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Report identifies banks expected to raise equity after COVID-19 flattens

Nigerian Banks may have no choice but to raise significant equity in 2020.

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net interest income, Nigerian Banks, Fitch, Nigerian banks tremble over Cyber attack, Most Nigerian banks are very likely to fail stress tests should the economic downturn persists and deepens

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.

READ ALSO: CBN says Nigerian banks’ assets and liabilities are now at N41.42 trillion

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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.

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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.

READ MORE: Is the CBN really forcing Nigerian banks to lend?

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.

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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.

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Corporate Press Releases

elev8 launches new Nigeria Academy, to host event series on Nigeria’s digital future

The event will bring together experts in business, digital technology and economic development to amplify Nigeria’s digital dialogue.

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Global technology training company elev8 is delighted to announce the launch of its new academy in Lagos with a series of online events focused on digital transformation in Nigeria.

The Knowledge-based Economy – A Pathway to Nigeria’s Digitally Enabled Future is an opportunity for business leaders to participate in Nigeria’s digital dialogue with industry experts, technology trailblazers and government leaders.

C-suite executives and digital leaders across the country are invited to join elev8 for a special series of events exploring the impact of new technologies and digitalization, as well as the potential risks to economic growth, such as Covid-19.

Digital enablement is increasingly becoming a hot topic for global businesses. In the next few years, the digital economy is projected to be responsible for a quarter of global GDP.

Across the world, businesses are accelerating digital adoption to establish a competitive edge, drive growth and ensure efficiency. For Nigeria to compete on the world stage, investment in new technologies and skills is essential in supporting a transition to a knowledge-based economy.

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Digital Event: The Knowledge-based Economy – A Pathway to Nigeria’s Digitally Enabled Future

30 November – 3 December

The event will commence with the release of a cutting-edge research report on November 30. Produced in conjunction with BusinessDay Research and Intelligence Unit.

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The report examines the impact of digital transformation on Nigeria’s economic growth over the next three years.

On December 1, participants will gain valuable insight on the digital strategies and tactics deployed by leading market players in an exclusive masterclass, Digitize or Die, hosted by award-winning technology and digital innovator, Sabine VanderLinden.

The event will close on Thursday, December 3 with a live digital dialogue, featuring an expert panel of digital specialists, government figures, and business leaders, looking at the ways that digitization will impact Nigeria’s economic development.

To find out more, or register for the event, please visit: www.elev8me.com/nigeria20

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Companies

ValuAlliance distributes value fund of N10 per unit for H1, 2020

ValuAlliance Value Fund has declared the distribution to unit holders, the sum of N10.00/unit for the financial year ended June 30, 2020. 

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ValuAlliance distributes value fund of N10 per unit for H1, 2020

ValuAlliance Value Fund (“Value Fund” or the “Fund”), formerly called the SIM Capital Alliance Value Fund, has declared the distribution to unit holders, the sum of N10.00/unit for the financial year ended June 30, 2020.

This is according to a notification by the firm, sent to the Nigerian Stock Exchange market and seen by Nairametrics.

The latest distribution indicates a decline of N1/unit when compared to its distribution in the corresponding period last year.

READ MORE: SEC reinstates DEAP Capital’s Board

The key highlights of the recent notification include:

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  • Annual General Meeting Date: 21st December 2020
  • AGM Venue: 33A Alfred Rewane (Kingsway) Road, Ikoyi, Lagos, Nigeria
  • Proposed Distribution: ₦10/unit
  • Qualification Date: 9th December 2020
  • Closure of Register Date: 10th December 2020
  • Payment Date: 23rd December 2020

READ: Exxon Mobil to cut 14,000 jobs as pandemic hit oil demand, prices

What you should know

  • The Value Fund is a closed-end Fund registered and regulated by the Securities and Exchange Commission (SEC), whose units are listed on the main board of the NSE.
  • The Value Fund for the year ended June 30, 2020 achieved a growth of 2.83% Year-on-Year, with a cumulative return of 125.32% since inception, which translates to a 9-year Internal Rate of Return (IRR) of 12.06%.

Explore Data on the Nairametrics Research Website

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Economy & Politics

Nigeria generates N416.01 billion from Company Income Tax in Q3 2020

Total company income tax generated increased by 3.48% in Q3 2020, compared to N402.03 billion recorded in Q2 2020.

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Avoid paying taxes, Nigeria generates N416.01 billion from Company Income Tax in Q3 2020

Nigeria generated the sum of N416.01 billion from Company Income Tax (CIT) in the third quarter of 2020. This was revealed in the Company Income Tax by Sectors report, recently released by the National Bureau of Statistics (NBS).

According to the report, the total CIT generated increased by 3.48% in Q3 2020, compared to N402.03 billion recorded in the previous quarter (Q2 2020). It reduced by 20.13% compared to N520.89 billion recorded in the corresponding quarter (Q3) of 2019.

READ: Nigeria’s Value Added Tax collection dips slightly in Q1 2019

READ: VAT revenue may have hit 4 year high in 2018

Highlights

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  • Company income tax generated year-to-date sums up to N1.11 trillion as against N1.26 trillion in the comparable period of 2019.
  • Professional Services including Telecoms generated the highest amount of CIT with N55.52 billion generated, closely followed by Other Manufacturing with N42.03 billion.
  • Banks & Financial Institutions generated a sum of N24.05 billion.
  • Mining generated the least, closely followed by Textile and Garment Industry and Local Government Councils with N120.93 million, N167.51 million, and N321.72 million generated respectively.

READ: FBN Holdings Plc posts Profit of N21.9 billion in Q3 2020

Out of the total amount generated in Q3 2020, N244.70 billion was generated as CIT locally, while N70.34 billion was generated as foreign CIT payment. The balance of N100.97 billion was generated as income taxes from other payments.

Automobiles and Assemblies grows CIT by 994%

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In terms of sectors with the highest increase in company income tax remittances, the Automobiles and Assemblies sector grew its CIT by 994%, from N81.6 million in Q2 2020 to N892.7 million. It was closely followed by the Gas sector, which grew its CIT by 626% to stand at N4.76 billion from N655.5 million.

READ: FG rejects calls for tax reduction, offers tax relief for donors to intervention funds

On the flip side, transport and haulage services recorded the highest decline in company income tax, as it reduced by 76% to stand at N7.35 billion from N31.1 billion. This is closely followed by Banks and financial institutions, which declined by 51% to stand at N24.1 billion.

READ: Unity Bank Plc posts gross earnings of N11.04 billion in Q3 2020

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Bottom line

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The rise in company income tax is an indication of the Nigerian government’s move to improve the generation of revenue from the fiscal side as against oil exportation. However, the halt in economic activities due to the COVID-19 pandemic contributed to the year-on-year decline in company income tax.

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