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Business News

Banks to witness low earnings over Coronavirus- Report

The Nigerian economy, which had hitherto been fragile, has been badly hit by the impact of the lockdown resulting from the coronavirus outbreak.

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Impact of covid-19 on earnings and profitability of Nigerian banks, positives and negatives – report, Covid-19: Impact on capitalization of Nigerian banks - Report 

The outbreak of the coronavirus pandemic has caused serious damage to economies globally, including Nigeria.
The Nigerian economy, which had hitherto been fragile, has been badly hit by the impact of the global lockdown resulting from the coronavirus outbreak.

The banking industry has had its fair share of the macro-economic headwinds that have affected their margins.

A report by Augusto & Co, looks at the impact of the Covid-19 pandemic on the Earnings and Profitability of Nigerian banks, which is a major source of interest for shareholders and investors.

According to the report, earnings from the core business of the industry will decline in the short term on account of an expected rise in impairment charges, lower yields on the loan book and a contractionary monetary policy stance, exacerbated by discretionary cash reserve requirement (CRR) debits by the Central Bank of Nigeria (CBN).

The interest rate on Federal Government’s intervention funds (granted through CBN and Bank of Industry) to targeted sectors, which account for about 10% of the loan portfolio, has reduced by 400 basis points to 5% in March 2020, as part of the palliatives to support businesses. This translates to a 300 basis points decline in yields on such loans to banks.

(READ MORE: COVID-19 to weaken Nigerian banks’ assets in 2020- Report)

Officially, the CRR for banks is 27.5%, but the effective CRR for some banks are as high as 50% due to the CBN’s non-refund policy and discretionary excess debits seen in the last few months. The penalties for breaching the minimum loans to deposit ratio (LDR), implemented as additional CRR debits, also contributed to the spike. Thus, restricted funds with the CBN account for as high as 15% of total assets and are non-earning. The CBN also raised the CRR for merchant banks from 2% to 27.5% in February 2020.

THE SILVER LININGS OF COVID-19, Impact of covid-19 on earnings and profitability of Nigerian banks, positives and negatives – report

Based on the expectations that the industry’s interest, the report stated that income will moderate and funding costs will remain elevated owing to the high effective CRR and a possible increase in the prevailing interest rates. It foresees a decline in the industry’s net interest spread by up to 500 basis points in 2020.

The non-interest income accounts for approximately 42% of the industry’s net earnings and is largely driven by electronic banking activities, account maintenance fees, credit related fees and securities trading income.

With the lockdown resulting in skeletal operations, banks have leveraged their electronic banking platforms to boost income, as more banking transactions were consummated through digital channels during the lockdown period.

However, minimal trade activities will moderate credit related fees, as it is expected that some correspondent banks will pull back on their lines of credit. These correspondent banks are expected to reprice their rates to reflect the elevated credit risks emanating from lower liquidity in the foreign exchange market.

(READ MORE: COMMENTARY: Moody’s changes outlook on Nigerian banking sector to negative)

Outstanding obligations to foreign portfolio investors seeking to exit Nigeria stood between $700 million and $900 million as at April 2020. The regulatory induced reduction in bank charges, which became effective in January 2020, will also moderate non-interest income.
Nonetheless, expected revaluation gains from a further devaluation of the domestic currency will support the earnings of banks with net foreign currency assets positions.

Cost containment will be top priority for the banks in 2020, as there will be a lot of pressure on revenue generation. While the industry’s operating costs are expected to increase on account of a rise in inflation and a growth in foreign currency denominated costs, the report suggests that the cost management strategies will be paramount to sustain profitability.

Jaiz bank

Augusto & Co expects the industry’s pre-tax return on average equity to moderate to between 12% and 14% in 2020, unless regulatory support is granted in some areas such as reduction in CRR.

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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Corporate Press Releases

Applications across Nigeria, South Africa and Kenya now open for the 2021 Facebook Community Accelerator Program

The selected leaders will spend five months learning from experts, coaches and a customised curriculum so they can strengthen their community.

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Facebook

Today, Facebook is inviting community leaders from Nigeria, South Africa and Kenya to apply for the 2021 Facebook Community Accelerator Program—a program that offers participants training, mentorship and up to $50,000 USD in funds to invest in an initiative that extends their community’s positive impact.

The aim of the Community Accelerator is to help leaders of Facebook communities to harness the power of their community to turn ideas into action. The selected leaders will spend five months learning from experts, coaches and a customised curriculum so they can strengthen their community.

Lessons include community identity foundations, leading action-oriented programmes and sustainability. Participants will also receive early access to new Facebook products aimed at helping communities better manage and activate their members.

Plan an initiative

Participants will identify an important initiative that will create a positive impact on the broader world and develop a plan to mobilise their community around their goal. Initiatives will be shared with potential partners, mentors and a panel of judges for the chance to be awarded funding and receive public recognition.

Participants will then spend three months executing their initiatives. They will collaborate with advocates and leaders in the community space and work with the Facebook team to bring their ideas to life.

Says Kiran Yoliswa, Partner Management Lead, Middle East and Africa Community Partnerships at Facebook: “Facebook communities and their leaders are helping to resolve social challenges, sharing knowledge and information, while connecting with others that share their interests or passion for a cause. We’ve seen so many incredible communities from across South Africa, Kenya and Nigeria using our platform to drive change and provide support and encouragement for thousands of people, we’re excited to offer their Facebook Community leaders this program to help amplify their impact even more.”

How to apply

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This program is open to communities that have a presence in Facebook Groups with leaders who are 18 years or older. Communities must have existed for over one year and must have a minimum size of 1,000 members. Applications open today, May 4 – 31, 2021.

The Community Accelerator is part of our Facebook Community Leadership Program, a global initiative that invests in people building communities. Learn more and apply here.

You can find out more about the 2020 Community Accelerator cohort and those who received additional funding here.

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Business News

NIN registration: 54 million Nigerians have now enrolled – Buhari

12 million Nigerians were enrolled into the National Identity Database in the past 6 months.

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President Muhammadu Buhari disclosed that the FG has enrolled 54 million Nigerians into the National Identity Database, citing that 12 million were enrolled in the past 6 months alone and that the final aim of the scheme is to secure Nigeria’s security infrastructure.

President Buhari disclosed this in a statement on Thursday evening.

What the President said about NIN enrollment

“I am pleased with the success we are recording in the enrollment of persons into the National Identification Number (NIN) database. 54 million Nigerians have now enrolled; I am told over 12 million of these within the last six months. Our goal is total coverage.

The National Identification Number (NIN) is the foundational digital ID for the country. It will cover one of the weaknesses in our security structure. We will be able to easily identify all Nigerians, including the crooks in our midst.”

The President added that both legal residents and Nigerians are expected to obtain the NIN as it would be beneficial to government agencies to utilise resources efficiently.

In case you missed it

The Federal Government announced a further extension of the ongoing National Identification Number (NIN) registration and linkage with Subscriber Identity Module (SIM) exercises to a new deadline of June 30, 2021.

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