deliberate laws to address the menace.

February 2, 2014
CBN earmarks N132bn for women entrepreneurs

The Central Bank of Nigeria has said that N132 billion out of the N220 billion Micro, Small and Medium Enterprises Development Fund had been earmarked for women.

The CBN Branch Controller in Bauchi State, Malam Musa Muhammad, said this in Bauchi during a sensitisation workshop for state governments, financial institutions and the organised private sector on MSMED Fund.

Muhammad explained that the amount, which represented 60 per cent of the total fund, was earmarked for women considering the peculiar challenges women were facing in accessing financial services

“The Revised Micro finance Policy, Regulatory and Supervisory Framework in section 4.2(IV), provides that women access to financial services should increase by 15 per cent annually in order to eliminate gender disparity.

“In order to achieve this, 60 per cent of the fund has been earmarked for providing financial services to women,” he said.

The controller said that the MSMEDF, which was launched in August 2013, had broad objective of channeling long-term, low-interest funds to the MSME sector of the economy through participating financial institutions.

He said that the specific objective was to reach over two million MSMEs over a 10-year period in which 60 per cent was targeted at women entrepreneurs.

“The CBN believes that developing the MSMEs is the key to economic advancement and wealth creation.

“To ensure sustainable economic development programmes, policies and guidelines must be designed such that all factors and peculiar needs and requirements of stakeholders are noted and addressed,” he said.

He said that the sensitisation workshop had become necessary having recognised the importance of state governments as stakeholders in the administration of the fund due to their closeness to the grassroots.

Muhammad further explained that the fund covers social development with 10 per cent and commercial development with 90 per cent.

He said that all state governments including the FCT will access a maximum of N2 billion each for the maximum of three years per circle at 9 per cent interest rate.

According to him, the targeted groups include farmers, artisans, self help groups, cottage industries, financial cooperatives and traders.

In a remark, Gov. Isa Yuguda of Bauchi State commended the CBN for the laudable gesture, particularly with the allocation of 60 per cent of the fund to women entrepreneurs.

He said that the state government had already funded and equipped 10 micro finance banks in the state through which the fund could be accessed.

Yuguda advised that the conditions for accessing the fund should be made flexible such that the aim would be achieved.

He was represented at the occasion by Alhaji Isa Wafu, the State Commissioner for Cooperatives and Poverty Alleviation Meat sellers get N50m interest-free loan in Oyo state.

Governor Abiola Ajimobi of Oyo State has approved the sum of N50 million as interest-free loans to butchers in the state.

He disclosed this while speaking at the inauguration of the state secretariat of the Butchers’ Union located at Moniya in Ibadan. The governor, who said the loan would boost business activities of the butchers, urged them to make good use of the money and ensure it was repaid on time for others to benefit.

It would be recalled that a grant of N20 million had last week been given to traders at the Scout Camp Business Complex at Challenge, Ibadan by the governor as part of the empowerment programme of his administration for small and medium scale entrepreneurs.

The state government had set aside the sum of N1 billion as interest-free grant to traders in the state.

Ajimobi stressed his administration’s belief in small and medium entrepreneurs as the bedrock of any economy, adding that supporting the butchers would also contribute more to the economic growth of the state.

He enjoined members of the union to maintain clean environment while carrying on their business activities, in line with the urban renewal programme of the state government.

In his remarks, the Chairman of the state chapter of the union, Alhaji Adekunle Alagunfon, lauded Governor Ajimobi’s administration for providing a conducive environment for members of the union to operate.

He described the provision of loan to members of the union as highly commendable, pledging that his members would ensure judicious use of the money.

The National President of the union, Dr. John Isemede, in his address, presented by his Media Assistant, Mr. Festus Alekeh, commended the unprecedented achievements of Governor Ajimobi, stressing that he had recorded great successes in the area of infrastructural development.

He pledged the unflinching support of members of the union towards the re-election bid of the governor for a second term in office.

“Let me quickly place on record the laudable achievements of the governor. Your record and successes in areas of infrastructural development will forever remain indelible in the history of Oyo State.

“The governor has touched on virtually every sector of the economy. I can feel the pulse of the people of Oyo State and the joy in their hearts. This is why the national leadership of the union has unanimously passed a vote of confidence on Governor. We wish to publicly endorse the governor for a second term in office.

“I hereby call on all butchers and other like-minded people in the state to support Senator Ajimobi in realizing his second term bid,” he said.

February 2, 2014
CBN sets N5b capital base for Mortgage Refinance Companies

•Violators to pay N5m fine

The Central Bank of Nigeria (CBN) yesterday, set N5 billion minimum capital base for Mortgage Refinance (MRC) companies. In a regulatory and supervisory framework for the subsector released yesterday, the apex bank said each MRC should present evidence of payment of the sum via Nigeria Interbank Settlement System (NIBSS).

However, the fund will be refunded with interest after the proposed institution obtains its final licence. Part of the guidelines also said credit policy that describes the credit products that the MRC offers to its borrowers, including the terms and conditions for issuing advances must be defined.

The CBN also said MRC operators that submit false/inaccurate information to regulators will pay N5 million fine while all the officers involved will be sanctioned. Also, operators that fail to publish their annual accounts or failure to disclose contraventions and penalties in the audited annual accounts will pay a fine of N2.5 million.

Also the procedures and criteria to be used in granting a licence to the MRC shall be the same as specified for banks under the Banks and Other Financial Institutions Act, CAP B3, Laws of the Federation of Nigeria, 2004 and any other regulations issued by the bank.

It said the establishment of a MRC is primarily aimed at increasing the liquidity within the mortgage sub-sector and availability of mortgage credit in the country, reduce mortgage and related costs, and make residential housing more affordable.

According to the CBN, the benefits of such mortgage liquidity facilities are well documented and globally acknowledged. “As a financial institution, the MRC would be under the regulatory and supervisory purview of the CBN. This regulatory framework is, therefore, designed to ensure that the MRC operates in a safe and sound manner, on internationally accepted principles, standards and best practice in mortgage liquidity facilities,” it said.

The CBN said the regulatory framework is drawn pursuant to the provisions of the CBN Act 2007, Banks and Other Financial Institutions Act (BOFIA) CAP B3, Laws of the Federation of Nigeria (LFN) 2004, other relevant Laws, and extant CBN Guidelines and Circulars.

January 31, 2014
Six banks lead on deposits, asset concentration, says CBN

Six of the 23 Deposit Money Banks (DMBs) dominate the banking industry in terms of deposits and asset concentration, the Central Bank of Nigeria (CBN) has said.

According to a report by the CBN, the sector is dominated by a few banks as the average market share of assets and deposits of the six largest banks (concentration ratio–CR6) stood at 56.8 per cent and 59 per cent.

The figure, which is for the second quarter of last year, also showed that the market share of the largest bank on assets and deposits, stood at 13.57 per cent and 15.17 per cent.

This, it said, compared with 14.99 per cent and 13.47 per cent, at the end of the preceding period of 2012.

However, it said the industry remained competitive in both deposits and assets even as the sector continued to record improvements in key performance indicators. For instance, capital adequacy and Tier I capital-to risk-weighted assets ratios increased to 19.2 per cent and 17.2 per cent, from 18.1 per cent and 16.1 per cent, at end-December 2012.

The improvement in the ratios was due mainly to retained profits and the raising of additional Tier II capital by some banks.

Furthermore, it said total loans increased to N8.8 trillion, of N664 billion or 8.1 per cent while Non-Performing Loans (NPLs) to total loans deteriorated to 3.7 per cent, from 3.5 per cent.

The NPL ratio, however, remained within the five per cent threshold while the NPL coverage ratio improved to 71.2 per cent, from 68.7 per cent, indicating a reduction in the risk exposure of the sector. Total deposits increased to N15.1 trillion from N14.3 trillion, reflecting an increase of N771 billion or 5.35 per cent.

Un-audited total profits of the banking industry for the first half of 2013 stood at N300.5 billion, a 22.95 per cent increase over the N244.4 billion achieved in the second half of 2012. Interest income, which increased by 13.47 per cent, largely accounted for the higher profit level.

The industry liquidity ratio stood at 67.8 per cent compared with 68.0 per cent even as all banks met the 30 per cent minimum regulatory liquidity ratio throughout the review period.

Commenting on the Financial Satbility Report, CBN Governor, Sanusi Lamido Sanusi said the efforts of the regulatory and fiscal authorities in addressing the challenges of the global economic and financial crises to achieve higher growth and employment were evident in the first half of last year.

He said the projected weaker global demand, slower growth in key emerging markets and slow recovery of the Eurozone would require the monetary authorities to sustain the implementation of monetary and macro-prudential policies to achieve financial system stability.

He said the economy recorded some impressive macroeconomic achievements in the first half of last year despite some challenges. In specific terms, the country recorded strong Gross Domestic Product (GDP) growth, single digit inflation, exchange rate stability, capital market recovery and growth in external reserves.

January 29, 2014
How not to save the Railways; Wanted: A Housing President

So Bamanga Tukur of Chairman PDP and NPA ‘infamy’ or fame in the 1970s is back in transport, as chairman of the Nigeria Railway Corporation. Is this a blessing for Tukur and Nigeria or a blessing for him and a curse for Nigeria? Did his record in NPA including an investigation into his involvement in a $5m private purchase of a ship, recommend him for the job? Did he open the state branch of the CBN for a party spraying event?

Chairmanship of the railway corporation is a national moral assignment requiring integrity. To fully recover from the 40+ years deliberate destruction of Nigeria’s railway system in favour of road trailer and tanker transport, Nigeria needs a strong modern, vibrant nationwide, all inclusive, non-politically or ethnically biased railway and railway policy. It is difficult to see how and what Bamanga Tukur brings to the railway table that will justify his appointment. Yes, the railway corporation is suddenly juicy with many new contracts, but is it Bamanga Tukur’s task to bleed the railways and contractors in order to raise funds of the party in power towards the 2015 ‘s-elections’? I think not. Is he there to rest, after the hypertension of the PDP chairmanship? I hope not. He should better rest at home.

Is he in the railways because of his tremendous knowledge and expertise in transport, modern engineering and 400km/h fast trains? Definitely no! Is his job for personal compensation and financial gain as chairman after a job well done in his party? Who knows? Whatever the truth, Bamanga Tukur may have a conscience especially at his age of 80+ now that God is close at hand. His party is fond of floating 80+ year olds as if the 40-60-year olds are incompetent, though they are presidents in other countries. After all President Jonathan saw other leaders in banks, business and politics in Davos. How many were 80+? Nigeria must once again endure Tukur as chairman of railways and the consequences of Tukur, if the railways staff do not strike in protest, and if Civil Society does not protest adequately. Tukur has probably supported the destruction of the railways in the past or support the benign neglect of the railways under all governments till this one. Why would Jonathan send Tukur, not known for success, to head one of his more successful projects? After all, who objected to the railway evacuation of goods from the NPA harbours throughout Nigeria during these last 40 years? Has he had a change of heart? Can a camel lose its hump? If not Nigerians should demand his redeployment to be chairman of prison commission or ask him to retire.

I was invited to a television programme on the housing shortage last week. My contribution was brief as I did not say what was expected. So I will say my piece here. The reason Nigeria has a housing problem is totally political. There is no great ‘Housing President’. We have a lot of lip service from presidents but little practical action. What little is done often benefits a fraction of the civil service class with special housing and land allocations. Though Dangote is the 25th richest man in the world, not including silent shy Nigerians and retired generals, the poor housing situation is compounded by the high price of cement under his cement ownership, the land policy in Nigeria with the politics of the Certificate of Occupancy, the high cost of land and building materials and the almost absence of genuine mortgage loans and decent outright or long-term purchase terms.

The great nations of the world built mass housing through politics- government programmes and policy decisions of the leadership- some mired in corruption with corrupt construction companies frequently in court. In spite of this corruption, the housing gets built and the loans are given. The post-war building programme that gave most Americans a home was a presidential directive to give work to the returning soldiers and the people a lift out of post-war depression.

In the UK, it was the building policies of the Labour Party which provided council housing for the masses. In Lagos and most of Nigeria, most of the official housing was for government workers, taken over from the colonialists GRAs and police barracks. Awolowo’s AG and successors did build estates, some of which fell into private hands. It was during the time of Jakande of Lagos State that massive attention was paid to housing. He can rightly be called ‘Jakande the Builder’ as his policies and actions gave many Lagosians a chance to own a home even though 40 years later most of them are crumbling. The federal government has attempted to build token estates in every state but political squabbles made some of them to be located in insalubrious areas and being federal government contracts, the quality was often less than standard. The private sector has also tried to intervene but the resultant efforts are usually high end multimillion housing scams, I mean schemes. The result of these efforts is a massive under-supply of common man and middle class housing, estimated to be between 14 and 17million homes or apartments. Nigeria knows it cannot build high-rises, as our poor maintenance culture will make the upper floors uninhabitable with security risks of gangs running estates as happens worldwide. Nigerian needs a ‘Housing President’.

January 29, 2014