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Nigeria’s external imbalance widens on increasing offshore borrowings

Nigeria’s ability to weather the storm from external shocks or sudden deterioration in economic conditions is waning as the country’s increasing appetite for foreign borrowings continues to outpace accretion to external reserves.

Since the 2014 collapse in oil prices that caused the spread between the Federal Government’s actual and projected revenues to widen, the country has resorted to tapping debt from the international market (offshore) to fund its planned expenditure and this has caused external buffers to thin.

A country’s external buffer is the difference between external reserves and total foreign debt (borrowings). Put differently, in the event of a downtrend in oil prices and foreign portfolio outflows, the external buffer shows the extent to which the countries could withstand such pressures.

For Africa’s largest economy, external debts have almost tripled and despite improvements in foreign exchange reserves, the country’s external buffer has declined in the last six years as the upsurge in offshore debt during the period weakened the economy’s shock absorber.

The country’s defence against external shocks to the economy has weakened by a Cumulative Annual Growth Rate (CAGR or constant annual growth) of 7.24 percent since 2014 owing to increase in foreign debt of 23.59 percent (CAGR), while reserves accretion grew by a CAGR of 5.48 percent.

External buffer has declined since 2017 where the cushion broke a downward trend and grew to $19.86bn. The growth in 2017 was on the back of a 50 percent increase in external reserves as Brent bounced back from the 2016 price fall.

 

However, since buffer rose 38 percent in 2017, it has steadily declined by 14 percent to a current amount of $17bn, the second least recorded in the last six years and only $2.57bn higher than when Nigeria entered recession in 2016.

“The data reflects that the Nigerian economy still remains vulnerable to external shocks, particularly downturn in global oil price,” said Gbolahan Ologunro, equity analyst at Lagos-based CSL Stockbrokers. “Notwithstanding, there is still some sort of headroom for urgent fiscal measures to avert the impending crisis.”

One of such measures, he said, is fiscal consolidation to improve revenue and reduce government reliance on borrowings.

According to the International Monetary Fund (IMF), a country’s foreign reserves are those external assets that are readily available to and controlled by a country’s monetary authorities. They comprise foreign currencies, other assets denominated in foreign currencies, gold reserves, special drawing rights (SDRs) and IMF reserve positions that can be used in directing the finances of international payments imbalances or for indirect regulation of the magnitude of such imbalances via intervention in foreign exchange markets in order to affect the exchange rate of the country’s currency.

Nigeria’s foreign reserves stand at $45 billion in the month of July while external debt stood around $28 billion as at the first quarter of 2019, according to data from the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO), respectively.

A $28 billion external debt would mean the country only has about $17 billion from which it would settle its import bills and probably intervene in sustaining the naira at its current price of N360/$1 in the foreign exchange market.

Analysts are of the view that a fall in crude oil prices which accounts for about 84 percent of the country’s foreign earnings, and a reversal in capital flows, could mount pressure on the CBN’s firepower in stabilising the economy.

The government’s inability to generate as much revenue to finance its project has lured it to cheap foreign debt in order to avoid crowding out the private sector in domestic debt market.

“If anything happens negatively to crude oil price, we might be forced to devalue and the value of the foreign exchange debt becomes a big burden,” said an analyst in a leading investment banking firm.

“The end result is that the integrity of the naira which the apex bank had hoped to protect would worsen,” the person explained.

Nigeria’s external reserves have been growing steadily since 2017 but foreign debt has leaped. External debt soared in 2017 following the global oil crisis, caused a devaluation of the naira and pushed the country into a recession. Nigeria’s external borrowing rose 65 percent in 2017.

Although the rate at which Nigeria increased foreign debt has slowed from 34 percent in 2018 to 11 percent so far in 2019, the DMO announced earlier in the year that it would increase borrowing from external sources as strategy to balance its overall debt stock.

Some economists are of the view that countries of the world can borrow to spend on social welfare, public sector wages and capital expenditure (investments in buildings, roads, public facilities) in order to grow their economy.

However, for Africa’s most populous country, the argument does not “hold water” as increasing debt profile has failed to reflect in economic growth.

Within a five-year period, Nigeria has grown its total debt profile by 116.9 percent to fund its recurrent and capital expenditure in its budget without this borrowed money translating into a corresponding increase in economic growth as GDP has averaged a 2 percent growth.

Source: BY MICHAEL ANI & SEGUN ADAMS

Nigeria Dominates Africa’s Most Inspiring Businesses’ Ranking

A list identifying and celebrating Africa’s most inspiring businesses is made of up of 97 Nigerian firms, which accounted for 27 per cent of the total, the highest among countries surveyed in the region.

The second edition of the ‘Companies to Inspire Africa’ report, which was launched in Lagos yesterday, was published by the London Stock Exchange Group with support from PwC and other partners.

Some of the Nigerian companies listed in the report included: Renmoney, Tizeti, Paystack, Olori Cosmetics, BudgIT Foundation, among others.

Country Senior Partner at PwC Nigeria, Uyi Akpata, said PwC was honoured and excited to partner with the LSE to identify companies on the continent who, despite difficult business climates, continue to thrive and deliver consistent growth.

“We reiterate our support to private companies and helping them create value,” Akpata said.

Co-Head Emerging Markets at LSE, Ibukun Adebayo, said the LSE compiled the list to put a spotlight on Africa’s private sector successes, present the listed companies additional investment opportunities and facilitate partnerships and collaborations.

 

Also, according to the LSE’s Chief Executive, David Schwimmer, “We publish this report as it is our belief that these firms, and high-growth firms like them, are crucial to the future of the African economy.”

Adebayo, noted that the firms listed in the first edition of the report have already started to see significant progress, pursuing IPOs, issuing bonds and expanding across borders.

British Deputy High Commissioner to Nigeria, Harriet Thompson, said the UK was committed to the success of the Nigerian – and in extension African – economy, thus its endorsement of the report.

The report was first announced in January, but has just been launched in Lagos.

There are 360 companies from 32 different African countries on the list. The companies boast an average compound annual growth rate of 46 percent. On average, each firm employs over 350 people, with an average compound annual employee growth rate of 25 percent.’

 

The list of companies cuts across several sectors. Customer Services, Industry and Agriculture were the three biggest ones, accounting for over 50 percent of the companies featured. Technology and Telecoms, and Financial Services together represent over 25 percent of firms, while Healthcare & Education and Renewable Energy also feature strongly.

About 23 per cent of the senior executives of the companies featured were female, a near doubling from 12 percent in the first edition.

The event was attended by the Ogun State Governor, Dapo Abiodun; Chief Executive of the Nigerian Stock Exchange, Oscar Onyema; former Minister of Industry, Trade and Investment, Okechukwu Enelamah and Executive Secretary at the Nigerian Investment Promotion Commission, Yewande Sadiku.

In his keynote speech, Governor Abiodun highlighted the significance of the report, noting that it will stimulate more investment into Nigeria and Africa.

Source: This Day Live

How Diaspora Bonds Work and Benefits

Sometimes in 2017, Nigeria’s Former Finance Minister, Kemi Adeosun revealed the Federal Governments (FG) plans to launch a $300 million diaspora bond bid in March 2017. I knew a lot of people were confused. And, in order to help esteemed Nairametrics‘ readers, I took out time to develop this article. So what is a diaspora bond and how can you invest?

A diaspora bond is basically a government debt that is targeted but not limited to the nationals of the country that are living abroad. The idea is based on a presumption that because of emotional ties to their country of origin, expatriates may find investing in such products worthwhile, especially if they are financing development projects like infrastructure.

According to World Bank Migration and Remittances Fact-sheet 2016, 247 million people, or 3.4% of the world population live outside their country of birth. In 2015, $581.6 billion was remitted, of that figure, $431.6 billion went to developing countries. In the same year, Nigeria was the highest remittance receiving country in Africa and 6th highest in the world, receiving $20.8 billion. In 2018, the figure jumped to $25 billion, to remain Africa’s highest.

NIGERIA REMITTANCE 2015, 2016, 2017, 2018

Nigeria’s Senior Special Assistant (SSA) on Foreign Affairs and Diaspora said that in 2016 Nigeria recorded a massive increase receiving a total of $35 billion in remittances.

Most of the remittances are informal, meant for family and friends. Diaspora bonds provide the government with an opportunity to tap into the wealth of their diaspora community to fund national level development. In other words, governments can tap into capital markets beyond foreign direct investment, foreign investors and conventional loans to finance development.

This is particularly important during periods of economic downturns when other lenders may be reluctant. Policy makers, however, should not assume that this is a quick and easy way to raise capital. Many countries have launched bids but with varying levels of success. Israel and India have been the most successful till date, although both set up bonds for different purposes and in different ways.

ISRAEL INDIA DIASPORA BOND

Israel has issued diaspora bonds by the Development Corporation for Israel (DCI) since 1951 raising a total of $32.4 billion as at 2015. The bond was set up to finance development projects in various industries including energy and transport. On the other hand, India set up its bond to support their balance of payments and it has done this three times Indian Development Bonds in 1991 ($1.6 billion), Resurgent Indian Bonds in 1998 ($4.2 billion) and Indian Millennium Deposits in 2000 ($5.5) raising a total of $11.3 billion.

The bond issued by the DCI was listed with the Securities and Exchange Commission (SEC) and thus, it was open to foreign nationals as well as the Diaspora of Israeli origin. Whereas India’s bonds were issued strictly to the Diaspora of Indian origin and were not listed in the SEC.

Israel-Diaspora Bonds were fixed, floating rate bonds with maturity periods ranging from one to twenty years and bullet repayment, with large financial incentives including making its interest rate slightly higher than US Treasury bills.

To make the bonds more accessible, the DCI set up retail agencies in the US and other countries. India, on the other hand, chose fixed rate bonds with five-year maturity and a bullet maturity. As financial incentives, the bonds were two percent higher than US Treasury bills and were exempt from Indian income and wealth tax.

The problem with Diaspora bonds

However, African countries like Ethiopia have had limited success. Its first bid the Millennium Corporate bid to finance a hydro-electric dam in 2008 was unsuccessful because take-up was low. Experts have opined that lack of trust of repayment were the key issues that deterred potential buyers.

[ALSO READ: A legal view of corporate taxation in Nigeria]

THE NIGERIAN STORY

Against the backdrop of falling oil prices and the loss of value of the naira, the diaspora bond bid may be a good alternative for Nigeria to raise much-needed funds to finance the huge infrastructure deficit. However, foreign investors exited the Nigerian market in 2015 because of unclear economic policies and lack of trust in the government financial management.

So the question is how well will the FG communicate with the Nigerian diaspora community to build enough trust so that people can invest in the bond? To tackle some of these issues, the FG has said the Debt Management Office will manage the bond.

BENEFITS

Using the March 2017 $300 million diaspora bond bid to illustrate the benefits derivable from Diaspora Bonds. While enumerating the returns on the bonds, the SSA on Foreign Affairs and Diaspora Mrs Abike Dabiri noted that the bonds will have at least five to ten-year maturity and annual dividends between five to eight percent, which is higher than bank deposit which is within two percent.

As further financial incentives the Director General of the DMO, Dr Abraham Nwankwo said that the bonds are exempt from tax, could be used as collateral from borrowing from banks and discounts on the FG housing scheme.

AfDB Wants Nigeria Industry Players to Explore AIF for Investment

The Senior Director, Nigeria Country Department in African Development Bank (AfDB), Mr. Ebrima Fall, on Tuesday advised industry players to use the opportunities of the 2019 Africa Investment Forum (AIF) to unlock investment potential in the continent.

Faal made the call at the 2nd Nigeria Roadshow of the AIF.

AIF, scheduled for November 11 and November 13 in South Africa, aims to change the face of investment in Africa by bringing together members with vested interest in Africa’s growth and development.

He urged industry players and policy makers to maximise opportunities that the forum would provide to connect, engage and and close high-impact deals.

According to Faal, last year’s edition of AIF held in South Africa convened over 2,000 participants representing 87 countries including eight heads of governments.

“Deals worth a total of $46.9 billion were discussed with 49 deals valued at $38.7 billion secured.

“These figures are not just impressive for an attempt at something that has never been done on the continent, but phenomenal.

“These figures evince the untapped business opportunities in Africa, stemming from deals that cut across all sectors reinforcing the strategic vision of the bank as enshrined in its ‘High 5’s’.

“They are to light up and power Africa, feed Africa, industrialise Africa and improve the quality of life for the people of Africa,” Faal said.

Further recounting the experience at the 2018 edition of AIF, Faal said that Nigeria had five deals worth $7 billion out of the 63 boardroom deals presented at the forum.

“This represents 14.9 per cent of the total deals accounted for the continent, and 43 per cent of the deals accounted for the region; we can do better.

“This year, it is paramount that we not only maintain our place as a pacesetter, but also collectively strive to improve on the quality and quantity of deals closed.

“Africa Investment Forum offers a unique opportunity to exhaust numerous options for sound, innovative and economically viable growth for the continent and, especially for Nigeria.

“Even with impressive CBN reserve of about $45 billion and a pension fund of about N8 trillion, Nigeria will need a considerable amount of private finance to bridge its cumulative infrastructural needs of about $3 trillion by 2024.

“The time for bridging this gap is now,” Faal said. (NAN)

NSE market cap gains N1.38trn on Airtel listing

The Nigerian equity market for the second time this week closed higher as the NSE All share index, the major market performance indicator rose by 0.10 per cent on the back of Airtel Africa Listing.

However, market breadth closed negative, with 8 gainers as against 20 losers.

Consequently, the All Share Index (ASI) increased by 30.15 basis points, representing a growth of 0.10 per cent to close at 29,318.02 index points from 29,287.87 recorded the previous day.

However, the Market Capitalization gained N1.38 trillion, accounting for a growth of 10.68 per cent to closed at N14.288 trillion from N12.909 trillion recorded the previous day.

Meanwhile, a turnover of 294.6 million shares exchanged in 4,033 deals was recorded in the day’s trading.

The premium sub-sector was the most active (measured by turnover volume); with 94.26 million shares exchanged by investors in 1,442 deals.

Volume in the sub-sector was largely driven by the activities in the shares of Zenith Bank Plc and FBNH Plc.

Insurance sub-sector boosted by the activities in the shares of Cornerstone Insurance Plc and Wapic Insurance Plc followed with a turnover of 86.3 million shares in 130 deals.

Further analysis of the day’s trading showed that Cadbury Nigeria Plc topped the gainers’ table with 4.37 per cent to close at N11.95 per share while Japaul Oil Plc followed with 4.35 per cent to close at 24 kobo per share and Dangote Flour Plc with a gain of 1.75 per cent to close at N17.40 per share.

On the flip side, GSK Plc led the losers’ chart with a drop of 9.78 per cent to close at N8.30 per share. Courtville Business Solution Plc followed with a loss of 8.70 per cent to close at 21 kobo per share while ETI Plc dropped by 8.65 per cent to close at N9.50 per share.

Source: NewTelegraph

Nigeria attracted $7bn deals from African Investment Forum — AfDB

Nigeria accounted for $7bn of the $38.7bn inflows that were secured for the African continent at the maiden edition of the African Investment Forum, which held in South Africa in November 2018, the African Development Bank has said.

The Senior Country Director for Nigeria at AfDB, Mr Ebrima Faal, disclosed this in Abuja on Tuesday at a roadshow to promote the second edition of the forum coming up in South Africa in November.

He disclosed that the AfDB would be increasing its average investment in Africa from about $600m every year to about $1bn per annum in the next three years.

Faal said that transactions at the forum that were designated for Nigeria accounted for 14.9 per cent of the deals that were closed at the investment market, which the bank conceived to expose bankable projects on the continent to investors from across the globe.

He said, “The Africa Investment Forum aims to change the face of investment in Africa by bringing together members with a vested interest in Africa’s growth and development through business transformation.

“It is a multi-stakeholder and multi-disciplinary collaborative platform for international business and social impact investors looking to invest on the continent. It is a highly-transactional marketplace dedicated to advancing projects to bankable stages, raising capital, and accelerating the financial closure of deals.

 

“Sufficient to say now that it convened over 2,000 participants representing 87 countries, including eight heads of governments in 2018. Deals worth a total of $46.9bn were discussed with 49 deals valued at $38.7bn secured.”

The AfDB boss added, “At the 2018 Africa Investment Forum, West Africa accounted for 36 per cent of the deals that were closed. Nineteen projects worth $16.1bn were presented, of which 16 projects valued at $13.1bn secured investment. Our region grossed the highest value in deals, followed by the host region accounting for 22.7 per cent.

“Nigeria was very visible. Out of the 63 boardroom deals presented at the forum, Nigeria had five deals worth $7bn. This represents 14.9 per cent of the total deals accounted for the continent, and 43 per cent of the deals accounted for the region; we can do better.

“This year, it is paramount that we not only maintain our place as a pacesetter but also collectively strive to improve on the quality and quantity of deals closed.”

Faal said that the Africa Investment Forum offered a unique opportunity to exhaust numerous options for sound, innovative and economically viable growth for the continent and especially for Nigeria.

According to him, even with gross international reserves of about $45bn and a pension fund of about N8tn, Nigeria will need a considerable amount of private finance to bridge its cumulative infrastructural needs of about $3tn by 2024.

 

He added that Africa continued to demonstrate economic resilience with an expected Gross Domestic Product growth of four per cent in 2019, signifying growth above expectation.

Faal said that the signing of the African Continental Free Trade Agreement by President Muhammadu Buhari had now made Africa the largest market in the world in terms of value and numbers.

Africa’s 2 Largest Economies Diverge on Central Bank Policy

Central bankers in Africa’s two largest economies are taking diverging policy stances, even as they get slammed by similar headwinds of low growth and high unemployment.

While Nigeria seems to be combining monetary policy with a developmental bent similar to fiscal policy, South Africa just made a fresh vow to erect an impenetrable wall between the two to ensure they never collide.

The South African Reserve Bank and finance ministry issued a joint statement Thursday where both institutions vowed to respect each other’s independence.

The Reserve Bank will focus on the primary mandate of any central bank and steer clear of interfering with fiscal policy matters while the finance ministry will not meddle in areas of monetary policy.

The South African arrangement which shares similarities with the structures in place in developed economies has little semblance with the arrangement in neighbouring Nigeria.

In Nigeria, the central bank is gradually taking the role of a de facto development bank that is stimulating economic growth and employment.

“Central banks can occasionally provide support for fiscal authorities but this should not be seen as the norm,” a research head at a Lagos-based pension fund who pleaded anonymity told BusinessDay. “In our case, it has gone on for four straight years and shows no sign of slowing.”

The source said that the CBN runs the risk of becoming an extension of the Federal Government.

“The problem is the Senate has not tried to plug that gap. How much is the CBN lending to the FG? The Senate should be auditing the number every year because the CBN would have to curtail the pressure it is facing,” the person said.

But the Central Bank of Nigeria’s new burden has been borne out of necessity, Johnson Chukwu, founder and CEO of Cowry Asset Management Limited, posited.

“The reason we are seeing this in the Nigerian economy is that the fiscal authorities have been relatively silent and nature abhors vacuum,” Chukwu said.

He explained that although the resources of the monetary authorities are being stretched, the availability of a finance minister active on carrying out the fiscal mandate would allow the CBN return to its core function.

The apex bank has since 2014 devoted itself to programmes such as the Anchor Borrowers’ Programme, Real Sector Support Facility (RSSF), Electricity Market Stabilisation Facility, Creative Industry Financing Initiative and several others.

The bank regulator, which has become more intent on interventions in key sectors to grow the economy, facilitate job-creation, and create credit, says the pursuit has been in a bid to “ensure that the CBN is more people focused”. Godwin Emefiele, CBN governor, said this in June while outlining the apex bank’s policy thrust over his second term.

The central bank would still remain committed to the same over the next five years. But the situation though with its perks is not without downsides.

Experts warned that central bank’s development mandate could crowd out the real sector.

“What happens is there is distortion in the market when the CBN has to lend at single digit to certain sectors while official interest rate is at double digit to curb inflation,” a BusinessDay source said.

The central bank last Thursday released the guideline on regulatory measures to improve lending to the real sector of the Nigerian economy. The policy mandates all Deposit Money Banks to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent by September 30, 2019.

The bank said it would penalise non-compliance with a levy of additional Cash Reserve Requirement (CRR) of up to 50 percent of the lending shortfall of the target LDR.

Although the policy aims at boosting real sector growth by making credit available to businesses, experts fear the unintended consequences of increasing banks’ bad loan books as infrastructural challenges which have been a drag on company performance remain.

Source: businessdayng

Foreign Investors are Avoiding these Sectors like a Flea

Foreign Investment into Nigeria in the first quarter of 2019 rose to $8.4 billion compared to $6.3 billion in the same period of 2018. Whilst most of the inflows were focussed on foreign portfolio investments, it is pleasing that Nigerian experienced an investment growth especially when you consider that we had the national elections within this quarter.

The government has over the years embarked on several strategies in its bid to attract foreign investments into the country. They have offered tax incentives, provided intervention funds, erected trade barriers all for the sole purpose of attracting investment.

Despite these laudable efforts, foreign investors continue to shun some sectors like a flea. Some of these sectors employ thousands of Nigerians and are a cause to worry if you are anyone in government circles. Here are some of the pertinent ones by our reckoning.

Brewery Sector: According to the data, Nigeria’s brewery sector, one of the most competitive sectors in the country attracted zero foreign investments in the first quarter of 2019. The sector attracted just $4.8 million in the whole of 2018, according to data from the National Bureau of Statistics.

What this means

  • Nigeria’s brewery sector is largely dominated by the likes of Nigeria Breweries, Guinness and International Breweries.
  • These sectors have received a considerable amount of investments in the last 5 years so we assume investments here have peaked.
  • However, data from the NBS suggest capital importation in this sector is a combined $90 million since 2014. So could this be a reporting challenge?
  • Investors are probably now looking for returns of and on investments.
  • Government policy towards this sector has also been negative, especially with the increase in excise duty for alcoholic products.

Hotels & Hospitality: Despite the array of hotel constructions littered all over the country, the NBS report picked zero investments in the country’s hotel sector.

What this means

  • While the official NBS data reported zero capital importation, it is likely that some investments did inflow into this sector.
  • Most hotel investments in Nigeria are owned by Nigerians. And where they are not, investments in here come from revenues already being generated by the companies.
  • Foreign participation in this sector is also via hotel management which means they export capital rather than import.
  • Hotels employ thousands of Nigerians and their services are constantly in high demands. Unfortunately, the government hasn’t had a targeted policy for the hospitality sector in general.
  • To attract significant investment here, Nigeria will have to look beyond hotels to drive investments. A coordinated approach to tourism development will probably be best suited.
  • For now, investors will continue to shun this sector even though we have seen a 4% plus GDP growth rate.

Training: Nigeria has a huge human capital development challenge and has been recognized even in more advanced sectors like the financial services sector. However, foreign investment in this sector continues to be nonexistent.

  • In the first quarter of 2019, Nigeria received just under $500k investments in the sector. We also attracted zero investment in 2018 and the years before.
  • It could well be that the data is not properly being reported so the NBS may not be capturing all that has been received.
  • Nevertheless, for a sector that is critical to nation building and central to human capital competitiveness the level of foreign investment in this sector is too small.

Others of note:

  • Drilling
  • Consultancy
  • Electrical services
  • IT services

Source: nairametrics

CBN 5-Year Policy: Experts List Implications for Financial Market

Experts at the FSDH research have noted that with the implementation of Central Bank of Nigeria’s 5year agenda, more funds will be available to finance non-oil export-led sectors which will  create new businesses, reduce import dependency and grow foreign exchange earnings.

It will also ensure stable exchange rate and possibly cause the value of the currency to remain stable to appreciate, they added. The head of research, Ayodele Akinwunmi, disclosed this at the monthly Economic and Financial Market Report with journalist at the weekend.

The Central Bank of Nigeria (CBN) had released its policy thrust for the next five years with four key macroeconomic economic targets for 2019-2024: double-digit growth rate in the Gross Domestic Product (GDP), single-digit inflation rate,  foreign-exchange rate stability and accelerating employment rate.

In order to achieve the key targets, the CBN has the following five key priorities:  preserve domestic macroeconomic and financial stability,  create robust payment system infrastructure, work with the Deposit Money Banks to improve access to credit for smallholder farmers, Micro, Small & Medium Enterprises, (MSMEs) consumer credit and mortgage facilities for bank customers, grow external reserves and support efforts at diversifying the economy through intervention programmes in the agricultural and manufacturing sectors Akinwumi said: “We expect growth in non-oil exports from Nigeria and reduction in the cost of exporting goods from Nigeria, therefore making exportation more profitable than before.”

He also said there may be a reduction in the country’s import bill, a reduction in the cost of inputs for manufacturing companies and the development of agro-allied industries. He added that the CBN may propose moral suasion programmes and specific industry/product limit arrangements to channel bank loans towards agricultural and manufacturing sectors.

FSDH Research also expects an increase in the capital base of banks in Nigeria, which would enable the banking system support larger and better viable projects. However, other complementary fiscal measures must be implemented to ensure the success of this initiative.

“There may be mergers and acquisitions in the Nigerian financial industry. Some foreign players may come into the system. In the first few years of implementation, the Return on Equity (ROE) of banks may drop’’, he added. FSDH Research also expects the development of mortgage-backed securities in the market.

This will expand investment securities and trading opportunities in the financial market. More loans may also be channelled to the real estate sector of the economy, creating jobs and shared prosperity in that sector. Akinwumi said the monetary policy stance of the Central Bank of Nigeria (CBN) favours a low interest rate regime in the short-term to the limit that the inflation rate and external reserves can accommodate, except there is any domestic or external shock.

He also disclosed that there may not be any major exchange rate depreciation or devaluation as long as the external reserves remains strong. “The external reserves will remain strong provided Nigeria is able to attract more foreign exchange earnings through Foreign Direct Investments (FDIs), sales of oil and non-oil products. The trigger for a possible depreciation or devaluation in the currency will be when the stock of external reserves is no longer enough to cover more than 6 months of imports.”

Source: dailytrust

CBN Rolls Out Guidelines to Boost Bank Lending to Real Sector

…Banks to maintain minimum loan to deposit ratio of 60% …Defaulting banks’ CRR to rise by 50% of shortfall

The Central Bank of Nigeria (CBN) on Wednesday rolled out new guidelines to deposit money banks (DMBs) aimed at boosting bank lending to the real sector.

In a circular to all banks with reference number BSD/DIR/GEN/MDD/01/045, dated July 3, 2019 and signed by Ahmad Abdullahi, director, banking operations of the CBN, the apex bank required all DMBs to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent.

Loan to deposit ratio (LDR) is a ratio between a bank’s total loans and its total deposits. The ratio is generally expressed in percentage terms. If the ratio is lower than one, the bank relied on its own deposits to make loans to its customers without any outside borrowing.

The circular titled ‘Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy’, as seen by BusinessDay, said “all DMBs are hereby required to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent by September 30, 2019”. It said the ratio “shall be subject to quarterly review”.

The CBN said these measures were intended “to ramp up growth of the Nigerian economy through investment in the real sector”.

“To encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150 percent in computing the LDR for this purpose. The CBN shall provide a framework for classification of enterprises/businesses that fall under these categories,” it said.

The apex bank warned that failure to meet the stipulated minimum LDR by the specified date “shall result in a levy of additional Cash Reserve Requirement equal to 50 percent of the lending shortfall of the target LDR”.

Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.

It added that the CBN would continue to review developments in the market with a view to facilitating greater investment in the real sector of the Nigerian economy.

It said the letter was “with immediate effect”.

The CBN has in recent times been somewhat desperate to increase lending to critical sectors of the Nigerian economy but analysts say an economy fraught with risks has tamed lending appetite.

Source: businessdayng

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