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Is the pension asset just another cookie jar?

Around 2013/2014, Nigeria’s pension fund asset was at about 4.21 trillion naira.

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How negative performance in the capital market affected PFAs in 2019

Around 2013/2014, Nigeria’s pension fund asset was about N4.21 trillion. There was so much talk about the country being so dumb to let such amount sit idle. Analysts talked so much about the potential impact of investing so much money. Private Equity (PE) firms wanted it. The government also wanted it.

While the PEs could only talk, the government either resisted the pressure or lacked the balls to dip their hands into the pension asset at the time.

But powerful interests continued to encircle it, and analysts continued to denounce having so many funds sitting idle while the country grappled with myriads of the infrastructural deficit.

Nine Funds that Joined the League of Mutual funds in 2019 One of the problems that is prevalent in Nigeria is that of paucity of data. Though that problem still bedevils the Nigerian mutual fund industry, the Security and Exchange Commission has been doing its best to publish, as often as it can, a compilation of the Net Asset Values of Nigerian mutual funds. One way to judge the health of an industry like the mutual fund industry, is to look at the trends of fund flows into and out of the industry. In one of my recent pieces, I pointed out that the state of the industry seemed to be strong, and judging by how much investors poured into the industry in 2019, the state of the industry seems to be even stronger. Another way to judge the health of the industry is to look at its growth in terms of the number of funds, especially number of new funds, launched within a review period or year. Due to lack of alternative facts, our analysis is based solely on the publications by the Security and Exchange Commission. Based on the SEC NAV Summary reports, we can comfortably say that Nine new funds were added to the list of active mutual funds in Nigeria in 2019. That is a slight improvement over the 8 new funds that were added in 2018, but nothing compared with the 16 new funds added in 2017. Be that as it may, the fact that the industry added more funds, with none going into extinction, is quite commendable and a mark of growth. Here are the newcomers in 2019. Vantage Dollar Fund and Vantage Equity Income Fund: Vantage Dollar fund is a Eurobond fund, being denominated in US Dollar. It is a product of InvestmentOne Fund management. Though the fund opened for issue on April 23 2018, closing on June 1, 2018, it did not get listed in the SEC report until sometime in 2019, making it a newcomer in 2019. Its current asset value is N1.8 billion and the fund generated about N78 million in gains in 2019. InvestmentOne also launched the Vantage Equity Income Fund. That brings to 6, the number of funds being managed by InvestmentOne Asset Management, giving it a total asset under management of N21.6 billion. (1)Another new comer in 2019 is the IBTC Shariah Fixed Income Fund. The Fund is an “open-ended unit trust scheme that invests in Shariah-Compliant fixed income securities and investment products that are permissible under Shariah principles.” A product of Stanbic IBTC Asset Management, the fund was valued at N1.5 billion by the end of 2019 and generated an estimated N54.6 million in gains also in 2019. With that, the number of funds under the management of Stanbic IBTC Asset Management company now comes to 14, with total asset undermanagement of N478.2 billion as at the end of 2019. (2) PACAM Eurobond fund and PACAM Equity Fund also made it to the list of newcomers in 2019. Though PACAM Eurobond fund is said to be Eurobond fund, at least by nomenclature, the fund manager’s website says that the fund invests in “Fixed Income instruments such as FGN Bonds, Sub National Bonds, Corporate Bonds and other investment grade Fixed income instruments giving investor’s opportunity to invest in secure and high yielding Bonds offered by Federal and State Governments of Nigeria and large Corporates.” The launch of the two funds brings to 5, the number of funds being managed by PACAM Asset Management company, bringing its asset under management, AUM, to N1.56 billion. (3) Lead Balanced fund also got enlisted in the SEC NAV Summary Report for the first time in 2019. A product of Lead Asset Management, the fund is an Open-Ended Fund authorized and registered in Nigeria as a Unit Trust Scheme. Aimed at achieving capital appreciation by holding long-term positions in different asset classes and provide regular income streams for unit holders, Lead Balanced fund was valued at N475 million at the end of 2019, after making about N10.57 million in gains. Lead Asset management now manages 2 funds with combined AUM of N566 million (4) Legacy Money Market: Not wanting to be undone by other asset managers, First City Asset Management launched its Legacy Money Market fund, to bring the funds under its management to 4, and total asset under its management to N20.5 billion. (5) Growth & Development Asset Management Limited also debuted in the Nigerian mutual fund industry with its GDL Money market fund, an open-ended mutual fund that invests in a broadly diversified portfolio of short-term, high quality money market securities such as Treasury Bills, Commercial Papers, Bankers Acceptances and Certificate of Deposits issued by rated banks in Nigeria. With that, Growth & Development Asset Management Limited, GDL, gets set to make its mark in the industry with its current AUM of N896 million. (6) FSDH Treasury Bill Fund: 2019 saw what could be known as Nigeria’s first and only Treasury Bill fund, with the launch of FSDH Treasury Bill Fund by FSDH Asset Management. Though a money market fund by its characteristics, the FSDH Treasury Bill Fund “provides investors with the opportunity to invest in a range of Treasury Bills across different tenors” in Nigeria. That brings the number of funds being managed by FSDH Asset Management to 4 and its total asset under management stood at N44 billion as at the end of 2019. Conclusion: There is no doubt that the Nigerian mutual fund environment is still evolving and a fertile ground for innovation and product development. A lot of progress has been made, and a lot more needs to be made. One area that is yearning for attention is the area of fund of funds. We are watching to see who launches the first fund of funds in Nigeria.

Mallam Nasir El-Rufai

So, many knew it was only a matter of time before someone had the guts to lay hands on the retirement savings of Nigerians. That came in December 2019, when the National Economic Council announced that it would be borrowing from the pension asset. The reactions that trailed it were not unexpected. A part of those reactions included a poll by a civic organisation, BudgIT where people literally shouted at the government to stay away from their retirement savings.

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But of course, that would not be, as the council met again last week and decided that the plan to borrow N2 trillion from the pension asset had been perfected. According to Kaduna State Governor, Mallam Nasir El Rufai, who announced this to newsmen, the money would be invested in the construction and maintenance of road infrastructure, rail, and power.

El Rufai further argued that there is no cause for alarm in the borrowing of the pension fund as a significant portion of the fund belongs to workers in their 30s, who wouldn’t be needing the money in the next decade or two. He cited such sovereign nations that had used its pension assets to bolster its infrastructure to include South Africa and Russia, saying Nigeria could do the same.

These seem like a fair argument but the challenge this government faces, like the ones before it, is that the people do not trust it. For a government that has demonstrated its ingenuity in the mismanagement of resources and continues to borrow and borrow, many do not seem to understand how it would be able to manage this differently and payback promptly. The fear that the borrowed fund will be pilfered, turned into just another cookie jar, is not also unfounded as the government is neither reputed for its accountability.

[READ MORE: Nigeria’s Pension Asset increased by N228 billion in October)

Meanwhile, those who argue that whatever the government decides to do with the borrowed fund would be better than letting it sit idle should be reminded that trillions of naira of the pension asset are already in government debt, as part of investments into government securities. This approach has been considered the safest as opposed to direct deduction from the fund.

More so, Governor El Rufai should be reminded that the demographics he referenced have made only a little contribution to the pension asset. A huge percentage of young Nigerians in their early 30s have not had their first job, post-graduation, at least in the formal sector where pension contribution is mandatory. So, those who argue that the pension fund belongs to young people should have a rethink.

Another sad part is that there is no guarantee that the government will not come for more of the pension fund once it is able to lay hands on this successfully. That would automatically trigger a tale of how Nigeria’s pension asset was ballooning and running smoothly until the government decided to borrow from it. No Nigerian deserves such a story in his old age.

The truth that this government has refused to admit, is that it has a worsening revenue crisis.

Now, Nigeria’s revenue crisis is worsened by growing recurrent expenditure, debt service of 70% of revenue and growing revenue shortfalls. And with debt up to its throat within a short period, tinkering with the citizens’ retirement savings won’t offer much relief either. Instead, it could resolve this crisis by a conscious effort to shrink the size of the government to reduce its staggering overheads, while letting in more participation of the government.

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One will wonder if this move replaces the controversial plan to borrow $29.9 billion which the government is seeking approval from the senate. If it is not, then Nigerians should brace up for a heavily debt-laden and unpalatable future.

President Buhari may sign 2020 Budget tomorrow, President Buhari approves N37 billion for National Assembly renovation, President Buhari appoints Sarki Auwalu to head DPR , Economy: Reviewing FG’s 2019 revenue performance, Nigeria, and other African markets top destination for investments in 2020

However, one would also argue that if the government has decided that the pension fund should be invested outside the safe havens of bonds and treasury bills, it should do well to extend a portion of the fund to Venture Capital firms to invest in Nigeria’s bourgeoning technology space.

[READ ALSO: Pension asset increases to N9.33 trillion – PenCom)

The technology ecosystem in Nigeria attracted approximately $663.24 million, and about N239 billion-naira investment in 2019. The analysis shows that more than 80% of this capital is foreign. This means that the country is building a generation of enterprises that could dominate the economy in the next decade on foreign capital. The government can use this opportunity to tap into the industry by creating an investment vehicle using a portion of the pension fund (they could start with N500 billion naira), allowing VCs in Nigeria to invest in several viable technology start-ups across Africa. Imagine the impact that could have.

Beyond initiatives such as this, borrowing money from the pension fund equals to treating it as just another cookie jar. Nigerians don’t deserve that.

 

Jonah Nwokpoku is a financial journalist and the publisher of an online newspaper, Nigeria Today News.

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2 Comments

2 Comments

  1. Ose

    January 30, 2020 at 10:45 am

    There is no reason that justifies direct borrowing of pension funds by the federal government. For sake of emphasis, the bulk of pension fund is being invested in government securities. This is an indirect borrowing and utilization of pension funds by the government. It amounts to oppression of the masses to dip into funds contributed by hardworking individuals without their consent.

    Also, if government need funds, they should cut down on the cost of running the government. A 50% reduction in legislators’ allowances across the federal and state level will free-up tangible funds to be used for other developmental projects.

  2. Trouble

    February 4, 2020 at 8:37 am

    Government has no moral grounds for borrowing from pension funds when pensioners are not paid their entitlements. Many pensioners die without collecting a kobo from their pension funds because of flimsy excuses from the pension fund administrators . Nobody is looking into the plight of pensioners. Please leave the pensioners funds alone. Those who want to borrow from the funds did not contribute to it.

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Strong performance from Stanbic IBTC, despite weak retail banking position

Will Stanbic IBTC be able to generate profit from its personal banking division by full year? 

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Stanbic IBTC made a profit after tax of N45.2billion, growing its profit by 24.7% when compared with this period last year.

The feat is remarkable; given that majority of financial institutions responded as expected to the economic downturn triggered by inflationary pressures, oil price instability, and lack of notable business activities, necessitated by the corona-virus pandemic that has characterised the 2020 business calendar year.

These other organizations reflected positions worse off than their escapades in 2019. In cases where improvements in bottom-line were seen, it was only marginal. 

READ: STANBIC IBTC posts Profit After Tax of N45.2 billion in H1 2020

Stanbic IBTC was not exempted from these economic trials, their immensely diversified business portfolio boosted their numbers on multiple fronts. Robust presence in Asset Management paid off, as commissions and fees represented a massive 62% of general fees and commission income. It’s Corporate and Investment division continues to produce astoundingly, contributing the highest and growing profit after tax of 49.2%. 

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This focused and efficiently monitored diversification, is turning Stanbic IBTC into world-beaters, reflecting in the expansion of its gross earnings by 7.8%, from N117.4billion in HY’2019 to N126.6billion so far this year.

This position could have appeared even better; had STANBIC been able to demonstrate in its personal and business banking segment, the same excellence, noticeable in its other business segments (Wealth, Corporate and  Investment).  

READ: Jaiz Bank: First shared-profit bank in Nigeria approaches 10 years

It’s Personal banking (generally regarded as Retail banking), encompasses the provision of banking and financial services to individual customers and SME’s (Small and Medium scale enterprises), mortgage lending, leases, card products, transactional and lending activities such as telephone banking, ATM’s, etc. The segment suffered this year, closing with a loss of N3.2billion, despite being responsible for over 58.4% of general staff costs. This poor position was sponsored by a reduction in income levels, especially non-interest income from fees and commission.

Unsurprisingly, given CBN’s policy at the start of the year to implement a much-reduced transfer fee rate, an increase in Non-performing loans is another causal factor for its loss this half-year. STANBIC cannot afford to bask in the euphoria of the massive successes of its Wealth and Corporate segment, at the expense of Retail banking.

READ: Zenith Bank blows past Access Bank as customer deposits cross N4 trillion

Retail banking is fundamental to any bank looking to be a force, or preserve its going-concern status in this critically competitive economic environment. It has been the subject of immense research in the last decade, with many banks devising strategies to acquire a large chunk of the market share in this business segment. The banking landscape is evolving amidst growing competition, such that a bank that generally does well in its retail banking segmentis perceived as strong by the public. This has an underrated capacity to effortlessly attract more customers. Banks need to revisit the drawing board and re-embrace their sacred purpose of serving the basic and pure needs of their individual customers. 

Michael Lafferty, Chairman of the Lafferty Group, whilst describing Retail banking said, Retail banking is the foundation on which global banks are built,” It is a vast retail and consumer banking market, pointing out that the world’s biggest banks built their financial empire from the mass market. 

READ: Foreign investment inflow into banking sector falls by 95% in Q2 2020

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Stanbic IBTC must be conscious in its quest to provide universal banking and find a balance in product and service offerings across its business segment. 

A summary of the performance parameters in its financial statementshows growth in gross earnings, from N117.4billion to N126.6billionand improvement in earnings per share from 342kobo to 419kobo. 

Attention now shifts to the impact of the bank’s new super app, supposedly a one-stop-shop for its diverse offerings, including banking, investing, pensions, trading, and insurance, and how it affects the bottom line in subsequent quarters.  

Explore the Nairametrics Research Website for Economic and Financial Data

Lastly, will Stanbic IBTC be able to generate profit from its personal banking division by full year We await their H2’2020 results. 

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Is Zenith Bank thriving on the strength of sound financial indices?

Zenith Bank posts N103.8bn profit in half-year financial result.

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Zenith Bank reaffirms market dominance and leadership with Q3 2019 results, Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc, Zenith Bank reports 7.9% profit increase for full-year 2019

Sound financial indices have made Zenith Bank one of the largest banks in the Nigerian banking Industry. It was recognized as the Most Valuable Banking Brand in Nigeria 2019, in the Global Banker magazine Top 500 Banking brands; and Best Commercial Bank in Nigeria 2019, by the World Finance.

Zenith Bank has successfully bolstered this narrative even further with the release of its Half Year 2020 Financial Report, where it closed with a profit of N103.8 billion.

Growing profit position in these perilous times, speaks remarkably of the suppleness and elasticity of any establishment. A lull in economic activity caused by inflationary pressures, precariousness of the market, and the coronavirus pandemic has forced most Deposit Money Banks (DMBs) to cave in, and reveal achievements worse off than their 2019 results y/y – but not Zenith Bank Plc. The institution has showcased beyond reasonable doubt, that the apparent limitations are incapable of distorting its active growth pattern.

Zenith Bank closed H1 2020, 16.8% better off than it did in 2019 y/y, in terms of profit after tax. Although this massive leap, hugely resulting from tax paid as profit before tax, noted just a 2.2% growth. Further analysis of its HY’2020 results, demonstrates more efficiency, a focused cost of fund optimization, and an aggressiveness in generating income across its business heads and segments. This strategy had begun since 2018, and was shared by the bank when it disclosed planned implementation of an improved core banking system, hoping it would ultimately enhance efficiency while reducing costs.

Zenith Bank has thrived on the strength of its sound business model, corporate governance, conservative risk management, and strategic corporate social investment. The bank has been very forceful in the market, improving massively across all of its income generating segments, despite the plausible and obvious hindrances. This is a testament to its superiority, and sponsors its claim for supremacy.

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The bank made N22billion from foreign exchange revaluation gains and despite evidence to the contrary, it endeavored in operating expenditure (OPEX). OPEX may have grown by 7.7%, but disclosures and note to the accounts shows that in virtually every expense head, costs dropped. The 7.7% was triggered majorly by Information Technology related costs, fuel and maintenance, and an increase in the compulsory banking cost fund, set up for the Asset Management Company of Nigeria (AMCON) by the CBN.

Now, like every hero susceptible to their hubris, Zenith has its own problems, which questions its position at the top. Yes, the bank may have an amazing and constantly improving interest expense to interest income ratio, but it does not possess the finest result in this regard as of yet. HY 2019 interest expense took as much as 33.6% of its income, while HY 2020 dropped to 27.4%. This is good, but still considerably high, if we carry out a peer-to-peer analysis with Guarantee Trust Bank Plc (masters of low-interest expenses), whose ratio stands at 16% for HY 2020.

However, Zenith has sustained the momentum of positioning itself as the crème de la crème in the Nigerian Banking Industry for quite some time. The bank’s pattern of growth and performance, strongly indicates its capabilities to manage its interest expense in subsequent quarters. It will be interesting to see how this pans out by year end.

In summary, despite economic difficulties this year, with most bank’s bottom-line at a worse position than the corresponding period last year, Zenith posted improved profit yet again. Could this be enough to portray supremacy?

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UBA Plc H1’2020 results, a true reflection of its rightsizing decision? 

UBA’s H1 2020 result is yet another demonstration of the resilience of its business model.

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UBA

The upward review in benefits of some employees and directors this year, coupled with the rising operational costs, constitutes the hot topics from the 2020 semi-annual results released by UBA Plc. 

Widely regarded as the banking sector’s largest employer of labour in Nigeria, the bank in December 2019, embarked on a ‘rightsizing’ exercise, which partly resulted in new hires, as well as promotions, improved remunerations, and benefits for existing employees.

READ: Zenith Bank’s Profit After Tax in H1,2020 rises by 16.8% to N103.8 billion

The Group Head, Media and External Relations, UBA Plc, Nasir Ramon commenting on this said, over 5000 staff of UBA Plc, started the new year with a lot of cheer, as the bank promoted to new grades, coupled with salary upgrades. Beneficiaries of this exercise will receive up to 170% increase in their salaries and benefits, whilst a good number have been moved to higher grade levels.” 

Directors saw their emoluments amplify by 177.7% (Fees and Sitting allowances) as demonstrated in the financial statements of the bank. Rising to N50million in June 2020, from N18million in 2019 y/y. 

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READ: Access Bank posts Profit Before Tax of N74.31 billion in H1 2020

Now, Deposit Money Banks (DMB’s) might be adjudged to be honorable in all of their objectives, but the truth is they are neither self-sacrificing nor are they expected to be. DMB’s are established for profit, and would incessantly prioritize business good sense over social empathy, for the sake of their owners The import of this is, UBA Plc expects its colossal investments in employees and directors to overwhelmingly reflect in its bottom-line. 

Half-year 2020 results is clearly not in sync with this philosophy, as it reflects a weakened position compared to the corresponding period last year, despite the investments in human capitalProfit before tax dropped by 18.7%, from N70.3billion recorded in HY’2019 to N57.1billion in the current period. Profit after tax waned as well by 21.7% to N44.4billion from N56.7billion in HY’2019. 

READ: Are tech talents Africa’s ‘new export’?

Interestingly enough, the top-line fared pretty well. Interest income and fee income showed improvements, albeit marginally by 0.3% and 6.7% respectively. This makes it illogical to attribute the entirety of the decline in profit to the recent austerity measures put in place by the CBN, reducing funds transfer fees and card maintenance charges 

The Coronavirus pandemic played a big role too, by widely stunting the economy in the second quarter of 2020, and negatively impacting profit. But even these do not provide substantial and sufficient convictions as to why the Tier-one bank did not hit the profit-bar it set for itself, from its truly emphatic 2019 financial year. Does this mean that UBA Plc got the decision wrong at the start of the year? 

READ: FUGAZ; Nigerian banks considered too big to fail

Six months seem too short a period to immediately class management’s decision to jack up the benefits and emoluments of its internal customers as a failed one. Although, no one anticipated the travails of COVID-19 and its resulting consequences, investments in human capital is widely proven to yield tremendous growth in the long haul. Besides the fact that it has given UBA Plc a solid reputation in the market place, it also makes the company very attractive to the very best of industry talents. Furthermore, employee engagements of this nature, foster brand loyalty which ultimately trickles down to how passionately these personnel undertake their tasks and deliverables. The true bearing of this investment is expected to reflect in due course, in subsequent quarters.  

Commenting on the result, UBA’s Group Managing Director/Chief Executive Officer, Mr Kennedy Uzoka said, “Our H1 2020 results is yet another demonstration of the resilience of our business model in an extremely uncertain and tough operating environment. We recorded commendable growth in our underlying business in terms of customer acquisition, transaction volumes, and balance sheet whilst inflation, depressed yield environment and exchange rate volatility impacted our net earnings as anticipated.” 

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READ: GTBank, Access Bank, 11 others pay workers N271.64 billion in H1 2020

Rising cost

In today’s increasingly aggressive marketplace, where consistently generating revenue, is paramount to preserving the longevity and going-concern status of any establishments, costs must also be accorded as much attention and significance. Tightening and managing costs with the aim to improve and generate profit is genius strategy especially in today’s banking industry. The banking industry is under threat from ruthless competitions. Multifarious streams that had hitherto been available for generating income for DMB’s are being severely hindered by the ‘austere’ policies (from the perspective of commercial banks) from the apex bank, making effective cost management a survival mechanism. 

Explore the Nairametrics Research Website for Economic and Financial Data

Employee benefits rose by 20% from N37.2billion in HY’2019 to N44.6billion in HY’2020, while Directors’ emoluments (Fees and Sitting Allowance) as earlier stated, surged by 177% from N18million in 2019 to N50million in 2020 y/y. The total operating expenses increased 22.6% in 2020UBA Plc, unavoidably expended N22.4billion on Banking Sector Resolution cost trust fund, in compliance with the CBN’s requirement to contribute to the cause of the Asset Management Company of Nigeria (AMCON). Security and other payments for core services experienced increase as well compared to the preceding year. 

Avoidable expenses like Penalties and Premises Maintenance Charge, should be extensively reviewed and extinguished wherever possible, to improve bottom line. UBA plc has forked out N565million in penalties so far in 2020representing 6177.7% increase from just N9million in 2019 y/y. This is a prime example of the operational brick walls, UBA Plc must properly address to improve its fortunes in subsequent quarters. 

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