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Business News

‘Shashe Banking’ cost CBN N1.3 trillion in interest expense in 2017

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CBN Gov Godiwn Emefiele

The Central Bank of Nigeria (CBN) has booked an interest expense of N1.3 trillion for the year ended December 2017. This was contained in the Apexbank’s 2017 annual report.

The Central Bank of Nigeria released its 2017 draft annual report during the week, revealing a profit after tax of N107.3 billion for the year. The Apex bank’s profits were lower than the N124.4 billion it reported in recession-stricken year of 2016.

Rate subsidy?

A closer look at the bank’s income statement, however, reveals that the CBN booked an interest expense of about N1.34 trillion for the year ended December 2017 against an interest income of N685.6 billion. In 2016, the CBN reported an interest income of N754 billion and N459.3 billion in interest expenses posting a net interest income of N294.7 billion. CBN reported a net interest loss of N659.2 billion in 2017.

Analysts who spoke to Nairametrics believe this is somewhat of an anomaly as financial institutions typically report net interest incomes and not losses. They suggests that the bank could only have booked such as astronomically high-interest expenses because of the higher rates it has paid on treasury bills and other CBN security instruments sold to banks in 2017.

Nigerian banks recorded massive profits in 2017 on the back of risk-free government securities obtained at rates as high as 20%. Bank profits from treasury bills and other government securities topped N600 billion in 2017 alone. The debt bonanza was thought to have been part of the CBN’s tactics at keeping interest rates high to ensure exchange rate stability.

The Central Bank did not release notes to its accounts which may have provided a better explanation of the components of the interest expense. The CBN has since 2015 refused to provide detailed notes to the accounts for its annual report. Data frequently reported on the bank’s website are also hardly updated.

The high-interest expense appears to be a form of rate subsidy for the economy with commercial banks gaining massively at the expense of exchange rate stability, high-interest rates for the private sector, and crowding out of loans for the private sector borrowers.

An article in Nairametrics last year referred to this form of interest rate subsidy as Shashe banking. In other words, Shashe Banking is a process whereby the government borrows trillions of naira from Nigerian banks and pays them billions of naira in interest for the privilege.

Loan impairments rise astronomically

While the CBN grappled with higher interest rates, it also booked a whopping N370 billion as loan impairment charge for the period. We believe that this charge relates to the bank’s credit advances to intervention funds such as the Commercial Agriculture Credit Scheme, Power intervention funds, AMCON debts instruments etc. Compared to a loan impairment of about N74 billion in 2017, this is one of the highest loan impairments we have seen by any institution in the country.

FX to the rescue

Despite the huge loan losses and high-interest expense, the CBN still posted a profit for the year. This was only possible via an income line classified as “Other operating income” in the financial statements. Other operating income amounted to a whopping N1.4 trillion during the year compared to N898 billion as at December 2016.

A review of the classifications suggests this may be related to higher forex exchange gain on FX translation from dollar to Naira.

The CBN reported that it forex reserves rose from about $12.36 billion in December 2016 to about $39.35 billion a year later. The 46% rise in forex reserves largely contributed to the profitability posted during the period under review. Without it, the CBN may not have posted a profit for the year.

Rate tightening versus profitability.

The CBN’s annual report indicates the bank may have no choice but to cut interest rates on government securities and may need to liquidate some of its loans rather than roll them over. If it continues to lend at high-interest rates then it will likely book more interest expenses exposing the bank to a higher probability of reporting a loss during the year.

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Analysts who spoke to Nairametrics believe that a repeat of the 46% rise in forex reserves recorded in 2017 may not occur again in the nearest future, so the CBN may not be able to rely on fx reserves to boost naira profits.

The bank was only able to cover the huge cost of borrowing at such a high interest rate because of its earnings from higher external reserve balances during the year.

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Nigerian banks have also taken a decision to increase their loan book during the year as treasury bills and other government security yields drop. They also claim the positive economic outlook indicates it is time that they focus on increasing private sector lending.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Cryptocurrency

PayPal is buying a Crypto security startup for less than $200 million

PayPal is set to outrightly purchase a crypto-security firm, Curv as part of its campaign in building its crypto ecosystem.

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Paypal

PayPal is set to outrightly purchase a crypto-security firm Curv as part of its campaign in building its crypto ecosystem, the company disclosed today.

According to a report credited to CNBC, the deal is estimated to be worth less than $200 million, it’s expected to close before June this year.

The company’s stock price however recorded some selling pressures at the time of writing amid rising U.S Treasury yields and greenback keeping global investors on their toes.

READ: CBN and cryptocurrency ban

The crypto startup about to be acquired by PayPal provides companies with Crypto security technology via the cloud. PayPal revealed that the purchase would help its expansion on supporting crypto.

“The acquisition of Curv is part of our effort to invest in the talent and technology to realize our vision for a more inclusive financial system,” PayPal’s Jose Fernandez da Ponte said in a statement.

In a press statement seen by Nairametrics, Dan Schulman, president, and CEO, PayPal, gave key insights on why the global payment company was going crypto; The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of; financial inclusion and access, efficiency, speed, the resilience of the payments system and the ability for governments to disburse funds to citizens quickly.

READ: U.S customers can now buy Cryptos with Paypal

“Our global reach, digital payments expertise, two-sided network, and rigorous security and compliance controls provide us with the opportunity, and the responsibility, to help facilitate the understanding, redemption, and inter-operability of these new instruments of exchange,” he said.

Furthermore, he said, “We are eager to work with central banks and regulators around the world to offer our support and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce.”

This offering was made possible through a partnership with Paxos Trust Company, a regulated provider of crypto services and products.

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Corporate Press Releases

Transcorp Hotels launches Aura, an online marketplace for accommodation and experiences

Nigeria’s largest hospitality brand launches a new platform for booking vacation homes, holiday lets, and experiences.

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Dupe Olusola

Africa’s leading hospitality brand Transcorp Hotels Plc. has announced the launch of Aura, a new digital platform through which people can book accommodation, restaurants, and experiences.

The new brand, Transcorp’s first in the alternative accommodation segment, is part of the company’s asset-light model, leveraging technology to deliver true hospitality, exciting experiences, and drive shareholder value.

“It’s a new dawn in the hospitality industry! I am thrilled to introduce you to Aura by Transcorp, the digital platform we are using to connect people to quality accommodation, great food, and awesome experiences,” Managing Director and Chief Executive Officer of Transcorp Hotels Plc., Dupe Olusola said.

“For more than 30 years, Transcorp Hotels Plc has been at the forefront of creating a superior guest experience at our locations. Today, our commitment to innovation has offered us an opportunity to extend this beyond the hotel premises,” Olusola added.

The launch of Aura by Transcorp is one of the most significant developments in the company’s history as it seeks to transform the travel and tourism industry in Africa by focusing on three important components of travel, whether for leisure or business — where you stay, what you eat and how you spend your time. With its people-driven hospitality model, Aura is set to revolutionise travel and help remind Africans of our deep history of hospitality.

Speaking on the launch of Aura, Obong Idiong, Chief Executive Officer at Africa Prudential Plc, Aura’s technology partners, expressed his excitement. “Finding the right accommodation when you travel can be incredibly complex. Options available for the right prices are often limited, and travellers sometimes end up with accommodation that taints the travel experience. Transcorp Hotels Plc has been able to fix that with Aura and we are proud to be associated with them.”

“To ensure topnotch user experience, we built a solution to drive digital transformation through the adoption of shared living spaces for the Aura business. With an advanced search algorithm powered by artificial intelligence, Aura determines the relevance of locations taking into consideration, the customers’ preferences and requirements to meet them at the point of their needs,” Idiong added.

Priscilla Adeboye, a travel enthusiast and early adopter of Aura, said the global pandemic has pushed international travel down her list. “But I still want to be able to take some time off work or spend a weekend away from home with the family. I have found incredible homes on Aura that meet my need for space and privacy.”

Working with thousands of partners across Nigeria and different cities in Africa, Transcorp Hotels Plc. is building the continent’s largest platform for people-driven hospitality. While travellers enjoy the right selections at the best prices on Aura, hosts can also earn a lot of money by receiving guests in their unoccupied homes and sharing the local culture with them.

For travellers who would rather stay in hotels, Aura also has a great selection of some of the best hotels in every city.

With the launch of Aura, Transcorp Hotels Plc. has further cemented its leadership in the hospitality industry and reinforced its commitment to innovation and superior guest experience across different demographics.

Guests and hosts can sign up at aura.transcorphotels.com to start booking or hosting. The service is currently available in Nigeria only, but the company said plans are already in place to expand to major cities in Africa.

 

Transcorp Hotels Plc is one of Africa’s leading hospitality companies, committed to redefining service standards across the continent while remaining truly and authentically African.

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www.transcorphotels.com

Aura by Transcorp

Aura is Africa’s best platform for connecting travellers with great accommodation, good food, and memorable experiences. The platform is also an avenue for people with unoccupied homes, hotels, restaurants, or different skill sets that may interest others can earn an income by becoming hosts.

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