The Nation Newspaper

Tag: RenCap

  • Banks’ earnings’ decline will persist, says RenCap

    Banks’ earnings’ decline will persist, says RenCap

    Tough requirements imposed by the banking sector regulator, have led to earnings’ decline, Renaissance Capital (RenCap) has said.

    The investment and research firm, in a comparison of core regulations across key banking systems in Sub Saharan Africa, revealed that Nigerian banks operate under one of the strictest environment, adding that liquidity ratio in Nigeria is 30 per cent, compared with 20 per cent in Kenya, 20 per cent in Rwanda and no minimum regulatory requirement in Ghana.

    There were proposals to increase the minimum liquidity ratio to 35 per cent for Systemically Important Banks, but that could be excluded from the final regulation set to kick in by 2015.

    It said Nigeria’s blended Cash Reserve Ratio (CRR) at 31 per cent, is almost three times that of Ghana, at 11 per cent, and six times those of Kenya and Rwanda, at 5.25 per cent and five per cent, respectively.

    The minimum CAR is 15 per cent for international banks (10 per cent for local banks), compared with 10 per cent in Ghana, 14.5 per cent in Kenya, and 15 per cent in Rwanda.

    “We expect the SIB rules in Nigeria to indicate a minimum CAR of 15 per cent for SIBs, with tier-2 capital capped at 25 per cent of total qualifying capital. Above the 15 per cent, SIBs will be required to maintain a one per cent capital buffer that comprises entirely of tier 1 capital, which will raise the minimum CAR for SIBs to 16 per cent. The first set of identified SIBs include: First Bank, Zenith, UBA, GTBank, Access, Ecobank Nigeria, Diamond and Skye Bank,” it said.

    The minimum capital requirement is $150 million for local banks and $310 million for international banks in Nigeria, compared with $15 million in Ghana and $11 million in Kenya.

    Basically, the lower end of the absolute minimum capital requirement for commercial banks in Nigeria is 10 times  more than the minimum for the next closest country, Ghana.

    According to RenCap, other regulatory constraints the Nigerian banks currently face include AMCON introduced a levy following its acquisition of non performing loans from the banks.

    In 2013, a reduction in commission on turnover was announced. This is a fee charged to retail banking clients on transactions, and the measure is very much oriented towards consumer protection.

    The permissible fee was initially reduced to 0.3 per cent of total monthly debit transactions, from the previous 0.5 per cent, with a timeline of reducing the cap further to 0.2 per cent in 2014 and 0.1 per cent in 2015, before finally abolishing it in 2016. The lower commission on turnover has had a negative impact on non-interest revenue across the sector.

    Also cutting banks’ earnings is the minimum interest rate on savings accounts is now pegged at 30 per cent of the Monetary Policy Rate even as the current minimum savings rate is 3.6 per cent.

    Capital requirements have been tightened ahead of the transition to Basel 2/3 by October 2014. This move introduced measures for the computation of operational and market risk, and the banks are mostly reporting a reduction in Capital Adequacy Ratio of 100-400 basis points. This compares against the 500-600 basis points in Kenya, which we think is due to the utilisation of some credit risk mitigants in capital computation by the Nigerian banks, unlike in Kenya.

  • 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.

  • GDP rebasing to raise budget deficit by N400b, says RenCap

    Chief Economist, Renaissance Capital (RenCap), Charles Robertson has said the 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 N1.3 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 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.

    Robertson said the GDP re-basing could cut the public debt ratio from 20 per cent of GDP to 13 per cent, and cut public external debt below two per cent of GDP, while the current account surplus may still be five per cent of GDP.

    “We suspect the rebasing is supportive of a possible upgrade in Nigeria’s Ba3/BB- ratings over 2014 to 15,” he said.

    He said on the production side, agriculture is expected to revised down from nearly 40 per cent of GDP to about 30 per cent; while on the expenditure side, consumption may be increased from 70 to 80 per cent to 80 to 90 per cent of GDP,” he said.

    Speaking further on the rebasing, Managing Director, Financial Derivatives Company, Bismark Rewane said Nigeria’s GDP, which currently stands at $283 billion are ranked 37 of 192 global economies.

    The financial analyst said GDP rebasing has been done by several countries such as Ghana, South Africa and Malaysia, and has significant implications on the structure of an economy.

    Nigeria, with a five-year average yearly growth rate of seven per cent, has been using a 1990 base year to calculate the growth of its real GDP. “In nominal terms, this is estimated to be $283 billion in 2013. Nigeria has a young and growing populace, estimated at 170 million, who have a per capita annual income of $1,624. Based on the above, Nigeria can be classified as a low-income economy that is heavily dependent on oil,” he said.

    Citing the World Bank, he said Nigeria falls within the category of lower middle-income economies based on certain criteria, such as the GDP and GNI per capita. Similar countries in this cadre include Senegal, Cote d‘Ivoire, Ghana and Cameroon.

    He said one of the aspirations of the Federal Government is for the country to become one of the top 20 economies by 2020 (Vision 20:20).

    Rebasing its GDP, he added, brings it one step closer to this goal.

     

  • RenCap lowers Diamond’s, FCMB’s 2013 profit forecast

    The 2013 earnings forecast of Diamond Bank Plc and First City Monument Bank (FCMB) Plc have been lowered by Renaissance Capital (RenCap) -an investment and research firm.

    In an emailed report obtained by The Nation, RenCap dropped Diamond Bank’s Profit Before Tax and Profit After Tax forecast to N33.2 billion and N23.3 billion, respectively over higher operating costs and tax rates.

    It said growth, capital and impairment charges were the overriding themes in Diamond Bank’s 2012 performance. Overall, PBT of N28 billion came in five per cent lower than its forecast but PAT of N22 billion was two per cent ahead of its forecast.

    However, it said Diamond Bank was the fastest growing bank in its Nigerian banks universe over 2012, with loan growth of 51 per cent year on year and asset growth of 48 per cent year on year to N1.2 trillion. Ranked by total assets, the lender, it said, is the largest tier-2 bank in the country.

    “This rapid growth stressed its capital adequacy ratio (CAR), but the bank received some relief following the $170 to 200 million of tier 2 capital raised in 2012 and the retention of all its 2012 earnings,” it said.

    However, Return on Equity dropped to 22.8 per cent in FY12 from 25.2 per cent in September, on the back of a lower fourth quarter Net Interest Margin (NIM), derivative losses and strong cost growth in fourth quarter.

    “We regard Diamond’s first quarter 2013 numbers as lackluster as it was all about a falling NIM and rising costs. The NIM collapsed to 9.7 per cent in first quarter 2013 from 10.9 per cent in year ended December 2012, largely on the back of a rising cost of funds,” it said.

    RenCap said the lender’s costs were disappointing as it went up 38 per cent year on year, driven by branch and IT investments, and the Asset Management Corporation of Nigeria (AMCON) levy. The cost/income ratio (CIR) deteriorated to 61 per cent from 52 per cent in first quarter 2012, not an encouraging trend.

    “An impairment charge of N3.3 billion trailed management’s N20 billion guidance for the year and implying a cost of risk of 2.1 per cent. It lowered the bank’s 2013 PBT and PAT forecasts to N33.2 billion and N23.3 billion, respectively, on the back of a lower NIM, higher costs and a higher tax rate,” it said.

    “Operationally, we expect Diamond Bank’s 2013 performance to depend largely on cost of risk and cost growth, as the bank’s earnings are highly geared to these two variables. Given management’s guidance of a shrinking NIM, low NIR growth and a 30 per cent tax rate, we think meaningful earnings growth (and indeed any earnings growth) will be a challenge for Diamond this year without a positive surprise on either the impairment or cost line,” it said.

    It also lowered FCMB’s 2013 PBT and PAT forecast to N20.9 billion and N18.5 billion, respectively, implying PBT and PAT growth of 30 per cent and 21 per cent respectively, year on year.

    It noted 2012 was the first year of the combined FCMB/Finbank entity, with regulatory approvals delaying the integration. Overall, RenCap said last year’s numbers were in line with its expectations, noting that NIM – similar to tier 2 peers, NIMs declined in 2012 on the back of rising cost of funds, falling to 6.7 per cent from 7.2 per cent last year.

    However, term deposits dropped in fourth quarter 2012 to 37 per cent of the deposit book, from 40 per cent in last September, which is expected to support lower cost of funds in 2013.

    Also, the release in September 2012 of Finbank-related cost provisions led to a 71 per cent drop in costs quarter on quarter, and an improvement in the Cost Income Ration to 60.3 per cent from 76 per cent. Impairment charges – the gains on the cost line were offset by a jump in impairment charges to N12.7 billion, from N704 million in September.

    “Management attributed this spike to provisions taken on a number of legacy loans that failed to perform on the restructured terms. We think the bank under-provided in prior quarters on the back of optimistic assumptions, as we do not think the challenges with these loans suddenly came to light in the fourth quarter,” it said.

     

  • Import bill declines to $35.4b

    Nigeria’s import bill declined by 43 per cent to $35.4 billion in the last one year, Renaissance Capital (RenCap), an investment and finance firm has said. In a report obtained by The Nation, the firm said the import bill is equivalent to 13 per cent of the Gross Domestic Product (GDP) last year.

    It said the decrease in imports was across all categories as machinery and transport equipment, Nigeria’s biggest import segment, declined 63 per cent, following modest growth of two per cent in 2011. This, it said, showed a slowdown in fixed investment and growth.

    Nigeria’s trade surplus, it said, surged 75 per cent to $105.9 billion, which is 39 per cent of GDP, based on data released by the National Bureau of Statistics (NBS) trade data. This, it said, largely explains the increase in the current account surplus to 7.5 per cent of GDP in September 2012 as against 3.6 per cent in 2011.

    “We expect revisions to the import numbers. We find it odd that while imports declined across all categories, unspecified imports swelled 600 times to $12 billion in 2012. Unspecified imports surged from less than one per cent of total imports in preceding years to 31 per cent in 2012.

    “We are likely to see a significant revision of imports by categories as seen in the downward revision of the errors and omissions’ negative balance in the 2010 balance of payments. While the eventual revised total import bill will still show a decline, in our view, the extent of the year on year decreases are likely to narrow as a larger share of the unspecified items are identified post-revisions.

    “A slowdown in oil earnings growth largely explains the decline in total exports earnings growth to 14 per cent in 2012 as against 44 per cent in 2011. We think the oil earnings’ growth slowdown to nine per cent in 2012 as against 48 per cent in 2011 was largely due to a flat Bonny Light crude oil price of.”

  • RenCap predicts 35% RoI for equities

    Capital market investors may get 35 per cent Return on Investment (RoI) within the year, an investment and research firm, Renaissance Capital (RenCap) has said.

    In an emailed report obtained by The Nation, the firm said Nigerian banks have cheaper valuations than most lenders in sub-Saharan Africa (SSA) which face more net interest margin (NIM) pressure from falling rates.

    It explained that the 35 per cent base-case total return expectation for the Nigerian equity market over the next years, is the culmination of a seven per cent forward price earnings (PE) re-rating, an eight per cent forward dividend yield (DY) and 20 per cent expected earnings growth.

    It said the Nigerian equity market looks superior to other markets in the sub-Sahara Africa on valuation, profitability and earnings metrics. “Although the Nigerian earnings yield gap (EYG) is still favouring debt over equities at the moment, the recent sharp decline in Nigerian bond yields is becoming increasingly positive for equities. Local support for the Nigerian equity market should also be forthcoming in 2013 from the elimination of Value Added Tax and stamp duties and from Nigeria’s sovereign wealth fund (SWF),” it said.

    The research firm said there are both pull and push factors for global capital that make investment in Africa’s financial markets attractive from a risk-reward perspective. It listed the fundamental reasons for investing in Africa’s equity and debt markets as the continent’s positive structural demographic dividend; rapid urbanisation; improving political stability; commodity wealth; the broadening of its economies beyond commodities; improving regional integration; positive macroeconomic settings and the deepening of its financial markets.

    The diversification benefits of Africa’s relatively low (and often negative) correlation with developed and emerging markets (EM), the attractive relative valuations of African equities and debt, and the relatively poor implied risk-return opportunities in developed markets (DM) are also additional rationals for investing in Africa’s financial markets.

    However, it said the lack of liquidity on SSA stock exchanges is a major challenge for investors. In order to overcome the illiquidity issue of investing in Africa directly, many investors look to use South African (SA) or global multi-national companies that have exposure to African economies as investment conduits to gain exposure.

    But RenCap said this strategy has some drawbacks, arguing that direct Africa equity investment is the superior approach. “The combination of a limited investment pool and rapidly increasing global fund flows into African equity funds provides a strong positive underpin for share-price performance in Africa’s equity markets, in our view.

    “Furthermore, African policy-makers are determined to drastically improve the tradability of their equity markets. Direct SSA equity exposure also benefits from the domestic support provided by large pension funds in Nigeria and Kenya,” it said.

  • RenCap cuts Ecobank’s revenue growth forecast

    •Urges lender to raise capital

    Renaissance Capital (RenCap), an investment and research firm, has slashed Ecobank Transnational Incorpo-rated’s (ETI’s) revenue growth forecast for fiscal year 2013 to 16 per cent, from initial 19 per cent. The forecast is, however, higher than manage-ment’s 15 per cent revenue growth target for the year.

    RenCap, in an emailed report obtained by The Nation, said even if there is little improvement in the bank’s Net Interest Margin (NIM), management’s revenue-growth target implies a slower progression in non-interest revenues than it had previously assumed.

    It said though the bank’s management has been guided to higher deposit growth of 20 per cent, its biggest constraint is not lack of liabilities, but capital. It said that all indicators suggest that the group, if inhibited from raising more Tier 1 capital by existing shareholders, will have to raise non-convertible Tier 2 capital.

    “Following guidance from management at Ecobank Transnational Incorporated’s (ETI) capital markets day in January, we conclude that our previous forecasts were too positive. As a result, we have lowered our expectations for earnings growth in fiscal year 2013, which has implications for our 2014 and 2015 forecasts,” it said.

    RenCap said it reduced its forecast for the bank’s 2003 loan growth to 10 per cent from 25 per cent, on the back of management guidance, which it considered conservative, adding that there could be upside risk.

    Although ETI states it provides a pan-African banking solution, RenCap is doubtful its operations in-country competes effectively with the dominant local banks in all its markets.

    However, market-share data suggest the group has no trouble competing in countries, such as Ghana, Chad, Cote d’Ivoire and Burkina Faso, where it is the leading bank. It said the lender’s sub-optimal operations in east and southern Africa undermine the pan-African proposition.

    The research firm said with targeted revenue growth of 15 per cent this year, cost growth will have to be kept below low double-digits to deliver a Cost to Income Ratio (CIR) of 72 per cent or below. It said the bank’s proposed entry into its remaining five target markets – Ethiopia, South Sudan, Angola, Mozambique and Madagascar – remains a risky venture.

    “We exclude the $200 million of one-off expected income from the disposal of Oceanic Bank’s non-core assets from 2012 forecasts. Uncertainty around the timing of these disposals means this capital could come in over a longer period than initially indicated.

    “We have lowered our fiscal year 2013 forecast for net earnings to $251 million from $368 million; and 2014 forecast to $374 million from $502 million. We have rolled our forecasts forward by one year, to include 2015. We forecast 2015 net earnings of $524 million,” it said.

  • RenCap: Banks to grow credit by 20% in 2013

    RenCap: Banks to grow credit by 20% in 2013

    • Lenders’ loan to private sector falls

    • Inflation, forex top CBN’s agenda

     

    Banks’ credit to the economy is expected to grow by 20 per cent this year, Renaissance Capital (RenCap), an investment and research firm has said.

    In a report obtained by The Nation, it said the Central Bank of Nigeria (CBN) was in not a hurry to ease monetary policy. Instead, the regulator’s primary concern is to achieve lower inflation and forex stability.

    “Our read of this is that the monetary policy rate (MPR) is unlikely to be reduced by much, while the cash reserve ratio (CRR) is unlikely to be reduced at all – both are currently at 12 per cent,” it said.

    RenCap said about 20 per cent loan growth is consensus guidance for the year, with very few banks anticipating power projects from first quarter of this year to fiscal year 2014.

    It said Nigerian banks excite it most within the Europe, Middle East and Africa (EMEA) banks context this year. With growth expectations for Gross Domestic Product (GDP) put at 6.7 per cent, RenCap said the Nigerian market should benefit from accelerating top-down trends.

    Banks’ lending to the private sector has also decreased by 1.4 per cent from N15.4 trillion in November to N15.2 trillion in December 2012, a data obtained by The Nation has shown. This represents a difference of N139billion.

    The latest money and credit statistics obtained from the CBN indicated that the private inflow to the private sector was N15.2trillion in October, as against N15.4trillion in November.

    The CBN’s economic indicator also showed that currency outside banks increased from N1.14 trillion in November to N1.3trillion in December, indicating an increase of 1.4 per cent. However, currency outside banks was N1.15trillion in October compared to N1.3trillion for December.

    Analysts have attributed the development to certain policy changes made by the apex bank. They said the on-going banking reforms have helped in improving the liquidity positions of banks, as well as making the institutions to lend to certain sectors of the economy.

    Speaking on the issue, a former director, CBN, Mr Titus Okuronmu said the issue signals a good omen to the economy. He also said an economy gets better anytime the financial position of private sector operators is galvanised through the provision of operational funds.

    He said: “The theory is that if the public sector gets more credit than the private sector, the economy suffers. But in a situation whereby credit to the private sector has increased consecutively in less than three months, the economy will benefit in the long run.”

    According to him, more investment opportunities would be created when companies have enough money to finance their operations.

    “Private sector remains the engine of growth in any economy. When the sector is provided with funds, the operators will invest, re-invest, create employment opportunities and stimulate economic growth,” he added.

    A capital market operator, Dr Olusola Dada, said banks must sustain their lending to achieve meaningful economic growth. He said the stock market is still docile because investors do not have enough money to buy stocks. He added that growth cuts across board, arguing that many sectors including capital market would grow when more money is injected into the economy.

     

  • Smaller banks beat big ones in credit facility

    Small banks, otherwise known as Tier-2 banks, have outpaced the big ones (Tier-1 banks) in advancing loans, a report from Renaissance Capital (RenCap), an investment and finance firm has shown.

    Loan growth index reviewed by the firm showed that United Bank for Africa (UBA) and Access Bank grew their loan portfolio by three per cent year-to-date. Diamond Bank, it said, grew its loans portfolio by 38 per cent, year-to-date.

    RenCap said for 2013, in the absence of significant progress in power sector reforms or upstream oil and gas projects, the Tier-1 banks are likely to repeat similar levels of loan growth to those they achieved this year.

    However, the non-performing loan (NPL) ratios at as at September, 2012, did not cause any stir. “In our opinion, most of the banks under our coverage cannot sustain NPL ratios of around five per cent without impairment expenses of around two per cent. Nevertheless, given the magnitude of the Asset Management Corporation of Nigeria (AMCON) clean-up in 2011, we would expect the banks to continue reporting below-average charges into fiscal year 2013, with normalisation likely to start coming through in fiscal year 2014,” it said.

    It said since the beginning of the year, most of the banks have been expecting lower tax rates on the back of their high holdings in fixed-income securities and, for some, tax credits from losses over the past few years.

    “We also highlight that, following the inclusion of tax exemptions on fixed-income securities in the federal government’s official gazette in December 2011, these multi-year exemptions effectively kicked in this year. All things being equal, we would expect the larger, more liquid banks with proportionately higher holdings of fixed-income securities to report relatively lower tax rates at year-end,” RenCap said.

    On share-price performance, the banks have been strong performers’ year to date, with all except First City Monument Bank in positive territory. However, on a two-year view, the price performances of most of the banks’ stocks are still negative, with only Guaranty Trust Bank, Zenith Bank and FirstBank in positive territory.

    RenCap has also revised its ratings and target prices for bank stocks to reflect these forecast changes. We have downgraded First Bank, Diamond Bank and Fidelity to hold ratings from buy, as it finds lower relative potential upside in these names following their strong share-price performance.

    RenCap recommended United Bank for Africa and Zenith Bank for buy among tier-1 banks and Skye Bank as buy among tier-2 banks.

  • RenCap: Oil shut down to widen budget deficit

    The three-week shutdown of oil production in October over floods will have negative impact for revenue collections and could expand the 2013 budget deficits, analysts at Renaissance Capital (RenCap), an investment and research firm, have predicted.

    It said in an emailed report that the budget was premised on oil production of 2.48 million barrel per day (mbpd), which means the budget deficit will exceed the targeted 2.85 per cent of Gross Domestic Product (GDP).

    The flooding also led to increase in food index. As anticipated, food inflation rose to 10.2 per cent due to a shortage in supply as the flooding delayed the harvest for some crops like cocoa, beans and pepper. Also, transporting harvested products to the markets has become more difficult and expensive as most of the roads are now impassable.

    It said the impact of the decline in core inflation far outweighed the rise in the food index, the largest contributor to the consumer price index, leading to an overall ease in headline inflation for September.

    President Goodluck Jonathan recently presented the proposed 2013 budget to the National Assembly. The budget is a plan of the intended revenues and expenditures for the country. It is also a tool for macroeconomic management that could help promote fiscal prudency and foster growth in the economy.

    RenCap said the 2013 budget is similar to the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper sent to the National Assembly for approval. However, while the budget has a span of one year, the MTEF is a strategic document designed for a period of three years.

    The budget highlights showed an aggregate expenditure of N4.92 trillion, representing an increase of 4.7 per cent from the 2012 expenditure of N4.7 trillion, while total revenue is put at N3.89 trillion, an increase of 9.3 per cent from the 2012 revenue of N3.56 trillion.

    However, indicators in the proposed 2013 budget that demonstrate the commitment to fiscal prudence are the reduction in fiscal deficit to 2.17 per cent of GDP from 2.85 per cent (N1.15trn) in 2012, which is within the threshold stipulated by the Fiscal Responsibility Act, 2007.

    There was also reduction in domestic borrowing by 2.3 per cent to N727 billion, from N744 billion in 2012, to ensure that debt stock remains at a sustainable level.