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Nigerians now seeing CBN Intervention funds as audio money

Despite the rhetoric, majority of Nigerians are still wary of the so called N1 trillion intervention fund.

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When the COVID-19 pandemic came with all her fangs, world leaders swung into action with the creation of intervention funds and palliatives to ease the burden of the average citizen.

In Nigeria, asides the palliatives of foodstuff given by state and federal governments alike, drums were rolled when the Central Bank of Nigeria disclosed its support for critical sectors of the economy.  

The apex bank first initiated a fund of N50 billion soft loan to small businesses. The N50 billion Targeted Credit Facility (TCF) was to serve as a stimulus package to support households and micro, small and medium enterprises (MSMEs) whose economic activities have been significantly disrupted by the COVID-19 pandemic.

The financial institution for the scheme is NIRSAL Microfinance Bank (NMFB) and the interest rate under the intervention was fixed at 5% per annum (all-inclusive) up to February 28, 2021, and thereafter, the interest on the facility shall revert to 9% per annum (all-inclusive) as from March 1, 2021. 

Next, it increased its intervention by another N100 billion in loans to support health authorities to ensure laboratories, researchers, and innovators work with global scientists to patent and produce vaccines and test kits in Nigeria so as to prepare for possible crisis ahead.

Finally, it increased its intervention in boosting local manufacturing and import substitution by another N1 trillion across all critical sectors of the economy. 

Despite the rhetoric, majority of Nigerians are still wary of the so called N1 trillion intervention fund. The CBN is yet to issue any policy guideline for its implementation and failed to provide further details in its monetary policy committee meeting held last week. This has led many to start to view these promises as “audio money” a social media term for financial promises that are never fulfilled. 

READ ALSO: CBN releases new capital base, sanctions for Microfinance Banks in new draft guidelines

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The journey thus far 

The Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance bank, on behalf of the Central Bank of Nigeria (CBN), has started the disbursement of the N50 billion Targeted Credit Facility (TCF) to the beneficiaries. As at April, it noted that it had received over 80,000 applications for the facility, out of which 40,000 of them were households.  

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As expected with such funding, the sentiments have been both positive and negative. While some have said they have gotten the funds, others have complained incessantly about the various challenges encountered in the process of obtaining or applying for the loans. Pockets of tweets revealed the general struggles of obtaining the loans. Several applicants have complained about not being able to open accounts or access the facilities and others have complained about making inquiries without responses. 

Bola Murtala explained to Nairametrics that “I applied online around the 30th of April, filled out the forms, and submitted. After I got a reply in my email that my application has been received, but then I haven’t heard back from them since then. I wouldn’t know what’s going on but I have seen people who say they got an approval. How far it is true, I wouldn’t know.” 

READ MORE: COVID-19: Nigeria needs $50 billion to survive an impending recession

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Another applicant, Okey Adinde, said “I applied and received a message telling me that I will be contacted if there was any other document required and if I didn’t send that document after 72 hours after the mail, my application will be declined. Since then, I have not heard from them.” 

One Twitter user also complained about being asked to tender collaterals even though the loans do not require any.  

Clearly, the program is not without its own hiccups. During an interview with Channels TV, the Managing Director of NIRSAL Microfinance Bank Plc, Abubakar Kure, explained that the nationwide lockdown and restrictions had a major challenge to the smooth processing of the facility. Yet, on the company’s website, it claims to have disbursed over N25 billion and going. 

However, there are positive comments too: 

Fidelis Ayebae, the chief executive officer of Fidson Healthcare Plc. explained that his company had received N2.5 billion from the central bank’s coronavirus intervention fund. Dollar scarcity and a weakening naira had heightened the inflation on inputs of many pharmaceutical firms in the country. 

“You now have a situation where nobody is holding letters of credit, no manufacturer is getting anything from their suppliers abroad because even the ones that we owe, we are not able to pay,” said Ayebae, who also heads the 180-member pharmaceutical group of Nigeria’s manufacturers association.

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In truth, sentiments on the program is still burdened with the same lack of faith and trust in systemic leadership and Nigerians have had their fair share of disappointments. Even as the CBN and NIRSAL have set off on a good note by augmenting businesses and individuals in key areas to withstand the impact of the pandemic, the need for transparency cannot be overemphasized.

By employing tighter systems, particularly in the area of customer relations, while also clearly disclosing its activities, the system will assuage the fears of Nigerians whose faiths have been battered by deceptive leadership amongst others.

It is only then that they’ll know for sure that the days of audio money are over and that its leaders can be trusted. 

 

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    Unity bank wants to be seen, but time is running low

    Over the past few years, a negative string of events have left Unity bank in a precarious situation.

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    Intercity Bank, First Interstate Bank, Tropical Commercial Bank, Pacific Bank Limited, Centre Point Bank, Societe Bancaire, NNB International Bank, Bank of the North, and New Africa Bank; these are all the banks that died for Unity bank, as we know it, to be birthed. In 2006, following a consolidation exercise in 2004, the bank was founded, and it has since become a name in banking that we are all familiar with. Over the past few years, however, a negative string of events have left the bank in a precarious situation, struggling to find its footing.

    First on the list of the company’s burdens is its negative shareholders’ fund – a phenomenon caused by higher liabilities than assets. Issues like accumulated losses and large borrowings are some of the things that could lead to this. For three consecutive years between 2017 and 2019, the bank has maintained negative shareholders funds above N250bn annually, signaling major operational instability. The CBN/AMCON is ostensibly why they didn’t go bust. If they pull the plug, the light goes off, but the CBN has “sworn” not to allow any more failed banks.

    READ ALSO: Nigerian Treasury Bills falls to 3.75% per annum 

    Another issue that has plagued the bank is the increased loan to deposit ratio (LDR) of 65% that was set by the Central Bank of Nigeria last year. As of 2018, the company’s LDR was at a significantly weaker 17.8%. It has, however, grown marginally quarterly from 23.7% in Q1 2019 to 29.15% in Q2 2019 and 34.95% in Q3 2019. Even though the rise has been consistent, the CBN with its many levies could make the process to growth even more stressful. With high impairment losses juxtaposed with the current uncertain economic landscape, the odds had been against the bank.

    But in a commendable turn of events, owing largely to it being proactive to the point of desperation, the company has taken stringent measures to ensure that its growth is visible enough to potential investor suitors, enough to bag the funds required for recapitalization. One of the first things it did was to cut down its costs. Its 2019 financials reveal a decrease in the bank’s total operating expenses to N19.57 billion in 2019 from N20.71 billion in 2018. In order to expand its business beyond corporate and investment banking activities, it intensified its activities in the Agriculture sector to leverage the growth of the sector as well as the increasing attention of the government in it.

    READ MORE: Union Bank Releases 2019 Citizenship, Sustainability and Innovation (CSI) Report

    It concluded arrangements to launch a healthcare product known as UnityCares to leverage the credit support intervention scheme for the health sector as put in place by the CBN to support businesses in the healthcare sector; it launched a USSD code in local languages of Yoruba, Hausa, and Igbo, to make the feature more flexible for its customers and heighten competition, and even brought in one of the best audit firms in the game, KPMG, all in a bid to ensure that it is well-positioned to attract the right investors. Critics will say these are attempts to paper over the cracks and meant to give the impression that management is working.

    So far, its progress has been visible. The company’s asset base increased from 210 billion to 293 billion, a 39.5% growth, and its PAT soared from a loss of N7.7 billion to a profit of N3.38 billion. Yet, shareholders’ funds further deteriorated in Q1 2020 to a negative of N279.09 billion in Q1 2020. Another notable revelation is that while the bank’s loans to customers increased by 135.93% in 2019, its deposit from customers increased by only 40.63%, begging the question of how it was able to fund the increased lending. It borrowed more. Borrowings jumped by over 45% from N126.21bn in 2018 to N183.3bn in 2019. A bank exists to create loans right?

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    In a media briefing, Mr. Ebenezer Kolawole, an Executive Director of the bank, explained that the company has commenced negotiations with prospective investors. While the bank is working out diverse ways to become a prospective candidate for investors towards attaining its recapitalization dream, it’s going to need a lot of help for its growth to be attractive enough to achieve its stated objectives. It is unclear how long the CBN can continue to stop the gaping hole in its balance sheet. A stitch in time saves nine.

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    Analysis: NNPC and its refining losses 

    The madness behind the numbers

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    NNPC, Domestic Crude Allocation, Why NNPC’s Duke Oil is quitting London operations for Dubai , NNPC divests stake in four oil wells to NPDC , How NNPC discovered oil, gas deposits in the North , Nigeria to leverage on condensate refineries to be petrol net exporter, How NNPC saved $3 billion from arbitration , NNPC, IPPG donate medical supplies to South West state governments, NNPC discloses bases for employment and managerial progression in the oil firm, NNPC diversifies into housing, power; plans to beat crude production cost to $10 per barrel

    Once upon a time, Nigeria discovered oil. Soon enough, it became our main source of livelihood, the foundation upon which our national budget rests, and the one commodity that provides most of our forex inflows. To be able to extract value from this oil, we created refineries – all of which are government-owned and managed. Sadly, the rest of the story includes heavy bouts of politicking, lots of bloodshed, corruption, explosions, and billions of Naira in losses. Oil might have been one of Nigeria’s biggest blessings, but it also undoubtedly doubles as its biggest curse.

    On Monday, the Nigerian National Petroleum Company (NNPC) released its audited financial statements for 2018, noting that its refineries recorded losses of N154 billion. As embarrassing and disappointing as it sounds, it is not as surprising. The nation’s 3 refineries located in Port Harcourt, Warri, & Kaduna, reported combined losses of N154 billion. Kaduna Refining and Petrochemical Company (KRPC) incurred a loss of N64.5 billion, Port Harcourt Refining Company (PHRC) recorded a loss of N45.6 billion, while Warri Refining and Petrochemical Company (WRPC) recorded a loss of N44.4 billion. The losses also aren’t new as all refineries performed better than the preceding year 2017. The only thing more confounding than the billions in losses is the convenience with which Kaduna refinery conveniently recorded zero revenue for 2018.

    The madness behind the numbers

    Many issues feed into the wreckage that has become Nigeria’s refineries and most of these issues date as far back as decades prior to now with the last of the nation’s refineries built 40 years ago. For a recap, here’s an overview of some of the problems that have led us this far.

    1. The 3 incapacitated refineries

    As far back as the 1970s, Nigeria, Norway, and Malaysia set up national oil companies for the exploration, production, and refining of oil. So when Norway came up with Statoil (now Equinor) and Malaysia, Petronas, Nigeria created NNPC. Today, while Malaysia and Norway boast of having the biggest state-owned oil and gas companies in the world, NNPC has a long list of excuses and mind-boggling losses to show for it. While PH and Warri and in oil-producing states, Kaduna does not produce any oil. For the sake of balance and to have a national spread, some of the crudes are moved to Kaduna via pipeline. Hold that thought.

    (READ MORE:NNPC GMD gives reasons for shutdown of refineries, to get private managers)

    The capacity of all three refineries is also insignificant, compared to the required consumption of the nation. Hence, most of our oil is still imported because we cannot produce enough. This rate of importation is over 80% of our consumption. The existing refineries also operate significantly below capacity. Sometime last year, the refineries operated as low as 5.55 percent capacity. To increase capacity, the country carries out turnaround maintenance periodically and not only does it cost an arm and a leg, it takes months – but barely anything ever changes. Production stays low and cost stays high. Even if we turn all 3 around successfully, we have shown that we are incapable of increasing their capacity. Essentially, Nigerians will still need to import. Other factors contributing to the losses are spillages, explosions, and theft.

     

    Yet in the midst of this, salaries and employee benefits are huge. KRPC, WRPC, and PHRC reported 13.8 billion, 13.8 billion, and 9.2 billion in employee wages and salaries, excluding directors’ remuneration, staff pension and other benefits. Given the inefficiency of the operations of the refineries, the only thing that could have been done asides creating better refineries is to have an overhaul of the entire thing and shut down the refineries. But that’s a different problem.

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    2: The politics of it

    The first thing you’ll learn about oil in Nigeria is that everybody wants it. All of our refineries were built in the Military regime – as far back as that. Given the failure of the refineries, the first attempt to sell them off was made by former president Olusegun Obasanjo. When Umaru Yar’ Adua became president, he reversed it citing that the process lacked transparency. The fears of the unions in the oil and gas sector was also palpable as they saw the sale of the refineries as a ploy by the government to award the deal to its cronies. In November 2012, former President Goodluck Jonathan also recommended that the refineries be sold as a result of inadequate finance and under-performance, but they still remained. It didn’t take long before more issues emerged.

    With developments going on in non-oil producing northern parts of the world like the State’s capital and barely any developments in the south, Niger Delta Militants sprung up and swore to wreak havoc on the entire nation. Also worthy of note is that today, President Buhari still remains the minister of petroleum.

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    (READ MORE:260 Nigerians set to be evacuated from India – FG)

    3: The scam that is fuel subsidy

    One of the most confounding things is the fuel subsidy saga. With the cost of import landed cost high, the government had thought it a great idea to subsidize fuel for the average Nigerian. Forget the question of whether we should be paying subsidies or not, how much in subsidies is the government really paying? Subsidies are based on the volume of petroleum consumed, but one unconfirmed information is how the subsidy is being calculated. Even today, NNPC and PPRA cannot agree on the volume of petrol being consumed daily in Nigeria.

     

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    If DPR says Nigeria is consuming around 38 million litres in a day and NNPC suggests that the country’s daily petrol consumption is around 50 – 60 million litres, it means there are significant discrepancies. As it is, no one knows how much subsidies Nigeria is actually paying every day and where the money is going to if we’re not actually consuming as much.

    Yet, the king of all the problems is corruption

    Of the series of challenges the refining space is plagued with from theft of petroleum products, to poor maintenance and a series of operational challenges, corruption ranks tops – and it isn’t news. Corruption in the downstream sector was also exposed during the subsidy probe. It revealed that some of the companies that took money for subsidy did not even import refined products at all. With marketers preferring to import, our refineries stay dormant. The funds used in Turn Around maintenance (TAM) annually also does not also contribute to any meaningful and could also be another avenue for exploiting the industry.

    While Nigerians sit and watch the decay in the system fester, one billionaire is on course to provide an alternative that both the government and the private sector are basing all their hopes and dreams. Aliko Dangote’s 650,000 barrels a day refinery which is set to be one of the world’s largest, is due to start operations in less than a year’s time. Even as we hope that the refinery brings some sanity to the modus operandi and reverse the decades-old rot in the system, it too isn’t bereft of flaws. Yet, it is the only foreseeable hope we have to put an end to the joke that is our refining system and commence the process of recovery.

     

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