The Nation Newspaper

Tag: High interest rate

  • Reduce high interest rate, CBN urged

    The Central Bank of Nigeria (CBN), has been asked to reduce interest rates to enable ship owners upgrade their facilities and compete with foreigners.

    In an interview with The Nation in Lagos, stakeholders urged the government to build a vibrant investment climate for the maritime sector.

    Former Chairman, House Commit-tee on Legislative Compliance, Mr. Moruf Akinderu-Fatai, said there should be policies to create linkages between the maritime industry and other sectors, such as banking and manufacturing.

    He suggested measures like dedicated institutional financing mechanism for the shipping and maritime sector, a comprehensive maritime regulatory policy, to clearly delineate the role and responsibilities of the government and private sector in the development of the maritime sector.

    The purchase of modern vessels, Akinderu-Fatai, a shipper,  said, would also provide jobs for millions of Nigerians and the restive youths across the country.

    He said there was need for a sustained partnership between the private and public sectors for effective funding.

    The country, acccording to him, has not enjoyed the commercial benefits of transporting large quantities of cargoes because local ship owners lack the necessary capital.

    He suggested that the Federal Government should integrate maritime education and training into the national university system so that Nigerians who are interested in seafarers’training can get the  education needed to promote the sector.

    While lamenting the lack of foreign exposure for better performance, he said many operators were bugged down with only practical experience, with little or no academic performance.

    “There is need for more government intervention aside from CVFF to actively encourage the banking sector to support local ship owners to acquire modern fleet, which can sail anywhere in the world,” he said.

    Also, the former President, Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu, said 60 per cent of the inward and outward bound seaborne trade in the West and Central Africa sub-region passes through the nation’s waterways and called on the CBN Governor and the Minister of Transport, Mr Rotimi Amaechi, to assist in developing the maritime industry.

    He said the country needs to expand its merchant fleet based on the high volume of bulk liquid, gas and dry cargoes that pass through its waterways.

    “The fleet to carry the enormous quantity of cargo is estimated at 200 size tankers including combo general cargo vessels and liquefied natural gas vessels,” he said.

  • ‘High interest rate killing shipping’

    The Federal Government has been urged to reduce interest rates to enable ship owners upgrade their facilities and compete with foreigners.

    In an interview with The Nation in Lagos, some stakeholders urged the government to build a vibrant investment climate for the maritime sector.

    Former Chairman, House Committee on Legislative Compliance, Mr Moruf Akinderu-Fatai, said there should be policies to create linkages between the maritime industry and other sectors, such as banking and manufacturing.

    He suggested measures like a dedicated institutional financing mechanism for the shipping and maritime sector, a comprehensive maritime regulatory policy, to delineate the roles and responsibilities of the government and private sector in the development of the maritime sector and building.

    The purchase of modern vessels, Akinderu-Fatai, a shipper, said, would also provide jobs for millions of Nigerians and the restive youths across the country.

    He said there was a need for a sustained partnership between the private and public sectors for effective funding.

    The country, he said, had not enjoyed the commercial benefits of transporting large quantities of cargoes because the local ship owners lack the necessary capital.

    He suggested that the Federal Government should integrate maritime education and training into the university system so that Nigerians who are interested in seafarers’training could get the necessary education needed to promote the sector.

    While lamenting the lack of foreign exposure for better performance, he said many operators were bugged down with only practical experience, with little or no academic performance.

    “There is need for more government intervention aside from CVFF to actively encourage the banking sector to support local ship owners to acquire modern fleet, which can sail anywhere in the world,” he said.

    Vice  President, Association of Nigerian Licensed Customs Agents (ANLCA), Dr Kayode Farinto, said 60 per cent of the inward and outward bound seaborne trade in the West and Central Africa sub-region passes through the nation waterways and called on the Central Bank of Nigeria (CBN) Governor and the Minister of Transport, Rotimi Amaechi to assist in developing the maritime industry.

    He said the country should expand its merchant fleet based on the high volume of bulk liquid, gas and dry cargoes that pass through its waterways.

    “The fleet to carry the enormous quantity of cargo is estimated at 200 size tankers including combo general cargo vessels and liquefied natural gas vessels,” he said

  • ‘High interest rate affecting farm production’

    Rising interest rate is affecting farmers’ ability to boost production and help cut the country’s dependence on imports, the Chairman, All Farmers Association of Nigeria (AFAN), Lagos chapter, Otunba Femi Oke, has said.

    Oke said interest rate on loans to farmers should be at a single digit. Currently, banks lend to farmers at about 28 per cent. To him, interest rates have significant impacts on the agricultural industry. High interest rates affect the cost of borrowing, investment decisions and value of farmland, he added.

    According to him, farmers are finding it more difficult to service their debts as a result of high interest rates. Oke noted that delinquency rates on farm loans at commercial banks were still on the rise. This is because interest rate at 28 per cent reduces the income available to farmers that would enable them make their principal and interest payments.

    Oke noted that rising interest rates could lead to increased risks for the farming sector, putting pressure on farmland values. His concern is that higher interest rates are coming when working capital on farms is dwindling. Right now, farmers that are most at risk in this kind of high interest rate environment tend to be big farmers who require big loans for operations.

    Also analysts said there is an ever- increasing need to invest in agriculture due to a drastic rise in population and changing dietary preferences. Higher interest rates have placed some downward pressure on the value of farm real estate, which is an important source of collateral for many farm borrowers.

    One of the outcomes of the Bankers’Committee meeting held in Lagos last month is that the Central Bank of Nigeria (CBN) and commercial banks should channel the Cash Reserve Requirement (CRR) kept in the apex bank’s vault for lending at single interest rate of nine per cent to agricultural and manufacturing sectors.

    CBN Director of Banking Supervision Mr. Ahmed Abdullahi said the loans would only be available for job creation and expansion plans. He said: “The idea is to have job-creating activities in the economy and also to bring interest rates down within the economy. Although agriculture and manufacturing are the initial sectors that are being considered, a bank can apply if there is a job-creating sector where it is operating in which it may be considered. The whole idea is to bring down interest rates and create jobs.

    “At the moment, banks funds are held under CRR and they are not being used. The idea came up that we can refund the CRR to a bank that has engaged in lending for a new project or for the expansion of an existing one in the agricultural or manufacturing sector as a way of utilising the CRR.

    Anytime a bank lends to manufacturing or agricultural business at a rate that the CBN has prescribed, it will have its CRR refunded to it, up to the amount that it has lent.”

  • ‘High interest rate, others killing ground-handling business’

    The Managing Director Nigerian Aviation Handling Company Limited (NAHCO Aviance) Plc Mr Norbert Bielderman has blamed the slow growth of ground-handling firms on high cost of operations, interest rate, devaluation of the naira, ground rents and taxes.

    He said it might be difficult for operators to grow until the myriad of challenges facing the sector were addressed.

    He said the increase in exchange rate in the last six months has impacted negatively on the operations of cargo business.

    He said: “Naira depreciation,  high exchange rate, unreasonable domestic air tickets, static aviation fuel price, high airport taxes and charges, ground rent and concession fees.

    “There have been travel bans from many European countries and this has negatively impacted the aviation sector. Nigeria’s foreign reserve is significantly depleted and our national account is in deficit.

    “The crash in oil price and consequent impact on the nation’s revenue earnings, exchange rate moved from N155/$ to N205/$ within a six-month period at the interbank and Central Bank of Nigeria’s final closure of the RDAS is a testament to the fact that all is not well with our economy.

    “Implicitly, the naira has been devalued to between 30 and 40 per cent and this will necessary cause inflation if government does not put in place deliberate measures to mitigate against an upsurge in price across industry.

    “We expect inflation to rise up to 10 per cent or more soon. Furthermore, the cost of fund has also significantly risen with bank interest rates now up to about 26 per cent.”

    Also, the travel warnings and/ or ban from EU countries for their citizens coming into Nigeria has shown that many flights from Europe to Nigeria have been either flying half empty to near empty. This is also a negative consequence of the present political economy.

    “NAHCO expects Air Cargo to be relatively stable and may only take a slight hit if Nigerians choose to patronise indigenous products because of the high cost of imports and government also intervenes through policies that reduce or limit dollar outflows.”

    Meanwhile, NAHCO has invested over N700 million to purchase new ground support equipment.

    He said: “We have taken delivery of about 30 per cent of these orders and distributed to our various locations according to our needs. These equipment include tractors, dollies, fork lift, high loaders, transporters, security vehicles.”

    He said there was need to overhaul the domestic airline sector to sustain the business through effective regulation, adding that failure to do this would lead to massive job losses

    He said: “This will be massive job losses within the private sector and for them to survive this trying time.  In aviation, the domestic airlines would be worst hit because of current ticket prices are not in sync or responsive to current realities.

    “This is due to unhealthy price wars and pursuit of market dominance at the domestic side of airline business. Domestic air tickets are still significantly low despite increase in airport charges, taxes and others.

    “These domestic carriers still maintain their aircraft in foreign currency and aviation fuel has not significantly been reduced if at all.

    “In our opinion, we suggest that these domestic airlines come together and agree a base rate for air tickets in order not to compromise safety and the regulator would do well to step in and analyse their current book positions and act accordingly.

    “The sector would continue to rely and depend on the regulator to sustain and safeguard the industry as statutorily created.”

    He said the Nigerian Civil Aviation Authority (NCAA) must particularly increase its oversight functions at this time and a good place to start from is to begin audits of domestic carriers to ascertain their financial wellness.

    Domestic carriers’ current debts are alarming and the regulator must assist them to be responsible.

    He said:  “The air cargo section will need FAAN (Federal Airport Authority of Nigeria) to ensure all access gate restrictions around the tarmac and airport cargo terminal is full proof of unlawful or unauthorized persons. FAAN must have zero tolerance to any pallet left overnight because this constitute serious security risk. All airport operators must comply with the required and written security programmes to assure our airport integrity.

    “Lastly, we plead with FAAN to review its new tax and tariff regime in the interest of its business partners, clients, tenants, concessionaires etc. FAAN must balance drive for revenue and its resultant negative impact to businesses, passenger or customer who ultimately would pay for this cost of doing business.

    “For NAHCO, we expect appropriate price adjustments in sync with current realities and since we are a responsible company that has proven business integrity and excellent service delivery this 35 years, we must assure our business partners and client airlines that we will not compromise on safety issues and efficiency as we go along.

  • High interest rate impinges corporate returns

    High interest rate impinges corporate returns

    High costs of funds and lack of access to amenable capital are adversely impacting on earnings potential and returns of several companies, reports have shown.

    Latest operational reports by several non-financial companies showed that companies were constrained by their inability to source new equity capital due to the meltdown at the capital market while recourse to high-interest bank loans depressed probable returns to shareholders.

    Operational reports for the third quarter ended September 30, 2012 showed that while companies struggled with relatively sluggish top-line, jumpy finance costs further encumbered the bottom-line performance, in worst cases pushing companies into the red.

    In many instances, interest expense saw the highest growth rate within the profit and loss items as companies continued to grapple with investors’ apathy in the primary equity market.

    For instance, RT Briscoe’s interest expense jumped to N858.98 million in 2012 as against N527.91 million in comparable period of 2011, an increase of 63 per cent. However, the automobile-led conglomerate’s net profit grew by 33 per cent to N163.94 million in 2012 as against N121.15 million.

    UAC of Nigeria paid N1.89 billion as interest expense in 2012 as against N1.21 billion in 2011. Profit before tax meanwhile, rose from N4.46 billion to N5.83 billion. The conglomerate’s turnover had increased from N43.50 billion to N47.53 billion.

    Total Nigeria Plc also saw a spike in finance costs from N674.30 million in 2011 to N985.68 million in 2012. A 128 per cent growth in interest expense contributed to significant loss suffered by Tantalizers Nigeria. With sluggish top-line, a double in finance costs from N12.58 million to N28.75 million saw Tantalizers with net loss of N242.66 million in 2012 as against modest profit of N28.63 million in corresponding period of 2011. Livestock Feeds also reported that its finance costs increased to N70 million in 2012 as against N44 million in 2011.

    Managing director, Financial Derivatives Company (FDC), Mr. Bismarck Rewane, expressed concerns about the negative impact of high interest rate on corporate returns and general stock market performance.

    According to him, as the Central Bank of Nigeria (CBN) meets next Monday, it is under pressure to ease interest rates.

    He said while the reduction in interest rates could trigger a rally for companies’ shares, a hold on interest rates will be a damper.

    Economist and securities advisor, Sterling Capital Markets, Mr. Sewa Wusu, said high interest expense was a major disincentive to corporate returns.

    “Basically, high interest rate is a disincentive to corporate profitability. It erodes corporate returns in that part of the profitability is used to service interest rate. Corporate firms cannot leverage effectively under a higher interest rate environment,” Wusu said.

    He noted that the huge interest expenses by companies could affect shareholders’ returns and create twin negative impact that could reverberate on the stock market.

    Analysts said investors’ apathy to new equity investments has undermined companies’ ability to raise funds as large-stake fund managers and investors opted for more secure and predictable bond market.

    They noted that companies would be mindful of the escalating costs of funds and future financing while deciding on possible cash payouts to shareholders.

    Chairman, Tantalizers Plc, Dr Jaiye Oyedotun, in a prepared report reviewing the operations of the company had noted that the company could not maximise the potential of its franchise package due to inability of investors to access required capital.

    Accoridng to him, the company’s roll-out plan fell short of plan in 2011, which underlined the difficulty in funds sourcing from the banks and also constrained the company’s ability to achieve its revenue target.

    He outlined that both the marketing programmes and refurbishment plan of the company were constrained by paucity of funds.