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Business News

Nigerian banks face gloomy future over low oil prices, coronavirus

The crash in crude oil prices globally and the coronavirus pandemic appear to have negative effects on the Nigerian banking industry.

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The crash in the prices of crude oil across the globe and the coronavirus pandemic appear to have negative effects on the Nigerian banking industry. Crude oil is the biggest source of inflow in the country, as it represents over 90% of the country’s foreign exchange earnings, with over 60% of government revenue.

Although the oil sector makes 9% contribution to the GDP, it is an important facilitator of economic activity and a leading indicator for the non-oil sector. In Nigeria, the oil sector is a major source of liquidity, so a sharp decrease in oil revenue leads to negative growth in GDP.

The coronavirus pandemic has also led to major lockdown and restrictions around the world as governments look for measures to contain the disease.

The banking industry is not immune to the negative impact of low crude oil prices and the coronavirus disease. The crude oil price slump and the global disruptions as a result of the coronavirus pandemic will negatively affect the credit profile of Nigerian banks.

[READ MORE: Nigerian banks broadly positive after Naira devaluation)

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According to Fitch Ratings report, the asset quality deterioration, which is linked to high exposures to the oil and gas sector, is the biggest threat to ratings, and the operating environment risks inevitably increase in Nigeria when oil prices fall.

Naira under pressure, as crude oil hits $25 per barrel

Experts have always suggested that a declining oil revenue might lead to further currency devaluation and thereby increasing the risk of a recession. Operating environment risks are compounded by economic and financial market disruption amid measures to counter the pandemic, putting pressure on all borrowers.

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The low oil prices can affect the repayment of credit facilities granted to players in the oil and gas sector. It can even affect some players, especially the SMEs and some others in the non-oil sector.

In a bid to cushion the negative impact of the low oil prices and the coronavirus pandemic, the Central Bank of Nigeria (CBN) announced some measures that would help provide relief to businesses and households, as well as help the flow of credit into the economy.

The asset quality of Nigerian banks can deteriorate significantly depending on the duration and severity of the oil price shock and coronavirus turmoil.

Fitch recently downgraded three Nigerian banks’ Long-Term Issuer Default Ratings (IDRs) to ‘B’ from ‘B+’ and placed all 10 Nigerian banks’ Viability Ratings and IDRs on Rating Watch Negative. This reflects the expectation that banks will be under pressure due to the weaker operating environment in the coming months.

Loans and advances in the oil and gas sector constituted about 30% of the total risk assets in the industry as at the end of September 2019. A look at trends in 2008-2009 and 2015-2016, when the country was faced with similar circumstance of low oil prices, showed an increase in Non-Performing Loans (NPL).

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These NPLs seem to decrease at the time of rising oil prices due to mostly recoveries.

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[READ ALSO: Nigerian Banks reduce dollar spending limits as forex scarcity rises)

In addition, the increase in risk assets is aided by the increase of Loan to Deposit Ratio (LDR) to 65% by the CBN. In order to meet up with the deadline, the Nigerian lenders had to lend money to some high risk sectors, thereby exposing them further to weak risk asset quality.

Devaluation also affects SMEsparticularly in the manufacturing and services sectors given Nigeria’s dependence on imports for raw materials and finished goods. However, the direct impact of devaluation on banks’ regulatory capital is mitigated by their net long foreign-currency positions.

The Fitch report expects an increase in restructured loan to 25%-30% of the total loan portfolio by 2020-2021 as the banks extend tenors and cut interest rates to help the borrowers.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Financial Services

CBN grants Mortgage Refinancing Companies approval to refinance Non-member banks

The CBN has expanded access to mortgage financing by removing restrictions on refinancing mortgages earlier imposed.

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The Central Bank of Nigeria (CBN), has granted approval to Mortgage Refinancing Companies (MRC), to re-finance non-member banks.

This is contained in a circular referenced FPR/DIR/GEN/CIR/07/056 and signed by Ibrahim Tukur, the Director of Financial Policy and Regulation Department, CBN.

The circular improved on the earlier provisions contained in section 7.3.1.5 which states that “A mortgage refinance company (MRC) shall not, without the prior approval of the CBN, extend total outstanding credit to any single borrower, which is equal to or more than twenty times the value of the borrower’s shares with the MRC or 25 percent of its shareholders’ funds unimpaired by losses.”

(READ MORE: Unity bank wants to be seen, but time is running low)

What this means

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Based on the provisions contained in the latest circular, MRCs are now free and legally permitted to refinance the qualifying mortgages of banks and all other non-members ( that do not hold equity), subject to meeting all other relevant requirements specified in the framework.

In a nutshell, the restriction on non-member mortgage lenders from refinancing their mortgages with MRCs has been removed.

Why this matters

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Prior to the provisions contained in the latest circular, CBN had expressed fears that provisions of section 7.3.1.5 negatively impacts the mortgages sub-sector, as it constrains the MRCS from refinancing the mortgages of non-shareholder banks. Therefore, the new order will help to remove the restrictions already highlighted.

In lieu of this, the latest circular stated that the provision of section 7.3.1 5 is hereby revised to “the MRC shall not, without prior approval of the CBN, extend total outstanding credit to any single borrower, which is equal to or more than 25 percent of its shareholders’ funds unimpaired by losses,” the circular reads.

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Business News

Nascon Allied Industries Plc: Increase in sale of goods boosts revenues

Nascon Allied Industries Plc recorded a boost from an increase in the sale of goods revenue-generating unit

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Nascon Allied Industries Plc recorded a boost from an increase in the sale of goods revenue-generating units, as total revenues increased slightly. The company reported revenues of N21.87 billion in 2020 (9months) – 4.01% increase compared to N21.03 billion in the corresponding period of 2019.

What you should know

Key highlights from 2020 (9months) results

  • Revenues increased by 4.01% from N21.03 billion to N21.87 billion YoY.
  • Revenues from sale of edible, refined, bulk grade salt; seasoning and vegetable oil, increased to N21.87 billion, +22.53% YoY.
  • Other income increased to N12.81 million, +27.43% YoY.
  • No revenue was recorded for freight income on the deliveries of salt and seasoning income-generating unit.
  • Gross profit increased to N8.96 billion, +74.56% YoY.
  • Operating profit increased to N3.64 billion +18.60% YoY.
  • Pre-tax profits increased to N3.47 billion, +16.63% YoY.
  • Post-tax profits increased to N2.29 billion, +13.27% YoY.
  • Earnings Per Share increased to 115 kobo, +12.75% YoY
  • Total assets increased to N44.36 billion, +45.79% YoY.
  • Total liabilities increased to N32.04 billion, +67.21% YoY.
  • Total equity increased to N12.32 billion, +9.35% YoY.

(READ MORE:Dangote’s NASCON Allied Industries Plc moves operation from Apapa)

Bottomline

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Nascon Allied Industries Plc recorded a boost from increase in sale of goods revenue-generating unit, but no revenue was recorded for its freight income on the deliveries of salt and seasoning revenue generating-unit.

Though companies have generally recorded decreased revenues in the last three quarters, mostly due to COVID-19; Nascon Allied Industries Plc was able to increase its total revenues and pre-tax profits in the period under consideration.

 

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Tech News

Instagram disables its “Recent” feature

Instagram recently announced it had removed the “recent” tab from hashtag pages on a temporary basis

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COVID-19: Instagram cracks down on coronavirus AR effects, Instagram Tenders apology for fagging #EndSARS fake, Instagram has disabled the “Recent” feature for the forthcoming U.S election,

Instagram disclosed that it would remove the “Recent” tab from its hashtag pages for people in the United States of America.

The social networking and video sharing service stated this on its official Twitter handle. It said it is “doing this to reduce the real-time spread of potentially harmful content that could pop up around the election.”

What you should know

Nairametrics had reported on Instagram’s apology for its algorithm malfunction that led to the flagging of #EndSARS posts as fake.

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Instagram has also taken the following measures to ensure a successful November election.

  • The registration of 4.4 million votes this year through its flagship platform – Instagram and Messenger.
  • Serving as a means of information and tool to people in the US on the electoral process
  • The ban of any content that can thwart the success of the election.

(READ MORE:U.S dollar stable amid U.S holiday)

Mark Zuckerberg, the CEO of Facebook, said he was perturbed about the high risks for civil unrest in the US due to the upcoming presidential election.

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“I’m worried that with our nation so divided and election results potentially taking days or weeks to be finalized, there is a risk of civil unrest across the country.”

Furthermore, he disclosed on a call while discussing Facebook’s Q3 earnings, that “given this, companies like ours need to go well beyond what we’ve done before.”

Why this matters

The aim of the short-term decision is to decrease the spread of misinformation in the forthcoming US election.

 

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