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Concerns as CBN closes 2019 without publishing 2018 annual report

The audited account is yet to be published keeping stakeholders and investors in the dark about the financial health of the CBN.

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Economic Growth, CBN, Governor, Emefiele, CBN releases new capital base, sanctions for Microfinance Banks, Nigerian Banks broadly positive after naira devaluation, Naira hits N465 to $1, Central Bank begins disbursing $100million to hit at currency speculators

Nigeria’s apex bank, the Central Bank of Nigeria (CBN) is on track to close 2019 without making public its 2018 Annual reports and accounts. By tradition, the audited account is published in the second half of the year and can be downloaded on the website of the CBN.

However, the audited account is yet to be published keeping stakeholders and investors in the dark about the financial health of the CBN. The annual report of the central bank states the balance sheet and income statement of the bank and is audited by an independent audit firm.

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Why this matters: Sighting the audited accounts of the central bank is critical for a number of reasons. Apart from the fact that it is a statutory obligation, it helps investors to independently dissect the impact of the developmental policies of the bank on its balance sheet over the years. Here are other reasons why it is particularly critical.

Bank’s balance sheet: The Central Bank’s balance sheet is thought to have exploded over the last 4 years following its staunch defense of the naira, which is driven by a convoluted monetary policy. From dishing out mouth-watering interest rates via Open Market Operations (OMO) bills, to massive lending sprees at concessionary rates in support of the government’s agriculture policy, its balance sheet has expanded.

  • In its 2016 annual report, the bank’s balance sheet rose by a whopping 41.6% to N21 trillion and then 35% to N29.3 trillion in 2017.
  • It explained, that “the increase in assets resulted mainly from External Reserves, Loans, and Receivables, holdings of SDR and Quota in the IMF. The corresponding increase on the liability side resulted mainly from increased CBN issued instruments, increased IMF and other liabilities.” 
  • One expects the balance sheet to have exceeded N30 trillion already.
  • Recently the CBN edged out investors other than banks and foreign investors from accessing the OMO market in a move seen as a larger strategy to curb its hefty interest rate payout.
  • Data from the CBN indicate it has a total OMO Bills of about N13.8trillion out of which local banks held N3.95 trillion, corporates N3.7 trillion and foreign investors N6.1 trillion.
  • A recent Nairametrics report noted that OMO Bills were as high as N17 trillion in August as the CBN sold more bills in a bid to “control the supply of money”. In its 2017 annual report, the CBN claimed that total instruments issued was about N8.9 trillion.

Profit and loss; In 2017 the CBN posted a profit after tax of N180.5 billion down from N203.5 billion in 2016.

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  • A major driver for the drop in profits was its Net Interest Income/Loss. In 2017, it posted a Net interest loss of N659 billion in 2017 due to a net interest expense of N1.3 trillion.
  • We believe the main reason for this is due to its high-interest rates from its borrowing against low-interest rates from its lending, an obvious mismatch that will even be bigger in 2019 considering its desperation to get investors out of the OMO market.
  • A loss-making CBN will obviously spook markets and investors giving the impression that a devaluation is looming or that the CBN will have to print more. Its recent move to reduce interest rates across the board is perhaps the closest indication that the CBN may not be able to sustain its policy amidst a weakened balance sheet.

AMCON: The CBN’s largest debtor is the Asset Management Corporation of Nigeria (AMCON) and as of 2017 was being owed about N3.8 trillion in bonds out of the N10 trillion in loans and receivables stated in its balance sheet as at 2017.

  • The CBN expects the bonds to mature in 2023 and still carries it in its books as performing. During the year, CBN report which was endorsed by CBN Governor, Godwin Emefiele, claimed the investment of N898.45 billion in Polaris Bank Limited (defunct Skye Bank Plc) raised the corporation’s liabilities to N5.43 trillion as at June last year.
  • The CBN report stated, “The carrying value of AMCON’s liabilities increased from N4.53 trillion at end-June 2018 to N5.43 trillion at end-December 2018, arising from the Corporation’s investment of N898.45 billion in Polaris Bank Ltd. AMCON’s liabilities N5.43 trillion was projected to be covered by the Banking Sector Resolution Cost Trust Fund (BSRCTF) and the corporation’s internal credit recoveries and asset sales. “Contributions to the BSRCTF by the CBN and 15 participating banks for the year 2018 were valued N228.28 billion.“
  • AMCON has, however, made cash recoveries of N89.97 billion for the 2018 financial year from asset sales and credit repayments, bringing its total recoveries from inception to end-December 2018 to N759.05 billion, consisting of cash, N366.85 billion; shares forfeiture, N128.47 billion; and property forfeiture, N263.73 billion.

Its 2018 annual report should provide better details on the state of health of the bonds and whether AMCON is servicing it as at when due.

CBN Loans: The CBN loans to state government caused a difficult stir earlier in the year when a conversation between the CBN Governor and his top personnel leaked.

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  • According to the CBN, the discussion was about a N150 billion provision its auditors had asked it to take, which if acceded to would effectively wipe out its shareholders’ funds.
  • The provision was part of the N650 billion loan, which the CBN lent to State Governments as bailouts that had now gone bad (states are not servicing the loan as expected).
  • It eventually convinced the auditors to allow it to avoid taking provisions as the loans are backed by the state government’s share of allocation.
  • While this issue may have been put to bed it shows just what it takes to send the CBN’s balance sheet into losses and wiping out its shareholder’s funds.
  • As of 2017, the CBN’s shareholders fund was N819.2 billion thus suggesting that a N150 billion provision could wipe out shareholder’s fund suggest their balance sheet may just be weaker in 2018.

The CBN under Godwin Emefiele has been coy about publishing annual reports including notes to the accounts. As we approach 2020, one expects someday sooner rather than later the CBN will release the annual report.

Patricia

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.

1 Comment

1 Comment

  1. Henry Vongfa Miri

    June 27, 2020 at 12:55 pm

    I will like to apply for the loan ,To upgrade my business.

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Corporate deals

Uber expands food delivery business in a $2.65 billion acquisition 

This deal would help Uber expand its market share against privately held DoorDash Inc.

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The multinational ride-hailing service company, Uber has agreed on a deal aimed at expanding its food delivery business with the acquisition of food delivery app, Postmates Inc, in a $2.65 billion all-stock take over which is expected to be announced as soon as Monday, July 6, 2020. 

According to Bloomberg, the deal which has been approved by the board of directors of Uber, will have the head of Uber’s food delivery business, Pierre-Dimitri Gore-Coty, to continue to run the combined delivery business. Under the agreement, Postmates Chief Executive Officer, Bastian Lehmann and his team will continue to manage Postmates as a separate service. 

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This deal would help Uber expand its market share against privately held DoorDash Inc, the current market leader in US food delivery business. While Postmates lags behind DoorDash in the race for market share, it has still been able to maintain a strong position in Los Angeles and the American Southwest, both of which could be available to Uber eats. 

Uber and Postmates who have been in discussion for about 4 years, intensified the acquisition talk about a week ago, after an approach by Uber. This move is coming on the heels of the failed bid by Uber to acquire publicly quoted GrubHub Inc, which was bought over by Europe’s Just Eat Takeaway.com NV for $7.3 billion. 

Postmates’ valuation was last put at $2.4 billion when it raised $225 million in a private fundraising around last September. According to analytics firm, Second Measure, they account for 8% of the US meal delivery market in May.  

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Postmates, which was founded in 2011 was one of the first to let customers in the U.S. order meal delivery using a mobile app. However, competition has intensified in recent years and Postmates has fallen to a distant fourth. The company said in February 2019 that it had filed paperwork confidentially for an initial public offering but never went public.  

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Financial Services

Cornerstone Insurance’s board will meet July 22nd to consider 2 important issues

Directors typically meet to consider/approve financial statements before they are released.

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Cornerstone Insurance Plc

Cornerstone Insurance Plc’s board of directors will meet on July 22nd to deliberate on two important company issues.

A public notice that was signed by the Company Secretary and issued to the Nigerian Stock Exchange (NSE), noted that the two main talking points at this meeting are the company’s unaudited Q2 2020 financial statements, and the proposed issuance of bonus shares to the company’s existing shareholders.

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As you may well know, board members of many companies listed on the NSE are all scheduled to meet later this month, ahead of the release of these companies half-year 2020 earnings reports. Directors typically meet to consider/approve financial statements before they are released.

Meanwhile, between the time a company’s board of directors meet over their financial statements and the actual release of said financial statements, there is what is called “a closed period”. During this closed period, all persons with insider knowledge of the company’s affairs are prohibited from trading in the company’s stock.

In the case of Cornerstone Insurance Plc, a closed period on its stock will start from tomorrow (July 7th, 2020) and will remain effective until 24 hours after the release of the company’s Q2 2020 financial statements. Note that no date was given for the release of the Q2 financial report.

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“Accordingly, in line with the provisions of Rule 17.17: Closed Period, Rulebook of The Exchange, 2015 (Issuers’ Rule) and which has been incorporated into Sections 5 and 6 of the Company’s Securities Trading Policy, all Directors, Persons discharging managerial responsibility, Adviser(s) of the Company, or their connected persons shall not trade in the Company’s shares from Tuesday, July 7th, 2020 until 24 hours after the release of the Company’s Unaudited Financial Statements for the Second Quarter ended June 30, 2020 to the NSE and the general public,” part of the statement by the company said.

Recall that Nairametrics reported some months ago that Cornerstone Insurance Plc was in merger talks with some insurance companies ahead of the recapitalization deadline set by the National Insurance Commission (NAICOM). The company’s Group Managing Director, Ganiyu Musa, disclosed that consolidation is a more viable option towards meeting NAICOM’s recapitalisation requirement.

It is uncertain, at this point, if the company is still considering a merger as a viable option. This is because in March 2020, Nairametrics reported that Cornerstone Insurance Plc is one of the insurance firms that have resorted to selling off their real estate properties in order to raise money. The reported had quoted the MD discussing how his company “took the big decision to sell the property which we did at a very handsome price. And just in one fell swoop, it resolved many issues. We now have a significant amount of liquidity, we do not have the headache of recapitalisation and we have done what the regulator wants, which is to convert any property to cash.”  

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Meanwhile, NAICOM has since postponed the recapitalisation deadline to September 2021 due to the economic challenges posed by the COVID-19 pandemic.

Note that the company reported a gross premium income of N4.6 billion in Q1 2020, compared to N4.8 billion in Q1 2019. However, profit for the period stood at N475.1 million, as against a loss after tax of N98.4 million during the comparable period in 2019.

The company’s stock opened today’s trading on the Nigerian Stock Exchange with a share price of N0.50. Year to date, the stock has gained roughly about 20%.

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Appointments

PwC admits 8 Nigerians, 16 others as partners across Africa 

PwC has about 400 partners and over 9,000 people spread across 34 countries in Africa.  

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PricewaterhouseCoopers (PwC) has admitted 24 professionals in Africa, including 8 Nigerians, into the firm’s partnership.

Akinyemi Akingbade, Chioma Obaro, Yinka Yusuf, Wura Olowofoyeku, Tosin Labeodan, and Rukaiya El-Rufai were all admitted into the firm’s Assurance practice, while Kunle Amida and Olusola Adewale were appointed into Advisory.

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From South Africa, nine partners were also admitted; Lumko Sihiya, Mary-Jane Mberi, Nitassha Somai, Erik Booysen, Dale Stonebridge, and David Hill, into Assurance.

Kerin Wood and Gavin Johnston have admitted partners into Advisory, and Michael Butler into the Tax and Regulatory Services.

In Zambia, the partners admitted include George Chitwa, Tax, and Martin Bamukunde in Assurance.

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Andre Burger was admitted Partner, Assurance in Namibia; Mwangi Karanja, Partner Assurance in Kenya; and Icho Molebatsi, Partner Assurance, in Botswana.

Two partners were admitted in Ghana, Richard Ansong in Assurance; and Kingsford Arthur in Advisory.

READ MORE: Dual citizenship firm opens office in Nigeria for millionaires, charges over $1 million

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About PwC

PricewaterhouseCoopers is a multinational professional services network of firms headquartered in London, United Kingdom, operating as partnerships in several countries under the PwC brand.

PwC has about 400 partners and over 9,000 people spread across 34 countries in Africa.

 

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Patricia
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