The International Monetary Fund has disclosed that the balance sheets of banks would be weak due to the directive from the Central Bank of Nigeria that deposit money banks should achieve a minimum loan-to-deposit ratio.
While the CBN reviewed the minimum LDR from 60% in September to 65% in October to improve lending to the real sector of the nation’s economy, the global firm argued in its Regional Economic Outlook for sub-Saharan Africa report that the development would significantly weaken banks’ balance sheets and lower the cost of funds.
What it means: Mission Chief and Senior Resident Representative for Nigeria, IMF, Amine Mati, explained that the IMF was of the view that the regulation might need to be revisited in terms of the potential pressure on non-performing loans.
According to the report, Nigeria is projected to grow at 2.5% in 2020, up from 2.3% in 2019, driven by both oil and non-oil sectors.
It also projected the nation’s medium-term growth at slightly higher than 2.5% and that implies that no progress in per capita growth. This low growth is driven by insufficient policy adjustment, a large infrastructure gap, low private investment, and banking sector vulnerabilities.
The IMF noted that Nigeria continued to have low tax rates, narrow tax bases and broad exemptions.
It said, “In several countries, tax administrative capacities remain weak, and governance is a concern. Also, the informal sector is large in many countries (such as Angola, Central African Republic, Chad, Guinea and Nigeria), resulting in low tax compliance.
“Mobilising more domestic revenue requires improving tax administration (such as assigning tax identification numbers for commercial importers, improving land registries, and strengthening tax audit functions, customs administration, and compliance management of large taxpayers) and reforms to broaden revenue bases, including through fewer exemptions.”
Backstory: Nairametrics had reported that the CBN issued a fresh circular mandating commercial banks operating in the country to lend out up to 65% of their customer deposits.
In the circular addressed to all banks obtained by Nairametrics, the CBN disclosed that the minimum LDR target for all DMBs has been reviewed upward from the initial 60% to 65%.
A new LDR: According to the information contained in the circular titled: ‘Regulatory measures to improve lending to the real sector of the Nigerian economy’, the major reason cited by the CBN for the newly revised LDR is the noticeable “growth in the level of the industry gross credit”.
- For instance, the apex bank stated that the industry gross credit increased by N829.4 billion or 5.33% from 15.5 trillion at the end of May 2019 to N16.3 trillion as at September 26, 2019.
- The CBN, therefore, disclosed that the LDR was reviewed upward in line with provisions of the earlier circular and in order to sustain the momentum.
The apex bank said failure to meet the minimum LDR would result in a levy of additional cash reserve requirement equal to 50% of the lending shortfall of the target LDR.
The CRR is the share of a bank’s total customer deposit that must be kept with the CBN in the form of liquid cash. It is currently at 22.5%.
Dangote, BUA Cement drag Nigerian Stock market down, investors lose N154.28 billion
Investors lost N154.28 billion in value, as market capitalization dropped to N13.04 trillion at the Nigerian Stock market.
Nigeria’s stock market finished the week on a poor note, extending its previous day’s loss. The ASI declined by -1.17% to 25,016.00 index points. Consequently, the Year to Date loss dipped to -6.88%. Also, investors lost N154.28 billion in value, as market capitalization dropped to N13.04 trillion.
In terms of activity levels, market activity mirrored the broad index as total volumes and values declined by -20.61% and -52.51% to 214.49 million units and 2.51 billion respectively. ZENITH BANK was the most traded stock by volume at 22.2 million units, while NB topped by value at N666 million.
Market sentiment, measured by market breadth, was however positive with 22 gainers led by BOCGAS (10.00%), against 18 losers topped by CABDURY (-9.47%).
Across the major indexes we cover, four out of five indexes closed negative. The Industrial goods (-3.91%) index was the worst performer, due to BUACEM (-5.44%) and DANGCEMENT (-2.04%) price decline. The Consumer Goods (-1.23%) and Energy (-0.96%) indices followed, owing to sell-offs in CADBURY (-9.47%); NB (-4.55%); GUINNESS (-3.68%) and OANDO (-2.22%).
Also, the Banking (-0.28%) index lost points, as prices of GUARANTY (-2.45%) and FBNH(-1.82%) fell. The Insurance index was the lone gainer, up +0.06% on price appreciation in CHIPLC, CUSTODIAN & AIICO Insurance.
BOCGAS up 10.00% to close at N4.4; SKYAVN up 9.64% to close at N2.73; NASCON up 1.77% to close at N11.5; CUSTODIAN up 3.42% to close at N6.05; and NEIMETH up 9.94% to close at N1.77.
CADBURY down 9.47% to close at N7.65; BUACEMENT down 5.44% to close at N40; NB down 4.55% to close at N42; GUINNESS down 3.68% to close at N18.3; and DANGCEM down 2.04% to close at N139.
Market dropped close to the N13 trillion market capitalization support level, as heavy selling was observed among blue-chip stocks. Nairametrics recommends caution as price swing momentum strengthens.
Buhari reappoints Danbatta as NCC Vice Chairman/CEO
With the reappointment, Danbatta will continue serving in the capacity of NCC Vice Chairman and CEO for another 5 years.
President Muhammadu Buhari has approved the reappointment of of Prof. Umar Garba Danbatta as Executive Vice Chairman, and Chief Executive Officer of the Nigerian Communications Commission (NCC).
This means that Danbatta will continue serving in the capacity of NCC Vice Chairman and CEO for another 5 years.
Personal assistant on New Media to President Muhammadu Buhari, Bashir Ahmad announced this via his twitter handle on Friday evening.
President @MBuhari has approved the reappointment of Prof. Umar Garba Danbatta as Executive Vice Chairman of the Nigerian Communications Commission (NCC). He will be serving another 5 years as the Chief Executive Officer of the Commission, a statement from @FMoCDENigeria.
— Bashir Ahmad (@BashirAhmaad) June 5, 2020
This reappointment was based on the recommendations of the Honourable Minister of Communications and Digital Economy, Dr Ali Ibrahim Pantami, and contained in a Press statement from the ministry.
While wishing him well in his second tenure, Pantami urged Professor Danbatta to consolidate on gains and achievements of his first term.
“The honourable minister directed him to significantly improve on the overall performance of the commission as well as ensure that adequate mechanisms are put in place to facilitate the implementation of all policies of the Federal Government through the ministry” the statement read.
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The professor of Telecommunications engineering had lectured for about three decades before his previous appointments. At different times, he also served as a member of the Implementation Committee of the Northwest University Kano, as well as served as the Acting Vice-Chancellor of the Kano University of Science & Technology, Wudil.
CBN debits banks another N459.7 billion for failure to meet CRR target
Sadly, this move, in addition to similar policies by the CBN, has left many banks cash-strapped and unable to pursue various profitable ventures.
The Central Bank of Nigeria (CBN) has debited twenty-six banks, including merchant banks, to the tune of N459.7 billion for failure to meet their CRR (Cash Reserve Ratio) obligations. The fresh debit, which Nairametrics reliably gathered occurred yesterday, has left many stakeholders in the banking sector very upset.
The details: Among the banks that were most affected are United Bank for Africa Plc (N82.3 billion), First Bank of Nigeria Ltd (N59.3), Zenith Bank Plc (N50 billion), First City Monument Bank (FCMB) Limited (N45 billion), and Guaranty Trust Bank Plc (N40 billion). The rest of the affected banks can be seen in the table below.
Note that the latest CRR debits are coming barely one month after a lot of banks were collectively debited to the tune of N1.4 trillion for the same reason in April. Between then and now, a lot of other minor CRR debits have occurred. Nairametrics understands that the apex bank now debits banks on a weekly basis.
Some backstory: During the CBN’s Monetary Policy Committee (MPC) meeting that was held last month, committee members voted to retain CRR rate at 27.5%. The rate was increased in January this year from 5% to its current level after the apex bank cited inflationary pressure concerns. What this means, therefore, is that Nigerian banks are required to keep 27.5% of their deposits as CRR with the Central Bank of Nigeria.
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But banks are silently upset: Sadly, this move, in addition to similar policies by the CBN, has left many banks cash-strapped and unable to pursue various profitable ventures. While reacting to the latest development, a banker who refused to be identified, said:
“What we’ve seen in recent times is that the CBN just indiscriminately debits banks, usually towards the stale-end of every week. They will look at your bank account and if your liquidity is plenty, they will debit you.
“You know the central bank also does what we call retail FX intervention, that is when they sell FX to corporates. Now, because they don’t want banks coming with huge demands, what they do is that a day before the FX sales, they debit the banks so that the naira you have available is small and you cannot put them under pressure because of your FX demands. That has really been the driver.
“We understand that the central bank had set up a special CRR team that is supposed to monitor banks’ CRR once a month. But now, the team monitors banks’ CRR on a weekly basis. This is why the central bank is effectively debiting banks on a weekly basis. Some weeks ago, they debited some banks about N1.4 trillion. That was one of many. Between that time and now, there have been more debits that have happened. But the debits that are huge/significant are what is troubling the banks. There was a N300 billion that happened about two weeks ago. and then yesterday that was this N459.7 billion that was also debited.
“These are huge amounts that are leaving the banking sector. It’s a squeeze on the banks. A bank like First Bank, for instance, has about N1.4 trillion in CRR with the Central Bank. And there is Zenith Bank with equally as much as N1.5 trillion. These are monies that banks can potentially put in loans at 52% at 30%, or even put in money market instruments at maybe 10%. So, for a shareholder of these banks, this CRR debits are impairing the banks’ ability to increase their earnings because now are not able to use the funds that are legitimately theirs to create money for their shareholders. And the question is that under what framework is the Central Bank choosing to take people’s money?”