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Tag: recapitalise

  • IMF: banks must recapitalise

    IMF: banks must recapitalise

    Many commercial banks need to raise new capital and boost their capital adequacy ratios for them to drive the desired growth in the economy, the International Monetary Fund (IMF) said at the weekend.

    The IMF’s Mission Chief for Nigeria, African Department, Amine Mati, said the commercial lenders needed recapitalisation to secure fresh funds to boost the Federal Government’s chances of achieving the Economic Recovery and Growth Plan (ERGP) target. The ERGP, a Medium Term Plan for 2017 to 2020, is designed to help the Federal Government jumpstart the economy.

    Mati spoke at the 2017 Chartered Institute of Bankers of Nigeria (CIBN) Investiture with the theme: Coherent set of policies for greater exchange rate flexibility.

    He advised the Federal Government to embark on full Value Added Tax (VAT) reform and cancel tax holidays and exemptions that erode the Company Income Tax (CIT) base. He also urged the government to increase taxes on alcohol and tobacco and broaden VAT by revisiting exemptions.

    The last mass recapitalisation in banking occurred in 2005 when the minimum capital base was raised from N2 billion to N25 billion. That exercise reduced the number of banks from 89 to 25 after mergers and acquisitions. Now, there are 21 commercial banks, four merchant banks and one non-interest bank.

    The Central Bank of Nigeria (CBN) has continued to advise banks to double provisions on performing loans to two percent to build adequate buffers against unexpected losses, as liquidity ratios fall. Besides, lower revenues for government and oil companies due to plunging crude prices have led to unsecured exposures for banks that are likely to increase credit risk and loan losses. The level of non-performing loans has risen to nearly 15 per cent against five per cent regulatory threshold and lenders need new capital to maintain sound capital adequacy ratio.

    While the capital adequacy ratio of most banks is generally above the minimum regulatory threshold of 15 per cent, the adoption of Basel II implies additional capital as banks grow their risk assets.

    Besides, banks that are designated as systemically important banks (SIBs) are expected to provide for additional 100 basis points to increase their minimum capital adequacy ratio to 16 per cent as against the general requirement of 15 per cent. National and regional banks need only 10 per cent capital adequacy ratio.

    Many banks are already accessing the Eurobond market for tier-2 capital. Market sources said more lenders may return to the capital market for additional funds in the months ahead to create a headroom for loan growth.

    On exchange rate policy, Mati described the Investors’ & Exporter’s Forex Window as a good move to address market segmentation, adding that the CBN should unify/ simplify the forex market. He said the current exchange rate was in line with market expectations, but there are significant headwinds, amidst structural challenges and elevated risks.

    CBN Deputy Governor (Financial System Stability) Joseph Nnanna, who was elected Fellow of the CIBN, said the exchange rate was converging and moving southward.

    He said although the IMF wants the CBN to unify the rates, that can happen organically or inorganically. “For us at the CBN, we believe that organic convergence is the way to go. Inorganic convergence, which is forced, will always produce an arbitrage and that we don’t want,” he said.

    In Nnanna’s view,  the exchange rate has greatly stabilised. “Before, the naira exchange rate to a dollar was for almost N500/ dollar. Today, it has come down through a combination of policies. We didn’t force it down. It came down organically or naturally, and that’s the way it is supposed to be,” he said.

    He said the exchange rate will not rise as the end of year approaches.

    “No, the rate will not go up, take it from me. We have achieved stability and the stability is here to stay. The sustainability of the dollar interventions is already evident, the foreign reserve is growing. As I speak, it is $34 billion. When we had volatility, the reserve was as low as $20 billion. But let me say one thing: Nigeria can make do with a reserve level of $20 billion,” Nnanna said.

    “All we need to manage the economy and manage it properly is a reserve that can cover at least three months of import.”

    On the I & E Forex Window, the CBN Deputy Governor said it had remained a huge success as it performed beyond the CBN’s expectation. “Within four months, the I & E Forex window was introduced, we have seen volume of over $10 billion and above – it’s a huge success. I believe other countries can copy a page from us,” Nnanna said.

  • Minister urges insurers to recapitalise

    Minister urges insurers to recapitalise

    Finance Minister Mrs Kemi Adeosun yesterday urged insurers to recapitalise to reverse the sector’s underperformance.

    In her opening remarks at the Insurance Industry Consultative Council (IICC) National Insurance Conference, at Transcorp Hilton, Abuja, she challenged insurers to take a pill of their own medicine as risk managers by taking recapitalisation risk.

    She said this has become imperative to immediately address the decline in the industry as it is lagging behind among its global and African peers despite operating in the largest economy in Africa.

    She said there is an estimate that the sector can create as many as 70000 new jobs, adding that to achieve this feat, there is need to take concrete actions. The imperative to act now is very strong, Mrs. Adeosun said.

    She said government must however act as a natural incubator for necessary growth in the areas of compulsory insurances.

    She said: “A developed and active insurance industry will bring about increase in GDP (gross domestic product), accumulation of long term fund for infrastructure financing, job creation and improve the standard of living. Part of the things that has contributed to the industry to underperform is low awareness, unhealthy competition, lack of innovation among others.

    “We need to strengthen the capital base of the insurance industry. Operators should not see recapitalisation as a punitive measure or aim to disenfranchise them but see it as an opportunity to reposition for the future. Recapitalisation produces opportunities for partnership and other strategic alliances.

    “As insurers, you need to take a risk and recapitalise. The industry manages risk and they must be ready to take risk themselves. There is no alternative. The industry is evolving and I see the opportunities. But the challenge is for you to take concrete actions that need to be taken quickly for us to realise the potential of the industry.”

    Also speaking, the Commissioner for Insurance, National Insurance Commission (NAICOM), Mohammed Kari said the Commission has  tackled the immediate issues challenging the industry.

    “The Commission has continued to provide regulatory oversight for the industry in relevant areas through the issuance of guidelines, training and the creation of the enabling regulations to introduce new classes of insurance (products) to address the financially disadvantaged in our society.

    “To address the medium and long term challenges of penetration,  the Commission is on the verge of re-launching the Market Development and Restructuring Initiative (MDRI).  The initiative originally launched in 2009 is being reviewed for the immediate impact we believe it will provide. We believe if properly implemented, it will bring the desired result as envisaged.

    “This effort has further been boosted by the just concluded review of the draft Insurance Bill by the ministerial committee setup by the Minister of Finance, the presidential directive on insurance of government assets and the Senate resolution supporting the enforcement of compulsory classes of insurance across the country.”

    He added that the industry has also resolved to rebrand itself and create more distribution channels

    He said while efforts and consultations have reached advanced stage with the various agencies, including state governments towards the enforcement of these classes of insurance,  I am happy to report that the Minster has consented to chair the grand launch of the enforcement campaign.

  • 2,836 BDCs recapitalise

    The Central Bank of Nigeria (CBN) has confirmed that 2,836 bureaux de change (BDCs) have complied with its new N35 million capitalisation requirement and another N35 million cautionary deposits for operators.

    In June last year, CBN raised the minimum capital requirement for BDCs from N10 million to N35 million.

    The list of the confirmed BDCs was released by CBN’s Financial Policy and Regulation Department in a circular titled: “Updated list of confirmed Bureaux de Change in compliance with new requirements.”

    The apex bank had stated that interest would now be paid on the mandatory cautionary deposit based on banking industry savings account rate.

    In order to ensure that the foreign exchange dealers comply with the new capital requirements, the CBN had extended the deadline to July 31, 2014 from the previous July 15 deadline.

    The CBN had in May last year, published a list of 2,618 licensed BDCs, which it said had complied with its new capital requirements as at July 31 last year. There were 3,208 registered BDCs in the country before the expiration of the  July 31 deadline for operators to recapitalise.

    The regulator had pointed out that on the expiration of the July 31 deadline, last year, it would cease to fund any BDC that failed to comply with the new requirements, adding that “only BDCs that meet the new requirements would qualify to be engaged as agent by the licenced international money transfer operators for inward and outward transfer business in Nigeria.

    The CBN said it introduced the new requirements in a bid to correct observed deficiencies in the operation of BDCs in the country, which it noted had led to gross inefficiencies and sharp practices in the foreign exchange market, rent-seeking, depletion of the external reserves, financing of unauthorised transactions and dollarisation, among others.

    The apex bank noted that while the capital requirements for all other CBN-regulated entities had been reviewed upward over the years,  that of the dealers in the sub-sector of the forex market had remained the same.

  • Banks get deadline to recapitalise

    Banks get deadline to recapitalise

    The Central Bank of Nigeria (CBN) has given at least six banks deadline to beef up their capital base in line with the increased capital requirements under Basel II Capital Accord.

    Reliable industry sources said many banks have not met the Basel 11 capital requirement and will need to raise additional capital to beef up their capital base within the next 12 months.

    According to the sources, the apex bank has mandated the deficient banks to submit a recapitalization plan, outlining the timeline for their capital raising plan, to the apex bank by June 2015. The banks are expected to implement the recapitalization plan and complete their recapitalization plan by the end of June 2016.

    A leading global investment and finance firm indicated to The Nation at the weekend that some 10 banks have been confirmed to have met the capital requirements under the Basel 11. These included Access Bank, Diamond Bank, FBN Holdings, FCMB Group, Fidelity Bank, Guaranty Trust Bank, United Bank for Africa (UBA), Zenith Bank, Wema Bank and Skye Bank Plc.

    While the capital adequacy ratio of most banks is generally above the minimum regulatory threshold of 15 per cent, the adoption of Basel II implies additional capital as banks grow their risk assets. Besides, banks that are designated as systemically important banks (SIBs) are expected to make provision for additional 100 basis points to increase their minimum capital adequacy ratio to 16 per cent as against the general requirement of 15 per cent.

    The Basel II is the second global standards of capital adequacy issued by the Basel Committee on Banking Supervision under the auspices of the Basel, Switzerland-based Bank for International Settlements (BIS), the oldest international financial organisation that coordinates central banks and standards for the international financial markets.

    The Basel Committee has issued three sets of the global standards including Basel I, Basel II and Basel III, which increased and stricter capital risks and exposure management requirements from one level to another.

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

    Market sources said many banks may return to the capital market to source for additional funds in the months ahead to shore up their capital compliance and create headroom for loan growth. Four of the banks that had complied including Diamond Bank, UBA, Access Bank and Wema Bank, had floated supplementary offers to raise funds in recent months. UBA and Access Bank are yet to announce the subscription level for their offers, but most analysts said the offers were successful.

    A source in the know said banks may resort to rights issue to existing shareholders given the slowdown in the primary market of the Nigerian capital market. Public offers in recent period have been tempered by the downtrend at the stock market, which has in many instances seen share price at the Nigerian Stock Exchange (NSE) lower than the offer price of a primary issue.

     

     

     

  • CBN sets 18-month timeline for finance houses to recapitalise

    CBN sets 18-month timeline for finance houses to recapitalise

    The Central Bank of Nigeria (CBN) has set 18-month timeline for Finance Houses (FCs) to meet the new N100 million capital base for the subsector.

    CBN Director, Other Financial Institutions Supervision Department, Ahmad Abdullahi who spoke in Lagos, said operators that fail to meet the deadline will be barred, or asked to move into new business with lower capital base.

    He said the deadline for compliance with the provisions of the Revised Guidelines shall be September 30, next year, 18 months from last April.

    Abdullahi said the subsector also operates on a ratio of non-performing loans to total loans pegged at maximum of 10 per cent. He said FCs shall consult at least two licensed credit bureaux to obtain credit information on borrowers.

    The CBN director said the finance firms sub-sector was envisioned to operate at the middle tier of the financial system, largely to cater for the financial needs of the Micro, Small and Medium Enterprises (MSMEs). They are also expected to leverage on the resources from the banking system among other sources of funding.

    He explained that the CBN had in a bid to sanitise the sub-sector, revoked the licences of 208 finance companies and cancelled the approvals-in-principle of 462 others due to the distress in the sub-sector.

    By 2012, there were 116 FCs in the records of the CBN; 51 licences were revoked by the CBN in September, same year thus leaving a balance of 65 FCs with valid licences.

    “The idea is to have finance companies that are strong and virile to perform the functions they were set up to per form. The objective of shareholders in the operation of finance companies is to make profit, but for the CBN, it is to have stable and strong finance companies,” he said.

    Abdullahi said the CBN will continue to sanction finance companies that do not have the licences but are in operation as such would ensure that the subsector is run efficiently to the benefit of the economy.

    He advised finance companies to maintain a database of their customers and generate quarterly risk management reports to be submitted to the CBN.

    “Finance companies shall be permitted to participate in accessing and disbursing funds to SMEs via relevant vehicles/intervention funds set up by the CBN, the Federal/State Governments and other relevant bodies. The CBN shall continue to provide support towards capacity building in the Finance Company sub-sector,” he added.

  • Govt to recapitalise Bulk Trader with $85m

    Govt to recapitalise Bulk Trader with $85m

    THE Federal Government is to provide $85.2million to the Nigeria Bulk Electricity Trading Plc, to help shore up its capital base, the Chief Executive Officer, Rumundaka Wonodi, has said.

    “Right now, there is still that steady gradual capitalisation through the budget,” Wonodi said in an interview in Abuja, yesterday.

    “But if there is a need for major intervention, the government is willing to do that.”

    The state-owned agency, also known as the Bulk Trader, was created in 2010 and capitalised with $750 million last year. It is the custodian of agreements authorising transactions among power companies, enabling it to receive payments on behalf of electricity generators from distributors.

    The agency could face financial obligations of as much as $2 billion as power generation improves and new plants are built, according to a report by Ecobank Research.

    Blackouts are a daily occurrence in Nigeria, a country of about 170 million people, where demand for electricity is more than double the industry’s 4,000-megawatt generated capacity.

    All power trading between distributors and generators will be guaranteed by the bulk trader after the start of a new privately-led transitional market phase, representing a five-to-10 year period that will allow the market to stabilise.

  • CBN gives finance houses 18 months to recapitalise

    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.

  • Shareholders, core investors to recapitalise quoted firms

    Against the background of the investors’apathy and dormancy at the primary segment of the capital market, shareholders and core investors in several quoted companies have opted to provide additional equity funds to their companies, putting rights issue as nearly the main equity-based means of raising funds.

    The primary segment of the capital market is the new issue market where companies can raise new equity funds through public offer or other combinations.

    However, while the secondary market, where quoted shares are traded, has recovered significantly, the primary market has been dormant since the recession in 2008. There has been no initial public offering or public offer in the market since then.

    The Nation’s check indicated that companies with substantial major investors’ holdings are falling back on the existing shareholders to bridge equity financing gaps and reduce dependence on short-term loans.

    Not less than four companies have initiated plans to float rights issue in the past three weeks. Shareholders of Diamond Bank and Sterling Bank had earlier this month approved plans by the banks to raise new funds through rights issue. Shareholders of Berger Paints on Monday mandated their board to float a rights issue of one new share for every three shares held. Resort Savings and Loans also secured the approval of the Nigerian Stock Exchange (NSE) to float a rights issue.

    Transnational Corporation of Nigeria (Transcorp) has opened application list for its rights issue, which is expected to raise about N13 billion. Transcorp is issuing about 12.91 billion ordinary shares of 50 kobo each at N1 per share. The right issue is expected to close on May 31, 2013.

    Both Transcorp and Berger Paints have indicated they intend to use the net proceeds of their rights issue to finance expansion and modernisation of their businesses. Berger Paints would use the net proceeds of the rights issue, which will be underwritten up to 30 per cent, to further modernise its factory. Transcorp will use the funds to finance its new power business and expand its hotel and agro-allied businesses.

    Both Sterling Bank and Diamond Bank are to raise equity funds to bolster their balance sheets and support tier Two capital as they seek to energise small and medium business financing.

    Rights issue gives the first right of refusal to existing shareholders and thus preserve shareholding structure. As such, rights issue is usually initiated with the prior consent of the majority shareholders, who must have indicated prior interests to pick up their rights.

    However, new investors can also buy into a rights-issuing company through rights trading on the secondary market.

    Market analysts said the growing list of rights issues early this year underscores the preparedness of core investors to refinance their companies.

    According to analysts, rights issue implies significant financial commitment by the core investors.

    They said they expected more companies to file for rights issue given the high gearing ratios of several quoted companies, which interest burden could stifle returns to shareholders in the period ahead.

    Managing Director, GTI Securities, Mr Tunde Oyekunle, said the recourse to rights issue was a sign of confidence of shareholders in the prospects of their company, especially the core investor, which would provide the larger chunk of the required capital.

    He added that the generally weak state of the primary market has left core investors with little option then to pick up the gauntlet.

    Economist and securities advisor, Sterling Capital Markets, Mr. Sewa Wusu, said the market scenario and timing did not favour public offer, particularly given the recent experiences and loss of value by most investors.

    “We are seeing more of rights issues because the core shareholders are ready to inject more funds to their company and still maintain their current holdings. The rights issue avenue will also give the existing shareholders the right to purchases new shares at a discount to the market price,” Wusu said.

     

  • MfBs seek assistance to recapitalise

    MfBs seek assistance to recapitalise

    Microfinance Banks (MfBs) are  seeking the support of Federal Government and Development Finance Institutions (DFIs) to meet Central Bank of Nigeria’s (CBN’s) December deadline on recapitalisation.

    Speaking with The Nation, the Managing Director, Support Microfinance Bank, Sunny Akahmiorkhor, said majority of the MfBs were not able to recapitalise because there was no support from the government.

    According to the CBN, they are supposed to recapitalise into the following categories: state and national. Those which are unable are to remain as units.

    To recapitalise, a unit MFB needs N20million, state N100 million and a national MfB N2 billion.

    He regretted that though the 2005 MfB framework set by the CBN requires state governments and local governments to contribute one per cent and five per cent of their yearly budget to MfBs’ operations, this is not being implemented.

    He said the government’s non-commitment to the operations of MfBs have made it difficult for leading DFIs, such as the International Finance Corporation, International Development Bank, and Department for International Development (DFID), to commit funds to them. He said DFIs are expected to give grants to MfBs to fund their operations.

    The CBN said many MfBs were deficient in their understanding of the microfinance concept. It said poor corporate governance and a high level of non-performing loans, among others, are also key challenges facing the subsector.

    According to CBN’s operational guidelines for the establishment of microfinance banks, they are not expected to engage in excessive spending.

    The CBN had shifted the recapitalisation deadline for the subsector by one year to December 31, 2013.

    In a circular to banks before the new deadline, CBN Director, Other Financial Institutions, O.A. Fabamwo, said it was exigent to remind directors and shareholders of MfBs that the deadline is sacrosanct.

     

     

  • Why some MFBs could not recapitalise

    Why some MFBs could not recapitalise

    MANY microfinance banks (MfBs) could not recapitalise because of the non-implementation of the 2005 MfBs’ framework of the Central Bank of Nigeria (CBN) by the government, the Managing Director, Support Microfinance Bank, Sunny Akahmiorkhor, has said.

    He said most of the microfinance banks that closed shop would have survived while those existing as unit MfBs could have grown to state and national MfBs, if the Federal Government and Development Finance Institutions (DFIs) had rescued them.

    He said some of the MfBs, which failed to meet the December 31, 2012 deadline set by the apex bank, have relapsed into unit status, which requires only N20 million as against state MfBs and national MfBs, which require N100 million and N2 billion.

    He regretted that the MfB framework set by the CBN that required state and local governments to contribute one per cent and five per cent of their annual budget respectively to MfBs operations is not being implemented. The contributions are supposed to be part of their equity holdings in such MfBs.

    He said the governments’ non-commitment to the operations of MfBs has made it difficult for leading DFIs, such as the International Finance Corporation (IFC), International Development Bank (IDB), and Department for International Development (DFID) to commit funds to MfBs. He said DFIs are expected to give grants to MfBs to fund their operations.

    Akahmiorkhor, said the bank should also extend other cost-cutting measures, including reducing commission on turnover (CoT) and other banking costs that burden the subsector’s operations.