Investors court rapid growth and often reward this with lofty valuations. In the banking sector where maturity in business is prevalent, growth in loans and advance, investments and profits are hugely rewarded. But growth does come at a cost.
A recent report from the Nigerian based consulting outfit Augusto Consulting believes Nigerian Banks may have no choice but to raise significant equity in 2020. The founder of the firm, Bode Augusto made this submission in a paper delivered via Zoom and titled Impact of COVID-19 on the Nigerian Economy.
According to the report, banks are expected to have a net asset to total assets ratio of at least 12.5% considering the effect of the crash in crude oil prices and the impact of COVID-19. Net Assets to Total Assets ratio is basically a bank’s total equity as a percentage of its total assets. Its total assets will include loans and advances, investments, fixed assets, cash etc.
“Based on the benchmark we believe some players in the industry should raise capital” the report noted. The report also noted that were banks to raise capital today, they will have to “offer shares to the public at huge discounts” in view of the sell-offs on the Nigerian Stock Exchange.
What this means: According to the report Nigerian Banks currently have on average 12.2% net assets to total assets ratio and estimate the ratio to be 11.5% in 2020. Typically, a commercial bank’s financial strength is measured using a term called the Capital Adequacy Ratio (CAR).
However, the so-called “crude measure”, which is also acceptable as Augusto Consulting explained, is a sign of how strong a bank is in the event that its assets start to deteriorate if its borrowers’ default on repayment of loans. The Central Bank assigns a Capital Adequacy Ratio of 15% for Nigerian banks
Banks in focus – So which banks fall within this bracket? According to data from Nairalytics, the research arm of Nairametrics, some banks fall below the 12.2% ratio and thus may be under pressure to recapitalize according to the Augusto Reports. Some banks, however, seem to be comfortably above the benchmark. First is GT Bank with about 19.5% as of December 2019.
Stanbic IBTC also has a ratio of about 17% while Zenith Bank and Union Bank is at 15.7% and 15.1% respectively. For the other banks, they are either hoovering within the level or very much below.
The upshot: The implication of this recommendation by Augusto Consulting is that banks below this threshold may have to raise capital this year. With most banking stock market currently just above historical lows, it is unlikely that banks will want to raise capital at these price levels which is why the report proposed that in its stead, the CBN should increase Cash Reserve Requirements “CRR” so banks can book more profits while also advocating for a dividend freeze. Whilst this is in view, it is still quite plausible that some banks may need to raise capital.
Whatever decision they do will have a significant impact on their share price and investors should be guided accordingly.
FG discusses nation’s carrier, Nigeria Air with US Ambassador
The FG has held a discussion with the US government over the establishment of a national carrier for Nigeria.
The federal government has held a discussion with the government of the United States of America over the establishment of a national carrier for Nigeria.
This was disclosed by the Minister of Aviation, Hadi Sirika via his Twitter handle after he held a discussion with the Ambassador at the United States Embassy in Abuja.
He tweeted, “We took the opportunity to discuss investments and opportunities in the aviation sector, including national carrier. The partnership looks promising. USA is the only country we have open skies with. Thanks, Ambassador Mary and the team.”
What you should know
In July 2018, the Federal Government unveiled the branding and livery for the new airline, Nigeria Air, and stated that the carrier would be inaugurated at the end of that year.
Sirika unveiled the carrier at a press conference during the Farnborough Air Show in London that year.
“I am very pleased to tell you that we are finally on track to launching a new national flag carrier for our country, Nigeria Air. We are all fully committed to fulfilling the campaign promise made by our President, Muhammadu Buhari, in 2015. We are aiming to launch Nigeria Air by the end of this year,” the minister had said.
He also stated that the government had obtained the Certificate of Compliance from the Nigerian Infrastructure Concession Regulatory Commission and would go into investor search.
SERAP asks Buhari to probe N39.5 billion duplicated, mysterious projects
SERAP has asked President Muhammadu Buhari to probe the reported N39.5 billion duplicated and mysterious projects inserted in the 2021 budget.
Socio-Economic Rights and Accountability Project (SERAP) has asked President Muhammadu Buhari to probe the reported N39.5 billion duplicated and mysterious projects inserted in the 2021 budget.
This is to know if public funds have been diverted in the guise of implementing the projects and prosecute those allegedly involved including those from the executive and the National Assembly.
The request from SERAP follows a report from BudgiT last week, where they alleged that there are 316 duplicated capital projects worth N139.5 billion in the 2021 budget.
This disclosure is contained in a public statement issued by SERAP on Sunday, May 9, 2021, and can be seen on its website.
SERAP said that the investigation of the alleged duplicated and mysterious projects, which are part of the 2021 appropriation bill of N13.588 trillion, should establish whether public funds have been mismanaged, diverted or stolen in the guise of implementing these projects.
What SERAP is saying in its letter
In the letter dated 8th May 2021 and signed by SERAP, Deputy Director, Kolawole Oluwadare said: “The misallocation of public funds for duplicated and mysterious projects has seriously undermined the ability of the indicted MDAs, and the government to ensure respect for Nigerians’ human rights through developing and implementing well-thought-out policies, plans, and budgets.”
The letter from SERAP partly reads, “BudgIT had in a report last week stated that there are 316 duplicated capital projects worth N39.5 billion in the 2021 budget. The duplicated and mysterious projects are contained in the 2021 appropriation bill of N13.588 trillion signed into law in December 2020.”
These damning revelations suggest a grave violation of the public trust, and Nigerians’ rights to education, health, water, sanitation, and clean and satisfactory environment because the indicted MDAs have misallocated public funds at the expense of the people’s access to basic public services, and enjoyment of rights.”
SERAP urges you to ask the heads of the MDAs involved to explain why they allegedly failed to ensure strict compliance with constitutional and international standards of transparency and accountability in the preparation, processes and decisions on their budgets, and to return any misallocated public funds to the public treasury.”
Investigating and prosecuting any allegations of mismanagement, diversion and stealing of public funds budgeted for the 316 duplicated and mysterious projects would allow your government to use the budget to effectively promote Nigerians’ access to essential public goods and services.”
Publishing the ‘implementation status’ of the duplicated and mysterious projects would allow Nigerians to hold their government to account in the spending of public funds. This is particularly true for marginalized and excluded groups, such as people living in poverty, women, children, and persons with disabilities, as the budget has a disproportionate impact on their welfare.”
We would be grateful if the recommended measures are taken within 14 days of the receipt and/or publication of this letter. If we have not heard from you by then, the Incorporated Trustees of SERAP shall take all appropriate legal actions to compel your government to comply with our request in the public interest.”
SERAP also urges you to direct Mrs Zainab Ahmed, Minister of Finance Budget and National Planning to publish full details of current ‘implementation status’ of the duplicated and mysterious projects, and any spending on the projects to date, including the 115 projects inserted in the budget of the Ministry of Health; the 23 projects inserted in the budget of the Ministry of Education, and 10 projects inserted in the budget of the Ministry of Water Resources.
The following ministries are reportedly involved in the duplicated and mysterious projects: Ministry of Health with 115 projects; Ministry of Information and Culture with 40 projects; Ministry of Agriculture and Rural Development with 25 projects; Ministry of Education with 23 projects; Ministry of Transportation with 17 projects; and Ministry of Science and Technology with 17 projects.”
Others are the Ministry of Environment with 13 projects; Ministry of Power with 11 projects; Ministry of Labour and Employment with 11 projects, and Ministry of Water Resources with 10 projects.”
The letter was copied to Mr Malami; Professor Bolaji Owasanoye, Chairman Independent Corrupt Practices and Other Related Offences Commission (ICPC); Mr Abdulrasheed Bawa, Chairman, Economic and Financial Crimes Commission (EFCC); and Mrs Ahmed, the Finance Minister.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- Okomu Oil proposes dividend worth N6.7 billion for shareholders.
- Ardova Plc confirms appointment of Oladeinde Nelson-Cole as secretary.
- Cadbury Nigeria Plc set to hold 56th Annual General Meeting (AGM) on June 16.
- FCMB Group Plc appoints Muibat Ijaiya as Director.
- Afromedia Plc reports a loss after tax of N27.3 million in Q1 2021.