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Nigerian banks broadly positive after Naira devaluation

The CBN recently adjusted the rate in the Investors and Exporters Foreign exchange window to N380/USD from the N364 to N370.

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Foreign exchange market, Nigeria’s fixed income & money market update ending 13th March, 2020, Why the s, CBNtrong dollar is giving Nigeria headache, Nigerian banks broadly positive after Naira devaluation

The Central Bank of Nigeria (CBN) recently adjusted the rate in the Investors and Exporters Foreign exchange window to N380/USD from the N364 to N370 range it had been trading for some time now, as portfolio outflows increased depreciation pressure on the currency given the material reduction in oil prices.

The currency was also trading at the N377 to N379 range in the parallel market, after reaching a high of N410 – N415 levels at the parallel market. Overall, moving forward, the FX devaluation of the naira will broadly be positive for some Nigerian banks assuming it does not result in further deterioration in the macros fundamentals of the Nigerian economy.

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Top tier 1 banks like Zenith Bank and Guaranty Trust Bank are likely to benefit the most from the recent development.

What it means to banks: Currency adjustment net-positive will likely earn foreign currency revaluation gains for Zenith Bank with its N698 billion net positive foreign currency balance sheet position.

Guaranty Trust Bank too with its N532 billion net positive foreign currency balance sheet position, First Bank of Nigeria’s N166 billion net positive foreign currency balance sheet position, and FCMB with N79 billion net positive foreign currency balance sheet position. These banks have more assets than liabilities in their foreign currency book.

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READ MORE: First Bank to redeem $450 million notes ahead of maturity date

The numbers also suggest that we are likely to see foreign currency losses in Access bank with N1.2 trillion net negative balance sheet position followed by UBA with N281 billion net negative balance sheet position and finally Fidelity Bank with N30 billion net negative balance sheet position.

Before now, GTBank and First Bank made the most foreign currency revaluation gains of N87.3 billion and N80.2 billion during the last currency devaluation in 2016, accounting for 59% and 48% of non-interest revenues respectively, and 21% and 14% of gross earnings respectively. At that time too, no bank reported FX revaluation losses.

From a balance sheet growth perspective, It’s observed that the highest adjustment in net loans and advances are GTB (3.2%), FBNH (3.2%), FCMB (3.2%) and Zenith (2.4%) when adjusting the foreign currency net loans to N380/USD from N360/USD based on their latest audited financial records released.

While on the customer deposit side, records show the highest adjustment in Zenith (4%), FCMB (4%), FBNH (3.9%) and Access (3.8%).

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Consequently, asset quality deterioration concerns could be minimal for now: while awaiting disclosure from banks on the foreign currency components of non-performing loans, it’s expected that 5.6% devaluation of the naira will result to a 5.6% deterioration in non-performing loans at a worst-case scenario, assuming that all the non-performing loans are in foreign currency.

[READ MORE: Naira depreciates to N410 per dollar as local currency weakens)

Furthermore, the continuous spread of COVID-19, its impact on the global economy and Nigeria remains a key risk to the banks currently, as company-specific issues take a back burner.

Nevertheless, Nigerian banks with resilient and robust balance sheet and high efficiency as it places them in a better position to weather the storm. Hence Guaranty Trust Bank and Zenith Bank remain on top as most likely to gain from the recent devaluation of the naira.

However a weaker naira also increases Nigerian banks’ risk-weighted assets related to their foreign currency loans, putting negative pressure on their capital metrics, but, the banks hold good capital buffers.

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Olumide Adesina a French-born Nigerian, is an Investment Professional at Nairametrics Financial Advocates, owners of Nairametrics.com. Olumide Adesina is a certified Investment trader, with more than 14 years of working experience. His work experience covers trading commodity derivatives and analysis of global equities, currencies, commodities, cryptocurrencies, and Fixed Income instruments. A member of the Chartered Financial Analyst Society. You can follow Olumide on twitter @tokunboadesina and email via olumide.adesina@nairametrics.com.

2 Comments

2 Comments

  1. Babafemi Adebayo

    April 1, 2020 at 12:10 pm

    Dear Olumide /Nairametrics team,

    Thanks once again for fhe beautifully researched and insightful write up. I have visited this blog almost every day for more than 4 years now and am always quick to refer and share your articles.

    Kindly shed some light on the components used in arriving at the foreign currency assets and liabilities. The article only identified fx loans on d asset side.

    What makes up the fx liabilities and what other fx assets are considered in arriving at the net position.

    I look forward to your feed back.

    Warm Regards.

    Babafemi Adebayo

  2. Yusuf

    April 22, 2020 at 7:09 pm

    Yahaya

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Economy & Politics

Output cut: Nigeria leads in OPEC non-compliance with 50 unsold cargoes of crude

Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

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Petroleum Industry Bill to be passed by mid-2020, says Sylva, FG discovers crude oil in north, says there’s more , OPEC, non-OPEC countries to meet as Saudi, Russia price war affects Nigeria’s budget, FG considers fuel price reduction, OPEC deal: Nigeria to generate additional $2.8 billion revenue as FG reacts

As opinions continue to differ on whether OPEC will extend its current oil output cut beyond June, available information has shown that not all members of the oil cartel complied fully with their agreed quotas for the month of May. This is despite the fact that the oil output by OPEC member countries reached its lowest in almost 20 years.

Available data from oilprice.com showed that OPEC members cut their output by 5.91 million barrels per day from the April level, producing 24.77 million barrels per day. This figure also showed a 4.48 million barrel per day of the agreed output cut, thereby representing a 74% compliance level.

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Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

Iraq was able to achieve just 38% compliance of its agreed output cut for the month of May, while Nigeria, which achieved a much lower compliance of the agreed output cut, recorded 19% compliance of what was agreed. Saudi Arabia showed the highest compliance, recording 96% of the agreed output cut.

Some have attributed the noncompliance of some members of OPEC to the agreed output cut, to the contractual obligations and commitment to buyers, given the short timeframe between when the agreement for the output cut was made and its implementation.

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Meanwhile oil exports from Angola and Congo remained steady at high prices on Friday, while Nigerian oil fared lower amid huge inventory of unsold cargoes.

Nigeria continues to face some difficulty in the oil market, primarily due to sluggish demand from Europe; it has around 50 unsold cargoes of crude oil yet to be sold for the months of June and July.

Meanwhile, India has become one of the few buyers for the Nigerian oil. Indian oil firms bought about 5-6 million barrels of Nigerian crude oil last week and has bought about 2 million barrels as at Thursday this week.

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Business News

President Muhammadu Buhari reshuffles NNPC’s board of directors

Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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President Muhammadu Buhari to address Nigerians on Monday, receives update and recommendations from PTF

President Muhammadu Buhari has approved the reconstitution of the board of the Nigerian National Petroleum Corporation (NNPC) after the expiration of the tenure of the current board.

The newly constituted board members are expected to serve for a tenure of three years, effective immediately. They will take over from the last board, whose 3-year tenure officially ended in 2019. Information about this development is contained in a State House press release that was published on the official twitter handle of the Nigerian Presidency on Saturday morning.

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READ ALSO: CBN and NIPOST open pilot microfinance branches

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The newly constituted NNPC board is made up of six members from each of the geo-political zones in the country. The members include the following individuals:

  • Mallam Mohammed Lawal, representing the North West
  • Dr Tajudeen Umar from North East
  • Adamu Mahmood  Attah from North Central
  • Senator Magnus Abe from the South-South
  • Dr Stephen Dike from the South East, and
  • Chief Pius Akinyelure from the South West geo-political

READ MORE: Boko Haram: A protracted battle yet to be won?  

Of the six members, three are returning members on the board – Chief Pius Akinyelure, Mallam Mohammed Lawal, and Dr Tajudeen Umar from North East.

Note that the constitution of the new board is considered a welcome development, as it balances the representation of the six geo-political zones on the board. The previous constitution of the board was faulted for not being “balanced”.

READ ALSO: Full text of President Muhammadu Buhari’s 58th Independence day broadcast

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Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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Around the World

Zoom’s market valuation hits $50 billion mark, thanks to COVID-19

Zoom’s share price now trades at an eye-watering 55 times estimated revenue compared with an average of 7 times for information technology stocks in the S&P 500, according to information obtained from Bloomberg.

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Zoom

Zoom Video Communications’ shares surged to record highs on Friday, as bullish runs in the last hours of trading helped the company to close with a market capitalization of more than $50 billion. The stock gained about 9.7% to jump to $179.48, thereby giving it a market value of $50.6 billion. 

Note that this is the first time Zoom’s valuation is reaching this high level since it became a quoted company. The tech giant, which owns popular video conferencing software “Zoom”,  has gained more than 160% this year. This is because investors are betting that the surge in Zoom users amid the COVID-19 pandemic, would eventually translate to long-lasting revenue growth.

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READ ALSO: How VCs are encouraging terrible business practices by founders

Zoom’s share price now trades at an eye-watering 55 times estimated revenue compared with an average of 7 times for information technology stocks in the S&P 500, according to information obtained from Bloomberg.

Following the significant jump in the company’s valuation, the net worth of its founder and Chief Executive Officer, Eric Yuan, also rose significantly by more than $800 million on Friday. He now has a net worth of $9.3 billion, according to the Bloomberg Billionaires Index. 

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Meanwhile, in reaction to Zoom’s overnight success, Gennie Gebhart, a researcher with the Electronic Frontier Foundation, said she hoped Zoom would change course and offer protected video more widely. It should be recalled that some users of the app had raised security concerns back in April, as Nairametrics reported

READ ALSO: Did Satoshi Nakamoto cause the panic sell-off in Bitcoin market

Meanwhile, Zoom has recruited Alex Stamos, a former chief security officer at Facebook, and other top security experts to help deal with the security issues which led to some top companies banning its use. While discussing efforts being made to deal with the security challenges, Stamos told Reuters:

 “At the same time that Zoom is trying to improve security, they are also significantly upgrading their trust and safety. The CEO is looking at different arguments. The current plan is paid customers plus enterprise accounts where the company knows who they are.” 

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