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Tag: Naira

  • Dealers halt trading as naira value falls

    Dealers halt trading as naira value falls

    Dealers yesterday pulled the plug on electronic trading in the naira after it slid past the key level of 200 to the dollar on fears the postponement of this week’s election could trigger a constitutional crisis.

    Deploying for the first time a ‘circuit-breaker’ agreed among themselves last month, leading banks in Lagos halted trade after the naira dropped more than two per cent. At its weakest, it was quoted at a record low of 204.25 to the dollar, a decline of 20 per cent since the start of November.

    The rout has been driven by the combination of a tumbling oil price and a rise in political risk, highlighted by last Saturday when authorities pushed back the February 14 presidential election by six weeks, blaming it on insurgency accentuated by Boko Haram militants.

    It was not clear when normal naira trading in might resume. Although the halt is meant to calm nerves, it undermines Nigeria’s credibility as a smoothly operating capital market and could trigger its ejection from a key JP Morgan emerging market bond index.

    In the year after Nigeria joined the index in October 2012, foreign bond-holdings jumped from $1.2 billion to $5.4 billion, but JP Morgan said last month Nigeria’s inclusion was under review because of a lack of market liquidity.

    Ejection from the index would trigger major capital outflows because investors who track it would have to sell Nigerian bonds. That would exacerbate a budget crunch in Abuja by removing an important source of funding and further hammer the currency.

    In another sign of strain on the financial system, the rate banks charge each other for overnight lending spiked to 100 percent this week as the central bank sucked up naira to support the currency rather than continuing to leak foreign reserves.

  • ‘Why we’re defending naira’

    ‘Why we’re defending naira’

    The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele has said that government will continue to intervene to keep the exchange rate stable because of the dire consequences of doing otherwise.

    Speaking at a meeting with stakeholders in Lagos, he said that the apex bank is committed to achieving exchange rate stability, adding that allowing the local currency to find its level will not be in the interest of the economy and the larger population.

    The naira yesterday, opened at a record low of N192.60, down 0.26 per cent from its previous close, due to tight dollar supplies. The naira has been hitting record lows against the greenback this year as dollar liquidity dries up in the wake of tumbling oil prices, Nigeria’s main export. The unit closed at a record low of N192.10 to the dollar.

    The Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said that it has been established that when left on its own to adjust to the dynamics of demand and supply, the exchange rate will automatically find its fair value.

    He said despite this and the attendant advantages, very few economies are willing to accept the uncertain-ties accompanying floating exchange and allow their currencies to freely move against other currencies.

    “This is because it is often seen as too important a macro-economic variable to be left un-guided as its state and movements can have serious implications for the economy. For instance, episodes of depreciation are often accompanied by imported inflation and worsening positions of local firms that borrow in foreign currencies. Conversely, currency appreciation may also lead to the loss of export competitiveness,” he said.

    Rewane said with the floating system representing an extreme case of ex-change rate determination, many countries employ the other extreme of fixing their currency, either to that of a major trading partner or to a group of trading partners.

    “The hypothetical justification for this is that a pegged/fixed exchange rate system is less vulnerable to speculative attacks. Second, it promotes international trade and investment as there is less risk coming from currency fluctuations. It also provides discipline for macro-economic policies even as excessive monetary growth will be discouraged since the authorities know that it will lead to devaluation,” he argued.

    Such development, he said, show that countries that practice the pegged system enjoy a relatively stable inflation environment as well as improved trade and capital flows.

  • Naira devaluation worries Globacom

    Naira devaluation worries Globacom

    Nigeria’s wholly indigenous telco, Globacom, has expressed worries over the devaluation of the naira and the uncertainties hanging surrounding the forthcoming general elections in the country, lamenting that naira devaluation was bound to affect the carriers’ bottom line as the customers disposable income to spend on telephony will be constrained.

    Its Sales Director, Ken Hall, on the sideline during the presentation of cheques to the first batch of 20 lucky millionaires in its ongoing Glo Overload 120Millionaires promo, the policy of the government will affect not only the telco but every player in the economy.

    He said: “It is a worrisome trend because it does affect everyone’s bottom line. It is not just Globacom. The whole of the economy in Nigeria is going to be impacted one way or the other but you have got to be optimistic and I think it is going to be a temporary thing.

    “There is a lot of uncertainty around. Let’s just hope that elections go well and I am sure they will go well and people will be more confident to continue doing business in the country.”

    Asked to comment on the effects of a new Central Bank of Nigeria (CBN) that requires sourcing of foreign exchange for the purchase of ICT equipment, generators and others needed for effective functioning of the telecoms sector, from the interbank market only, Hull said the telco has no problem with that as the telco will continue to follow government’s directives.

    He said: “We have no problem with that. Whatever government regulations are, Globacom has got the expertise to stick with those regulations and still achieve what we need to achieve. It is the wish of government to go through the interbank system.

    “The CBN has its reasons for doing that and we applaud and support those reasons and we will abide by the rules.”

    He said since inception 12 years ago, the telco has always made it a point of duty to bond with its customers by rewarding them for keeping faith with the brand.

    “We have always been very motivated to be at home with our subscribers after all, Globacom was made by our subscribers. Were it not for our subscribers, we won’t be where we are today so this promo is just one in so many promos we have done to reward them.

  • Naira, falling oil price, top agenda as MPC meets

    The Monetary Policy Committee (MPC) meeting which begins today will focus on measures that would strengthen the naira, especially in the face of declining oil price, analysts have said.

    In the last six months, crude oil price has plumetted to about $45 per barrel from $100, with its backlash already taking a toll on the local currency as well as the 2015 budget.

    Managing Director, Financial Derivatives Company Limited, Bismarck Rewane said the Central Bank of Nigeria (CBN) is likely to consider further depreciation of the naira if the oil price slump persists.

    “The hawkish monetary policy stance of the MPC is therefore not expected to change at today’s meeting. However, the monetary authority will be careful since further tightening may be detrimental as the general election is less than three weeks from the scheduled January MPC meeting. Meanwhile, administrative tools will continue to be used to support the monetary policy,” he said.

    Continuing, Rewane said the status quo is likely to be maintained at the meeting. “However, threats from increased political spending, growth in money supply, liquidity overhang in the banking system, continued decline in global oil prices, external reserves depletion and a sustained pressure on the naira are underlining threats to consumer price,” he said.

    The committee had at the MPC meeting of November 25, moved the midpoint of the official window of the foreign exchange market from N155/dollar to N168/dollar.

    It also widened the band around the midpoint by 200 basis points from plus or minus three per cent to plus or minus five per cent.

    The committee also increased the Monetary Policy Rate (MPR), the base lending rate, by 100 basis points from 12 to 13 per cent while the Cash Reserve Ratio (CRR) on private sector deposits also rose by 500 basis points from 15 per cent to 20 per cent. It also retained public sector CRR at its current level of 75 per cent. The CRR is a portion of banks’ deposits kept with the CBN.

    Analysts said the fall in oil production has created pressure on the public finances, leading to the federal government’s submission of a budget amendment to the National Assembly. “Given this analysis and the modest decrease in official reserves to just below $34.6 billion, the committee is unlikely to trim either the policy rate or the CRR for fear of the impact on the naira exchange rate,” they said.

    They attributed the drop in reserves partly to the exit of some offshore portfolio investors after Bernanke’s remarks adding that the position warrants caution from the MPC. “The committee’s view is that the exchange rate has more impact on inflation than interest rates. We would be surprised, therefore, if it was to jeopardise its impressive record on single-digit inflation,” they said.

  • ‘Naira devaluation’s impact to be felt soon’

    ‘Naira devaluation’s impact to be felt soon’

    The Chairman, Corner stone Real Estate, Mr. Lanre Okupe, has said the impact of currency devaluation and decline in oil prices will be felt between the next four and six months.

    He said since investors and other businesses would still have old stock, and that is why market prices are still the same.

    However, once new orders are placed for products, price would change since the exchange rate has soared owing to the devaluation.

    To this end, the economy, expectedly, would begin to experience a tougher period except measures are put in place to cushion the effect.

    Going by the growth being recorded and experienced in the real sector in the last two years, experts are now upbeat that the real sector will benefit from the oil price crash as investors would look in its direction for succor.

    Okupe, however, said the situation would create a problem for the economy, especially because the spending capacity of consumers will also be affected.

    “If the devaluation and oil price crash continues, it will not be a problem of the real sector alone, but a general one for the economy. Besides, when prices go up, the challenge will be if there will be disposable income to buy products,” he said.

    Principal Partner, Imole Ayo Real Estate, Mr. Kayode Oyedele, agreed that the devaluation of the naira had been made worse with the tumbling oil price.

    According to him, people are reluctant to spend freely as they used to in the past because of the fear of the unknown.

    But for him, the effect of the situation has set in. This is because properties that would have ordinarily been rented out are now delayed.

    “It is a two-way dilemma in the real sector. While the property owner wants maximum profit from his asset, the buyer is weary of his finances at this period,” Oyedele said.  He said even though the sector is being looked up to for good investment opportunities for investors, availability of funds will be the bane of such investment.

  • CBN, IOCs’ $600m sales lift naira

    CBN, IOCs’ $600m sales lift naira

    The naira advanced the most since November 2003 as the Central Bank of Nigeria (CBN) and International Oil Companies (IOCs) increased sale of foreign exchange.

    The naira rose 3.8 per cent to 179.55 per dollar. The naira appreciated 2.2 per cent this year, the most among 24 African currencies tracked by Bloomberg after the Somali shilling.

    The CBN sold $451 million at its auction on Wednesday, the most since November 26.

    Oil companies offered about $200 million between January 5 and 7, according to Adebayo Omogoroye at Guaranty Trust Bank Plc.

    “There’s a lot more supply and demand is very thin. The central bank was very strong in the auction,”Omogoroye, head of trading at the Lagos-based lender, said by phone.

    Buyers have been put off after a CBN announcement in December forcing them to use foreign exchange within 48 hours or sell it back to the institution. Demand was also hit by a ruling that banks clear foreign-exchange positions daily, having previously been allowed net-open positions of 1 percent of shareholder funds.

    The CBN is reviewing this, its Governor Godwin Emefiele told Bloomberg. His comments have helped to boost liquidity, according to Robert Hagenaars, a fixed-income trader at Zenith Bank U.K. Ltd.

    “Interbank market activity is picking up, with investor confidence incrementally rising due to strong indications that the central bank will reconsider” the zero net-open position limit, Hagenaars said in a note.

    The naira fell 13 percent last year as falling oil prices battered Nigeria, which relies on crude for almost all export earnings and 70 per cent of government revenue. Brent crude futures fell 0.1 per cent to $51.11 yesterday.

  • CBN rules out capital controls despite naira slide

    CBN rules out capital controls despite naira slide

    The Central Bank of Nigeria (CBN) said it will not introduce capital controls, rather, it is reviewing a rule introduced last month that investors said crushed liquidity in the foreign exchange market, its Governor, Godwin Emefiele has said.

    According to Bloomberg, the naira has been battered by oil prices that have dropped more than 50 per cent since June. The naira depreciated almost 11 per cent in the past three months, the highest among 24 African currencies tracked by Bloomberg.

    The CBN last month told banks to clear foreign exchange positions daily, having previously allowed them net-open positions of one percent of shareholder funds, in a bid to bolster the currency.

    “There will be a review in due course. But I can tell you categorically it will no longer be one per cent. It will be less than one per cent. The reason we put a stop to one per cent is because we felt that it was too large to be held by banks as a trading position.

    “The CBN has no plans to change a rule adopted around the same time that dollars bought in the interbank market be used within 48 hours or sold to the regulator. The naira is “currently appropriately priced” and no new measures are being considered,”the CBN chief told Bloomberg.

    The currency weakened for a third day, declining 0.2 per cent to trade at 184.23 per dollar in Lagos.

    “We are satisfied with the current adjustment that’s been done. It remains a free entry and free exit market,” Emefiele said.

    Nigeria, which gets 70 per cent of government revenue and almost all export earnings from oil, has proposed spending cuts and in November raised interest rates 100 basis points to a record 13 per cent in a bid to stem capital outflows and defend the naira.

    The CBN on November 25 also moved the naira’s official peg for twice-weekly auctions to a midpoint of 168 per dollar from 155 and widened its trading band to five per cent either side from three per cent.

    The measures implemented by the regulator have made it difficult for foreign investors to exit their holdings, Samir Gadio, head of African strategy at Standard Chartered Plc, said.

    “There’s a risk that these measures last as long as the CBN feels it doesn’t have the ability to control the exchange rate,” he said.

    “That is news to me that foreign investors are unable to exit their positions. If any foreign investor needs to exit its position, he should make a demand to a bank. If the bank cannot find those dollars to buy in the interbank market, the central bank will provide the dollars,” he said.

  • Why is Ironsi not on the naira?

    SIR: I could be off beam now, but I am at a loss as to why General  Thomas Aguiyi Ironsi is not on any currency note in Nigeria. I am equally curious to know why those of his geographical block have not thought it fit to celebrate this man and have left it to the federal government that has chosen to consign him into the quarters of irrelevance.

    It is shocking that in this country some individuals are handpicked to be celebrated and given special recognition, and sad that no one has ever deem it right to inform the youths about our past great leaders. ‘Stomachism’ rather than ‘Intellectualism’ mindset has become the order of the day.

    Nollywood has by the same token failed as most of the movies presented to the world are laced with superstition, black magic instead of showcasing the qualities of great and inspirational leaders of the nation to our tender and yet-to-be corrupted school children.

    It is not surprising to read that some of the persons, who aided Ironsi to the other world, are called statesmen, brave men. Somebody is blessed to be celebrated nationally on Nigeria’s national currency and even all over the world by the naming of a major airport in a strategic part of the country after him.

    It is disappointing that Ironsi’s constituency – the Army has under no circumstances tried to clear his name and honour a gentlemanly soldier and a former head-of-state as it should be.

    As stated by this writer elsewhere, “General Aguiyi-Ironsi was entreated to be head of state and he rose up to the occasion without fear; a leader who truly knew the problems of Nigeria, who was marked to be slain in a coup but foiled it and whose only sin according to his detractors and their ilk was that he didn’t kill the coup plotters because he was sane enough not to shed blood because there was no law or decree allowing him to do such.”

    Is Nigeria not living on a lie and is this bias not a fraud? If the military lacks the guts to remember this man, how come no elected governments at the centre have done so since 1999?

    It was Napoleon who said, “Any commander-in-chief who undertakes to carry out a plan which he considers defective is at fault, he must put forth his reasons, insist on the plan being changed and tender his resignation rather than be the instrument of his army’s downfall.”

    Is the celebration of Ironsi defective and why? Can Nigerians see his photograph on the 50 Naira note or even the 1000 note? Can we see other important federal monuments named after him?

    Can the president now and any other in 2015 buck the trend and celebrate General Aguiyi Ironsi appropriately for posterity sake?

    We need to lessen pressures of ethnicity which is so high, and it does no good to suggest incorrectly that Ironsi himself stood in the way of development 47 years ago. It is a huge wrong to him, Nigeria and to history.

     

    • Simon Abah

    Port Harcourt, Rivers State

  • Naira opens year with two per cent slide

    Naira opens year with two per cent slide

    The naira opened 1.9 per cent down on its 2014 close at 185 to the dollar, Thomson Reuters data showed. The naira has been sliding in recent months following continued fall in Brent crude oil prices and also decline in foreign exchange (forex) reserves.

    In the last one year, currencies of other oil exporters also suffered, with the Norwegian krone slumping 19 per cent and the dollar of Canada slipping 8.6 per cent.

    The naira has been devalued by over 35 per cent in the last 13 years.  The Central Bank of Nigeria (CBN) in 2001 cut its value by 27 per cent, followed by the eight per cent slash in the last monetary policy committee (MPC) meeting.

    To stop the naira from further slide, the MPC had at the November 25 meeting, moved the midpoint of the official window of the forex market from N155/dollar to N168/dollar. It also widened the band around the midpoint by 200 basis points from plus or minus three per cent to plus or minus five per cent.

    The Committee also increased the Monetary Policy Rate (MPR), the base lending rate, by 100 basis points from 12 to 13 per cent while the Cash Reserve Ratio (CRR) on private sector deposits also rose by 500 basis points from 15 per cent to 20 per cent. It also retained public sector CRR at its current level of 75 per cent. The CRR is a portion of banks’ deposits kept with the CBN.

    In a country stricken by 8.1 per cent inflation, one of the world’s worst; and declining forex reserves, now at $35 billion from about $42 billion a year ago, the last devaluation was the last straw that broke the camel’s back.

    Many analysts see the naira’s fair value at N200 to a dollar. That confirmed the widely held view that it had indeed fallen from its Olympian heights both at the interbank market (official rates) and at the black market.

    Less than 24 hours after CBN Governor, Godwin Emefiele announced the devaluation, the price of household goods, including bread, wheat, fish and rice, among others, shot up by 40 per cent or more. The services industry was also affected.

    Emefiele said the CBN under his leadership remains committed to safeguarding the value of the naira. For instance, the lender had last month, banned the sale of forex by banks to importers without requisite shipping documents.

    It also directed that only imports, which are backed with evidence of shipment and other relevant documents, will qualify for purchase of forex. Only such transactions will be eligible for forex purchase via the RDAS or the interbank window, it said.

    The apex bank also said henceforth, all importations involving electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions would be funded from the interbank foreign exchange market only.

    The policy, the CBN said, was to maintain the existing stability in foreign exchange market and strengthen the various policy measures, already initiated, including the regulation of the Bureau De Change (BDCs) that cut dollar supply to operators from $50,000 to $15,000 weekly. These measures, Emefiele admitted, would help conserve the foreign exchange and support the naira.

    The former Executive Director, Keystone Bank Plc, Richard Obire, said the common man does not understand devaluation, but knows when his purchasing power has reduced. He explained that when a currency is devalued, consumers’ ability to demand and buy products would be drastically reduced. “It also means that people’s ability to spend on discretionary products will decline, as they focus on essential goods like food and shelter,” he said.

    Obire said such a policy usually leads to salary delays in private and public sectors, as cash crunch set in, adding that the common man would be adversely affected. “Vital liquidity in pocket of people is crucial. The common man is already feeling pangs of hunger and with the devaluation, a bad situation can only get worse,” he said.

    He said middle class earnings will also be affected. “The middle class send their children abroad for schooling. They are also the ones that feed the common man. They will now spend more money sending their children to school, and may have little left for the common man. The common man has very little flexibility for maneuvering at this time. He is at the receiving end,” he said.

  • Naira, power sector funding to shape banks’ future

    The success or failure of banks will depend on the status of the naira, power sector funding and oil & gas projects as well as biometrics. Lenders will have to brace for oil price slide and the monetary policy of the Central Bank of Nigeria (CBN), which has impacted on lending cost to key sectors of the economy, writes COLLINS NWEZE.

    The naira has been on the ropes for months – no thanks to  crude oil prices, which in the last six months have dropped by over 50 per cent.

    It did not come to many as surprise, when the Central Bank of Nigeria (CBN) recently devalued the naira and tightened monetary policy.

    To confirm low oil price will take a longer time to disappear; the Organisation of Petroleum Exporting Countries (OPEC) has opted not to cut output.

    These policy shifts are putting the naira at risk, raising probability of further monetary policy tightening this year.

    The currency was devalued by 8.38 per cent, raising the official exchange rate of the naira from N155 to N168 to the dollar — a N13 loss. For the CBN, these are parts of measures to strengthen the nation’s economy. The apex bank also raised the Monetary Policy Rate (MPR) from 12 to 13 per cent, and the Cash Reserve Ratio (CRR) on private sector deposits from 15 per cent to 20 per cent.

    The MPR is the rate at which banks borrow from the apex bank to bridge their immediate cash shortfalls, while the CRR is a monetary policy tool used to either call up excess liquidity or release the funds needed to grow the economy.

    With these developments, the Sub-Saharan Africa Economist at RenCap, Yvonne Mhango, said this year may turn out to be a tougher year for the consumer. According to her, two of the four variables that explain consumer confidence in its regression model have been adversely impacted by currency devaluation and interest rate hike.

    Mhango said interest rates have been hiked and contradictory fiscal policy implies the prospects of wage increases for civil servants, in the short term, have dimmed.

    “Of the four variables we use to explain the consumer confidence index in our regression model (including oil output and real Gross Domestic Product growth), we find the index to be most sensitive to interest rate movements. Further upside risk to interest rates and the potential removal of the fuel subsidy imply that 2015 has the potential of being a tougher year for the consumer than 2012,” she said.

    The naira to lose more value

    The naira rate at the parallel market (black market) is expected to cross the N200 border to a dollar as demand for the greenback persists, Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, has said.

    Speaking at the FDC monthly economic report for December, he said that N200 to the dollar rate is only a 15 per cent adjustment as against 45 per cent devaluation in 2009.

    Gloomy pictures ahead

    The dollar, Rewane noted, is expected to further strengthen in the near future, buoyed by increased demand for the currency upon expectation of higher interest rates in the US.

    “The dollar will also become more attractive as major central banks including the European Central Bank, the Bank of Japan and the People’s Bank of China is expected to pursue expansionary monetary policies in order to boost their economies. An appreciation of the dollar implies a further decline in commodity prices based on their inverse relationship,” Rewane said.

    Continuing, he said: “We also expect that commodity prices would continue to be affected by weak global demand, especially in China, which is one of the largest consumers of grains, energy and metals.

    “Oil prices, in particular, will continue to record the highest loss as OPEC fails to cut its production levels and US shale production further increases oil supply to the markets.

    “We expect to see economic growth and development slowing over the next year as the much needed revenue support is weakened. Though the devaluation of the currency will bring some respite to the naira and reduce external reserves depletion in the short term, the pressure on the currency might resurface if the decline in oil prices is sustained for a long period.

    “To help mitigate the impact of lower commodity prices on export revenues, the government must seriously take the call to reduce revenue leakages in the economy and at the same time boost production of non-oil export commodities.”

    Although, projecting the value of naira is currently clouded by several domestic and exogenous factors, Rewane said the fair value of the currency is expected to be between N180 and N195 to a dollar at the interbank market.

    He said the naira adjustment by the Central Bank of Nigeria (CBN) is timely and the depreciation of the currency has reduced over time because the official rate is closer to equilibrium.

    Rewane said: “A further depreciation of three to five per cent is also expected at the official market. This is due to anticipated impact of the global oil market spiral on external and fiscal buffers which limits the CBN’s ability to support naira.

    “In addition, if the US changes its monetary policy stance, there might be a reversal of capital flows and an erosion of some of the external reserves.”

    He reiterated Goldman Sachs’ forecast of last July that the naira will trade at N165 to dollar in three months, N175 to dollar in six months and N195 to dollar in 12 months.

    Speaking further, he said: “As 2014 drew to a close, oil prices still plunged even after losing over 50 per cent (now $56pb). The naira is on the ropes trading at N193 to a dollar and interest rates are strangulating at 22 per cent per annum. These are some of the issues that have made the second half of 2014 a rough and tumble period as well as one of the most interesting years in this decade for Nigeria.

    “Against this background that shows that cyclical economic downturns and recovery are inescapable, our findings reveal that the Nigerian macroeconomic environment will continue to be vulnerable to exogenous shocks in 2015.

    “This is mainly because oil prices and international capital flows will continue to be dominant features in the Nigerian macro-economic equation.”

    Also speaking, the Managing Director of Afrinvest West Africa Plc, Ike Chioke, said a strong positive correlation exists between the exchange rate and crude oil price in the country.

    He said: “Nigeria’s crude oil – Bonny Light, which traded at $110.2 per barrel in January last year, reaching $114.6 per barrel by June, is now trading at about $56 per barrel.

    “With the discovery of the Shale oil, crude oil prices are projected to moderate in coming years. In addition, the threat by the United States (US) to reduce oil imports constitutes a downside risk on crude receipts of OPEC members. Consequently, the CBN must   establish a “real” and “sustainable” value for the naira as the opportunity cost of “substantial” support for the naira increases,” he explained in a report – Naira Trending Towards 2015.

    Chioke said dependence on crude oil (currently 70 per cent of total foreign exchange earnings) makes economic growth susceptible to oil price shocks.

    According to him, a decline in crude oil price would lead to a corresponding decline in oil receipts; “which will forestall the accumulation of external reserves, creating a negative signaling effect that leads to capital flight, thus depreciating the naira.”

    “The current over-reliance on oil receipts – oil receipts account for about 96.8 per cent of the country’s total exports – by the government poses a huge threat to the stability of the economy,” he noted.

    Oil & Gas loans face

    increased risks

    Banks are also expected to have some challenges managing their loans to the oil and gas sector, as price drops further.

    Some bank chiefs see the drop in oil price as political. The Chief Executive Officer, Sterling Bank Plc, Yemi Adeola, described the continuous fall in prices of crude oil as purely political. He said the fundamentals of the oil industry, do not justify the fall in prices.

    The bank chief alleged: “What has happened is purely political. The fundamentals in the oil industry does not justify the sharp fall in prices. It will get to a point, after all the political issues are resolved, the price will bottom-out, and will start bouncing bank. This is not the first time that oil prices will go down. In 2008/2009, it tested $47 per barrel not for too long, and it bounced back. This one will drag for a while, maybe six months or so, but it will bounce back.”

    Adeola said he does not want to discuss the politics of the US and the Gulf countries but the truth is that in advanced countries, banks do not panic when crude oil prices go down, because that asset is there and it is permanent.

    His words: “For as long as you have proven reserves, what you need to do is to restructure the tenor of your loans.  So, if a facility is for five years and oil price goes down, I will not get my money in five years, but I will get it in 10 years by simply restructuring the loans.

    “In Sterling Bank, we looked at oil accounts in our books and there is nothing to worry about. We stress tested them, and found that our customers can still do well even if oil price drops to $50 per barrel.”

    The intricacies of oil loans have prompted the CBN to act fast. The apex bank has warned banks of the dire consequences of the falling oil price on loan advances to the oil and gas as well as the public sector in the New Year.

    In a memo to banks, the CBN, through its Director, Banking Supervision, Mrs. Tokunbo Martins, said the falling oil prices and the potential for a further decline had been a major concern. Many states have been unable to pay salaries as banks shut the tap amid dwindling and delayed allocations.

    Mrs. Martins said that considering the quantum of exposure to the oil and gas sector, combined with risk management deficiencies as revealed by the recent Risk Based Supervision, there is the need to proactively guard against a crystalisation of these risks.

    The memo entitled: Oil and Gas Industry Credit Risk Mitigation reads: “The CBN therefore considers it essential to ensure that banks have sufficient capital buffers to mitigate these escalating risk taking activities. Where exposure to the oil and gas sector (as defined by the International Standard Industrial Classification of Economic Sectors as issued by the CBN) is in excess of 20 per cent of total credit facilities of a bank, the risk weight of the entire portfolio in the sector will attract weight of 125 per cent for the purpose of capital adequacy computation.”

    Oil prices have declined from $107.89 per barrel in June last year to $85.06 per barrel in October, and trading at $57.33 per barrel. The possibility of further decline, Mrs. Martins said, should not be underestimated.

    The CBN director said that a proposed single-factor sensitivity stress test showed that at $70 per barrel, 25 per cent of oil sector loans would become non-performing while 15 per cent of the loans will be nonperforming in the public sector.

    Budget versus subsidy

    Mhango said the Federal Government could save $2.5 billion or four per cent of this year’s budget by removing oil subsidy. She explained that given the downside risk to revenue and the near-depletion of the Excess Crude Account (ECA), the government may have little option but to remove fuel subsidy.

    She said previously, the probability of the oil price falling below $80/barrel was low but “today, we are adapting to the fact that this may be the new normal, following OPEC’s (which represents 40 per cent of the world’s production) decision to maintain current production levels in response to lower oil prices. Lower oil prices may result in a further slowdown in foreign exchange inflows, challenging the Central Bank of Nigeria (CBN’s) ability to defend the naira.

    “This means savings of $2.5 billion, or four per cent of 2014 budget consolidated government budget. We think the current low public debt levels of 11 to 12 per cent of Gross Domestic Product (GDP) and revenue growth challenges imply government’s borrowing may increase in 2015, leading to an increase in yields, after being depressed in 2014.”

    Power sector funding

    For the CBN Governor, Godwin Emefiele, the observed challenges in funding power projects are interconnected with the unexpectedly large revenue shortfalls in the industry, which needed to be fixed.

    That made the CBN boss to institute the Nigerian Electricity Market Stabilisation Facility (NEMSF), where N213 billion has been mapped out to settle legacy gas debts and shortfalls in revenue for operators to boost power supply.

    The CBN, he said, is collaborating with the Ministry of Petroleum Resources, Ministry of Power and Nigerian Electricity Regulatory Commission (NERC) to achieve the objective.

    Such feat, he said, would boost liquidity conditions in the Nigerian Electricity Supply Industry (NESI) and address hiccups that has characterised the posts-privatisastion of the power sector.

    The NEMSF in perspective

    According to the CBN, the NEMSF will this year, be administered through deposit money banks and disbursed at the rate of 10 per cent per annum while the tenor shall not be more than 10 years.

    Also, a Special Purpose Vehicle (SPV) that complies with section 31 of CBN Act 2007 will serve as an intermediary between the banks and the electricity market players while the Nigeria Electricity Regulatory Commission (NERC) shall reset the Multi Year Tariff Order (MYTO) to ensure that it provides for the loan repayment including the costs of setting up and operating the NEMSF.

    The other power sector value chain players must also agree to specific service related commitments, which include committing gas suppliers to supply at higher volumes; generating companies (GENCOs) and Distribution Companies (DISCOs) must commit to utilising the funds for equipment/infrastructure acquisition, refurbishment and/or upgrade.

    The rule also include that all parties licensed by the NERC to operate in the electricity market should sign performance bond agreements with the relevant authorities including the Bureau of Public Enterprise (BPE).

    Biometric banking

    Banking security will this year, continue to be a priority for many banks and regulators of the financial services sector. That prompted the CBN through the Banker’ Committee, deposit money banks and Nigeria Interbank-Settlement System (NIBSS) to inaugurate the centralised biometric identification system for the banking industry tagged: Bank Verification Number (BVN).

    For the CBN, the exercise is a continuation of the $50 million biometrics project it instituted with the Bankers’ Committee, Dermalog and Charms Plc and is expected to assignunique number to every bank customer for enhanced security of transactions.

    CBN order

    The CBN mandated banks to enroll 30 per cent of their customers on the BVN by the end of last year, and 70 per cent by March this year.

    CBN Director, Banking and Payments Unit, ‘Dipo Fatokun, said the apex bank will monitor lenders to ensure compliance.

    He explained that where an existing customer wishes to register the BVN with his/her bank, capturing his  signature and photo identification document may not be necessary, as the bank is expected to have those records during account opening.

    Also, where an existing customer wants to do a change of name, after his/her enrolment, on BVN, due diligence should be done and appropriate legal documents obtained, before effecting the change.

    Fatokun said the new directive is aimed at fast-tracking the enrolment, adding that banks are to give more attention to the enrolment of their customers. It is expected that the apex bank will, in the coming months, monitor banks’ compliance in line with set guidelines.

    Benefits to customers

    Biometric Project Manager at NIBSS, Oluseyi Adenmosun, said that BVN gives a unique identity that can be verified across the banking industry, making it easier for customers’ bank accounts to be protected from unauthorised access. It is expected to address issues of identity theft, and reduce exposure to fraud in the banking sector.

    The manager added that the purpose of the project is to use biometric information as a means of first identifying and verifying all individuals that have account (s) in any Nigerian bank and consequently, as a means of authenticating customer’s identity at point of transactions.

    Adenmosun said the BVN would also provide a uniform industrially accepted unique identity for customers and authenticate transactions without the use of cards using only biometric features and PIN.

    Government reactions to

    the headwinds

    Finance Minister Dr. Ngozi Okonjo-Iweala, who is the Coordinating Minister for the Economy, has been busy explaining what government is doing to wriggle out of the naira crises among others. She talked about plugging revenue leakages, increasing the drive for revenue as well as developing the non-oil sectors.

    The minister, who spoke at the International Institute for Finance (IIF) African Financial Summit 2014 held in Lagos, argued that with the right policies, Nigeria and other nations in the continent would be able to sustain growth despite the economic headwinds.

    She admitted that unfolding events over the last six months have cast a shadow on global economic recovery in the aftermath of the 2008/2009 financial crises.

    Her words: “Many countries on the continent depend on commodity exports as the main source of revenue. In Nigeria, our crude oil exports alone accounted for about 83 per cent of the value of our total exports in 2013, according to our National Bureau of Statistics (NBS).

    “It is now imperative to drive up domestic resource mobilisation, especially taxes. In several African countries, including Nigeria, tax revenue to GDP is below 15 per cent – the conventional International Monetary Fund threshold for satisfactory tax performance. There are many leakages and gaps to be plugged, and more effective tax administration could contribute to improving revenues.”

    Continuing, she added: “Aside drop in oil prices, the price of gold, which peaked at about $1383 per ounce in March, this (last) year, is now trading at around $1160 per ounce. Iron ore, which traded at around $130 per dry metric tonne at the beginning of the year, is now trading at around $76 per dry metric tonne, which is a loss of more than 40 per cent of its value this year.

    “Also, the prices of some agricultural commodities are on a downward spiral, with the price of cocoa falling by about 10 per cent from $3,252 per tonne at the end of September, to about $2,900 per tonne now.

     “We need to look into areas that for reasons that are not very clear, we have neglected and we need to change direction. We need to identify such sectors and create an enabling environment to attract private investments, while also channeling government’s spending into them.”