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CBN blows $2.04 billion to defend the Naira in May as Reserves deplete

In its continued intervention in the foreign exchange market, the Central Bank of Nigeria (CBN) injected a cumulative sum of $2.04 billion to further sustain the improved liquidity and relative stability in the market.

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CBN, Key lending rate, CBN to boost creative industry with N22 billion , CBN increases LDR to 65%, sets December deadline, External reserves drop by $3.2 billion in Q3’19 , Banks' loans to Oil and Gas, Power, other sectors drop by N411.8 billion 

In its continued intervention in the foreign exchange market, the Central Bank of Nigeria (CBN) injected a cumulative sum of $2.04 billion to further sustain the improved liquidity and relative stability in the market.

According to the latest CBN’s monthly economic report covering the month of May 2019, Nigeria’s apex bank sold the whopping sum of $2.04 billion to authorised dealers in May, compared to $2.43 billion supplied in the previous month. This indicates a decline of 16.1%.

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Key Numbers: A breakdown of the Central Bank’s intervention in the foreign exchange (FX) market in the month of May 2019 reveals that Interbank sales fell by 10% to $0.09 billion, to the level in the preceding month.

  • Currency sales to the Bureau De Change (BDC) rose by 6.3% and estimated at US$1.05 billion.
  • Swaps transactions remained unchanged from the previous month and it was estimated at $0.01 billion.
  • The average exchange rate of the naira to the US-dollar, at the inter-bank segment, was N306.95/US$, representing an appreciation of 0.003%
  • The average exchange rate at the BDC segment, at N360.00/US$, depreciated by 0.3% relative to the level at the end of the preceding month.
  • At the “Investors” and “Exporters” (I&E) window, the average exchange rate of the naira vis-à-vis the US dollar, was ₦360.74/US$ indicating that naira appreciated by 0.01%.

The Central Banks of Nigeria Governor, Godwin Emefiele

[Also Read: CBN blows $36 billion defending the naira in 2018]

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Numbers Explained: The lower sales of FX in the month of May was as a result of less demand for FX at the inter-bank segment, a 6.3% decline. The reason for the decline may be as a result of low demand for forex at the interbank level, possibly due to the delays, policy, and other bureaucratic issues.

Unlike the interbank segment, demand for FX surged at the BDC segment. This means that the Central Bank had to increase its supply of forex to ease pressure on the Nigerian Naira. This reflected in the depreciation of the exchange rate on this segment, signifying a surge in the demand for FX for the month under review.

On the other hand, the fragility of Nigeria’s exchange rate system was further established as the Central Bank increased the supply of forex to the all-important I&E window where foreign investors trade. Accordingly, the naira exchange rate appreciated by 0.01% in the I&E segment in the month, indicating strong stability in the segments likely occasioned by an oversupply of FX by the Central Bank.

[Also Read: CBN Governor blows hot regarding 41 banned items]

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Meanwhile, Reserves Depleted by $48 million: While the CBN is bent on continuing its intervention in the FX market, burning through the reserves means the apex bank is sacrificing FX savings for naira stability.

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Analysis of data obtained from the Central Bank of Nigeria shows that in the last month, despite an increase in forex receipts, external reserves depleted by US$48.3 million. This shows that the Central Bank’s intervention is gradually eating up Nigeria’s external reserves. Here are highlights of Nigeria’s reserves in May 2019

  • The gross external reserves stood at US$44.85 billion, at end May 2019, indicating an increase of 0.9% above the US$44.47 billion recorded at end-April 2019
  • A breakdown of the external reserves by ownership showed that the share of Federation reserves was US$0.004 billion (0.01%)
  • Federal Government reserves were estimated at US$7.37 billion (16.4%)
  • Central Bank’s reserves stood at US$37.47 billion (83.6%) of the total
  • The increase was mainly due to rising receipts from foreign exchange purchases, receipts from oil-related taxes, receipts from joint venture companies (JVC cash call funding) and receipts from third parties
  • The external reserves position could cover 6.5 months of import cover for goods and services, and 10.4 months for goods only, using the import figure for the first quarter, 2019.

The Upshots: Despite the recent report that the Central Bank is heading towards floating the naira in order to allow market dynamics dictate the price of the naira exchange rate, the apex bank’s Governor, Mr Gowin Emefiele, the bank is committed to continuing its intervention policy in the FX market to stabilise the naira.

While the intervention will keep the naira stable, for now, analysts are of the opinion that it is only a matter of time before the CBN will float the naira in the face of rising tension in the middle east, and on-going trade war capable of crashing oil prices which is Nigeria’s main source of FOREX earnings.

[Also Read: CBN reacts to exchange rate policy change, says Naira not “floated”]

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Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

1 Comment

1 Comment

  1. Jason

    June 30, 2019 at 4:48 pm

    Why use the term ‘blow’ when the currency was simply being exchanged for Naira? The term gives the impression that $2 Billion evaporated into thin air when in fact it still exists in the treasury as Naira.

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Business News

Global oil prices drop after reports of unexpected inventory build

The report also stated that distillate inventories were up by 6.9 million barrels for the week, as against last week’s 5.1 million barrel inventories.

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Global crude oil prices

Global crude oil prices declined slightly after a report by the American Petroleum Institute (API), on Tuesday, estimated a large crude oil inventory build of 8.731 million barrels for the week ended May 22, 2020. The situation is raising fresh concerns about excess supply.

The oil price decline was also extended due to uncertainty over Russia’s commitment to deep oil production cuts in the lead up to an OPEC+ meeting on June 9, 2020.

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The American WTI fell by over 2% to end up at $32.09 per barrel as at 3 am on Thursday. Similarly, Brent crude further declined by 1.24% to sell at $34.31 per barrel, while the Bonny light crude was down by 2.32% to sell at $33.28 per barrel.

Analysts had predicted an inventory draw of 2.50 million barrels. In the previous week, the API had estimated a draw in crude oil inventories of 4.8 million barrels. Meanwhile, estimates by the US Energy Information Administration (EIA) were different, with the industry body reporting last week that the inventories had declined by 5 million barrels.

(READ MORE: Crude oil prices drop over fears of virus resurgence)

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The oil prices were already on a decline before the API’s data release, although the outlook for a rebalanced oil market is more positive than it was just two weeks ago. This is because many U.S states and some major economies around the world are easing lockdown restrictions, even as the world’s largest oil producers like Saudi Arabia, Russia, and the United States are implementing more output cuts than market analysts had predicted.

Oil pipelines, NNPC, Nigeria to have 11 oil and gas pipelines operational by 2023 , Crude oil price drop continues on reports of unexpected inventory build

Oil production in the USA has now declined from 13.1 million barrels per day on March 13 to 11.5 million barrels per day on May 15, according to the EIA, marking a drop of 1.6 million barrels per day. Note that this is more than OPEC’s production cut agreement from last year.

Note that the API had also reported an increase of 1.120 million barrels of gasoline for the week ending May 22 as against last week’s 651,000-barrel draw. This is more than 10 times the build that analysts had predicted.

The report also stated that distillate inventories were up by 6.9 million barrels for the week, as against last week’s 5.1 million barrel inventories. This is as Cushing inventories fell by 3.37 million barrels.

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Companies

CFOs of FUGAZ and their 3-year performance record

CFO is to ensure that the company is highly profitable so that no matter how high it’s share price might be, if listed on the floor of the Nigerian Stock Exchange, it would still be termed undervalued.

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Among many executive positions in an organisation, the Chief Financial Officer (CFO) is sometimes considered to be one of the most strategic, and rightly so. When the firm in question is an operator in the financial services sector, then the office becomes even more critical to be thrown to just anyone.

Besides being responsible for fiscal operating results, the CFO is the senior executive directly responsible for managing the financial strategy, decision and actions of a company. He tracks cash flow, analyses the company’s financial strengths and weaknesses, and fill in for the lapses, reducing operations costs and increasing income.

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In other words, we can say that the job of the CFO is to ensure that the company is highly profitable so that no matter how high it’s share price might be, if listed on the floor of the Nigerian Stock Exchange, it would still be termed undervalued.

This article looks at the CFOs in Nigeria’s tier one banks, their profiles, their last 3 years records and projections for 2020.

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Ugo Nwaghodoh, Group CFO, United Bank for Africa Plc (UBA)

Ugo is a seasoned financial analyst and accountant with experience spanning assurance, advisory, financial control, financial modelling & programming, strategy and business transformation, investor relations, corporate restructuring, risk management, mergers & acquisition, business integration and project management.

He has been the Group CFO at United Bank for Africa Plc since 2011, managing the performance, financial control, portfolio investment and investor relations among others.  Before then he was the Divisional Head, Financial Control and Investor Relations between 2008 and 2011.

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He also had a brief stint as Group Chief Compliance Officer, and as Head of Special Project (Corporate Mergers). He was Head, Performance Management, Strategy and Business Transformation for about 3 years, where he drove the cost optimization initiatives of the bank, and engaged in policy formulation.

Before UBA, he had worked as Manager, Assurance and Business Advisory Services with PriceWaterhouseCoopers Nigeria for 8 years, and 2 years in Kenya on secondment.

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He has a degree in Accounting and Finance, and MSc in Finance & Management from the Cranfield School of Management, Cranfield University.

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He is a fellow, Institute of Chartered Accountants of Nigeria (FCA).

His last 3 years performance

UBA, under Nwaghodoh’s watch, had a fairly unfavourable 2018 as cost to income ratio increased from 57.8% in 2017 to 64% in 2018, and profit after tax almost remained the same increasing only slightly from N78.59 billion in 2017 to N78.60 billion in 2018.

The bank, however, staged a comeback in 2019 with cost to income ratio reduced to 62.7% while profit after tax increased by over N10 billion to N89.08 billion.

Share price however declined from N10.3 in 2017 to N7.7 in 2018 and N7.15 in 2019, probably not Nwaghodoh’s fault though, since this happened across most financial services institutions. In addition, the bank also paid N30 million as fine to the CBN in 2018, a situation which led shareholders to cry out to Apex bank for what was termed ‘unfair penalties’.

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Nwaghodoh, however, has a beautifully designed investor relations page to his credit, with answers to Investors FAQs, analysts reports and credit ratings for the bank, shareholders information and news among others.

Oluseyi Kumapayi, CFO Access Bank Plc

Kumapayi joined Access Bank in 2002. Before then, he was with the First City Monument Bank (FCMB) where he served as Financial officer.

Kumapayi got his MBA from the Kellogg school of management, Northwestern University, and  has been severally endorsed in Corporate finance, risk management and business strategy, financial analysis, mergers and acquisitions, financial modelling and investment banking.

He also attended the INSEAD course on Risk Management, London Business School (LBS) High Performance People Skills program, Euromoney, Assets and Liability Management, Strategy Master Class and Mergers and Acquisition. He is a Certified Chartered Accountant.

Now let’s look at the bank’s three years performance under Kumapayi. 

For the cost to income ratio, Access bank has remained profitable over the last three years, but now the question would be how profitable?

Cost to income ratio reduced from 72.40% in 2017 to 65.30% in 2018 showing that the bank’s strategies succeeded in reducing the ratio of cost to income and making more profits. However, 2019 recorded a negative progression to 68.7%.

This is in spite of the fact that profit after tax grew significantly to N97.5 billion in 2019, from N94.98 billion in 2018 and N53.6billion in 2017.

Overall, we can say the indices point to greater progress made in 2018, compared to 2019.

Note also that the merger between Access Bank and Diamond bank started in 2018, running through 2019 before it was eventually sealed with the launching of the new Access logo, and the slogan ‘access more’. The role of a CFO in a merger of this magnitude is ourightly priceless, given that not all merger talks result in a successful merger of assets, shareholders, and even management team.

There is also the acquistion of controlling equity interest in Transnational Bank Kenya Plc, which Access Bank undertook in October 2019.

Share price at last day of the year progressed from N10.45 to N6.8 to N10, showing that share price dropped most in 2018, which interestingly happened to be the most profitable year so far. In the same 2018, Access bank paid N20 million in fines to the Central Bank of Nigeria.

Kumapayi has kept the investor relations page of the bank’s website duly updated with annual financial reports, investor news, credit ratings, upcoming events, shareholders information and news.

 

Oyewale Ariyibi, CFO, First bank of Nigeria Plc

Oyewale Ariyibi, CFO, FBN Holdings

Before becoming Chief Financial Officer at FBN Holdings Plc, Oyewale Ariyibi had worked with Transnational Corporation of Nigeria Plc (Transcorp) as Chief Finance Officer, and at Standard Chartered Bank, Nigeria as Country Financial Controller.

He has a cumulative 23 years experience in banking and financial services, business assurance, tax management, business process review and consulting across several institutions.

He has been certified in areas such as capital raising, tax planning and cost management, operational risk management, strategic and corporate planning, compliance and business assurance amongst others, and is a Fellow of the Institute of Chartered Accountants of Nigeria (FCA), Associate of the Chartered Institute of Taxation (ACIT) and Certified Pension Institute of Nigeria (ACIP).

So what has he done with First Bank in the last three years?

Profit after tax has been on an increase, from N47.78 billion in 2017 to N59.74 billion in 2018 and N62.09 billion in 2019. This is laudable given that 2016/17 was not the best times for the Nigerian economy.

Share price has however dropped from N8.8 in 2017 to N7.95 in 2018 and N6.15 in 2019.

This may be no fault of his given that he has managed to keep the cost to income ratio stable at 80.17% in 2017, 80.15% in 2018, but it increased slightly in 2019 to 81.31%.

Note that the FBN Holdings also paid a fine of N32.65 million to the CBN in 2018.

This trend can be considered worrisome not only because FBN holdings has the highest cost to income ratio among the tier one banks, but because it is the only of the five banks where cost to income ratio did not reduce over the last 3 years.

This probably explains why shareholders earned 0.25 dividends per share in 2017, 0.26 in 2018 and 0.38 in 2019, the least dividends declared by any of the top banks.

The investors’ relations page of the bank’s site is a bit unclear and it is not easy to access needed information, but once a site visitor gets past the initial confusion, one can see shareholders information, corporate governance reports, financial highlights, unclaimed dividends, press releases and news.

Ariyibi might need to ask some pointers from his colleagues in other tier one banks.

Recently, Ariyibi led engagements with regulators towards FBN’s intention to divest its 65% holdings in FBN insurance Limited.

 

Mukhtar Adam, CFO Zenith Bank Plc.

Mukhtar Adam was appointed Chief Financial Officer (CFO) of Zenith Bank in 2018, and is currently the Group Head, Financial Control and Strategic Planning Group of the bank.

Before this, he was the bank’s Deputy CFO, and sometime before 2014, he headed the Financial Reporting, Tax Management and Strategic Planning Groups, overseeing the entire Zenith Group’s financial reporting.

Adams worked in Financial Services Group of the Nigerian and Ghanaian practices of PricewaterhouseCoopers (now PwC), as a Senior Consultant, before joining Zenith Bank in 2007.

Adam holds a PhD in Finance from the Leeds Beckett University (UK); M.Sc. (Finance – Financial Sector Management) from University of London’s School of Oriental and African Studies, (UK); MBA (Finance) from the University of Leicester (UK) and B.Ed. Social Sciences (Economics and Management) from the University of Cape Coast (Ghana).

Many feathers for one man’s cap, we must agree!

He also holds a Diploma in International Financial Reporting Standards (IFRS) from the Institute of Chartered Accountants in England and Wales (ICAEW).

He is a member of the Institute of Chartered Accountants of Nigeria (ICAN), Chartered Institute of Taxation of Nigeria (CITN), and Institute of Chartered Accountants of Ghana (ICAG).

So, what has Mukhtar Adam achieved for Zenith bank since he took over from Stanley Amuchie in 2018?

It’s been three progressive years for this tier one bank as cost to income ratio has continued to decline from 52.70 in 2017, to 49.30 in 2018 and further down to 48.8% in 2019. Commendably, this progression is not just a result of cutting down operation costs, but increasing income.

Profit after tax for 2017 stood at N173.79 billion and increased to N193.42 billion in 2018 and spiked further to N208.84 billion in 2019.

Whatever magic wand Adams holds over the bank, it must be working well because among the five tier one banks, Zenith bank has consistently had the highest profit after tax for the past three years.

Share price of the bank also moved from N25.6 in 2017 to N23.05 in 2018 and further down to N18.6 as at last day of 2019.

However, this cannot be counted against him as share price is subject to a whole range of extraneous factors. In the 2018, the bank paid N10 million fine to the CBN.

With his input, the bank also maintains a detailed investors relations page with press releases, credit ratings, corporate governance reports and financial updates. In addition to the BOT which pops up to help guide a visitor through the page and answer inquiries, Adams also appears to be one CFO who spells out his key financial strategies on all aspects of the banks operations, on the investors relations page.

Adebanji Adeniyi, CFO, GT Bank

Adeniyi became CFO of GT bank in 2013.

Adeniyi has been certified competent in risk management, portfolio management, risks and investments, Operational dynamics and Associated Risks among others, and has over two decades of professional experience.

He gained his early experience from notable companies including PricewaterhouseCoopers, and Arthur Andersen (now KPMG).

Adebanji Adeniyi, Chief Financial Officer, GT Bank

His banking experience comes from his stint with Lead Bank Plc, and his years at GT Bank. He is a Fellow of Institute of Chartered Accountants (FCA), and also holds a MBA.

So, what has he been up to in the last 3 years.

For Guaranty Trust Bank Plc, cost to income ratio reduced from 38.2% in 2017, to 37.2% in 2018, and to 36.1% in 2019

In addition to its gradual improvement, GT bank has maintained the best cost to income ratio among the top banks.

The bank has also maintained a high profit after tax after Zenith bank. GT Bank recorded N170.47 billion profits after tax in 2017 and this increased to N184.64 billion in 2018 and N196.86 billion in 2019.

Like other banks, however, share price has dropped over the years – from N40.75 in 2017 to N34.45 in 2018 and N29.7 in 2019. In addition to this, GT Bank also received a heavy penalty of N24 million in 2018 from the CBN.

In terms of profitability, both for the bank and for investors, Adeniyi is getting it right.

The bank also has a well laid out investors relations page detailing corporate and financial information, outlooks and insights, upcoming events and investors news, shareholders information and annual reports.

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Coronavirus

CBN announces new policy measures, reduces interest rates for financial institutions

CBN will be reducing interest rates on its facilities through participating financial institutions from 9% to 5% per annum for a year.

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CBN-Governor-Emefiele, Investors’ and Exporters’ forex window aided Naira stability – Emefiele , external reserves, Financial Inclusion: CBN licensed 15 mobile money operators – Emefiele , Rates continue to decline as banks struggle to meet CBN’s 65% minimum LDR, CBN releases new guidelines, to fine banks N2 million over customers’ complaint , CBN: FG fell short of monthly allocated collected revenue by N388 billion, CBN issues new rule for use of PoS, merchants to face sanction after deadline, CBN may devalue naira in 2020 as experts highlight red flags in the economy, CBN appoints and redeploys directors within its ranks, Banks look to lending rates for revenue, as slash on e-transaction charges affect operations, CBN discloses currency in circulation worth N2.44 trillion, CBN to commence recycling of mutilated naira notes, Agriculture: CBN's revised policy on the dairy industry, CBN condemns foreign money transfers to Nigeria, Experts outline effect of CBN’s longer term contract, Bank’s lending rates decline albeit slower than expected, CBN releases new capital base, sanctions for Microfinance Banks, CBN reveals banks’ foreign assets rise to N14.19 trillion in 2019, CBN insists on no devaluation, threatens to sanction those responsible for false speculations, CBN considers interest rate cut as trade, economy decline over Coronavirus, Defending the naira at a cost, CBN announces initial policy response to COVID-19, CBN stops oil companies from selling dollar to NNPC, here’s why, Amid Coronavirus spread, CBN directs staff to stay at home, External reserves to fall below $30 billion, more forex restrictions expected, UPDATE: Fitch downgrades Nigeria's IDR to "B", says CBN's remedial policy not enough, What constitutes Nigeria’s external reserves?, CBN to create housing funds for developers, Nigeria Trade: CBN reviews exchange rate for cargo imports, Nigerian Fintechs re-strategize with CBNs’ postponement of revised MFB license regulations

As part of its monetary and financial policy measures to further mitigate the impact of the coronavirus pandemic on households, and businesses, the Central Bank of Nigeria (CBN), has approved regulatory forbearance for the restructuring of credit facilities in the Other Financial Institution (OFI) sub-sector.

This was disclosed in a circular signed by the CBN’s Director for Financial Policy and Regulatory Department, Kevin Amugo, on Wednesday, May 27, 2020.

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In the circular, stated that Amugo the apex bank will be reducing interest rates on its facilities through participating financial institutions from 9% to 5% per annum for a year with effect from March 1, 2020.

According to the circular, CBN has approved regulatory forbearance for the restructuring of credit facilities in the OFI sub-sector as follows:

‘’CBN Intervention facilities availed through participating OFIs are granted a further one-year moratorium on all principal repayments, effective March 1, 2020.

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‘’Interest rates on the CBN intervention facilities through participating OFIs hereby reduced from 9% to 5% per annum for 1-year effective March 1, 2020.

‘’OFIs are granted leave to consider temporary and time-limited restructuring of the tenor and loan terms for households and businesses affected by COVID-19, subject to the recently issued guidelines for restructuring affected credit facilities in the OFIs sub-sector.”

This new policy measure by the apex bank is in continuation of its intervention in the nation’s economy so as to help manage the crisis caused by the coronavirus pandemic and reduce its effects on household and businesses.

This is coming a day before the Monetary Policy Committee (MPC) meeting for the month of May which has been slated for tomorrow Thursday, May 27, 2020.

Meanwhile, the CBN said that it shall continue to monitor developments and implement appropriate measures to safeguard financial stability and support stakeholders impacted by the COVID-19 pandemic.

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