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World Bank says Nigerian banks are at risk of being destabilised by COVID-19

Capital erosion and a possible resurgence in banks’ non-performing loans are just some of the risks.

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Nigeria, others raise over $17bn from bonds, says World Bank

 

The World Bank disclosed in its latest World Bank Nigeria Development Update that Nigerian banks are now faced with serious risks of destabilisation, no thanks to what was aptly described as “the COVID-19 shock”.

Information contained in page 21 of the 88-paged report noted that the pandemic could erode the generally positive performance recorded by the banks in 2019. As a matter of fact, there is a high possibility that the relative stability witnessed in the sector could be eroded.

In specific terms, there is the risk of a resurgence in banks’ non-performing loans (NPLs), especially as it pertains to loan exposure to the country’s and gas sector.

There is also the risk that Nigerian banks may become confronted with a problem of capital erosion. Part of the report said:

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“The COVID-19 shock poses serious risks to the financial sector, as mounting pressures in Nigeria’s external sector and the intensifying stress in global financial markets threaten its stability. The economic downturn and the collapse of global oil prices will likely reverse the declining trend in banking sector NPLs, starting with loans to the oil sector, which represent almost 30 percent of private-sector credit, and progressing through the remaining sectors as demand weakens. On-balance-sheet dollar-denominated exposures, which represented 38 percent of banks’ loan portfolio and 55 percent of their liabilities at end-2019, will also be a source of strain. The credit to private sector has severely declined in April 2020 as effects of the lockdown and constrained economic activity as it sharply dropped by 65.7 percent in April 2020 (Figure 1.19).”

READ MORE: CBN discloses how much has been disbursed from N50 billion COVID-19 intervention fund

The report then explained how the pandemic has mounted pressure on Nigeria’s external reserves, a situation that is further complicated by the current stress in the global financial markets.

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The situation could get even more complicated for the Nigerian economy and its financial services sector. And the extent of the envisaged damage will depend on two factors:

  • How quickly the pandemic can be brought under control.
  • Whether global oil prices will remain stable.

READ MORE: FSD Africa invests $3.2 million in two African fintech firms operating in Nigeria 

According to the World Bank, if the pandemic can be contained sooner, then the Nigerian economy might just contract by 3.2% this year. Afterwards, the country would embark on a slow recovery phase. However, if the pandemic does not ease off anytime soon, the Nigerian economy might as well shrink by 7.4%, with the recession extended into next year.

In the meantime, the reality is already harsh for some of the banks. As Nairametrics reported earlier today, about 17 banks have approached the Central Bank of Nigeria (CBN) seeking to restructure their loan books amid the pandemic and its economic fallouts.

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On its part, the CBN has taken steps to unify it’s key exchange rates, whilst giving out stimulus packages in the form of loans to farmers and SMEs. However, the World Bank report emphasised that more needs to be done.

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You may download the report “Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery” by clicking here.

Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs. He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor. Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan. If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

1 Comment

1 Comment

  1. Chigozie Innocent Obioha

    June 25, 2020 at 4:46 pm

    I just believe that all these world leaders and international organisations are trying to cause panic in the minds of foreign investors that have Nigeria as a viable economy to invest into.
    Should I remind readers that it is the same manner we were told that Nigeria death rate would sky rocket when hit his the corona virus,status check we are not dying as fast as anticipated or predicted.This panic should end,NIGERIA will definitely come out stronger from this downturn if and,if only the government and other leaders channel adequate resources to what will keep the economy afloat,and destroy corruption,because it is corruption that would make these panic predictions come to reality.

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Financial Services

Fidelity Bank MD/CEO purchases 5 million additional shares worth N12.97 million

The MD/CEO Designate of Fidelity Bank Nigeria Plc has purchased an additional five million units of the bank’s shares.

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Fidelity Bank M.D purchases 5 million additional shares worth N12.97 million

The Managing Director/CEO Designate of Fidelity Bank Nigeria Plc, Mrs. Nneka Onyeali-Ikpe has purchased an additional five million units of the bank’s shares totalling N12.97million.

This is according to a notification, signed by the bank’s Secretary, Mr. Ezinwa Unuigboje, and sent to the Nigerian Stock Exchange Market yesterday, as seen by Nairametrics.

What you should know

The breakdown of the disclosure showed that the transaction took place in five tranches with an average share price of N2.56.

  • First tranche: 260,190 units of the bank’s share were bought at N2.52 each, amounting to N655,678.8
  • Second tranche: 400,000 units of the bank’s share were bought at N2.55 each, amounting to N1.02million.
  • Third tranche: 130,000 units of the bank’s share were bought at N2.58 each, amounting to N335,400.
  • Fourth tranche: 2,870,000 units of the bank’s share were bought at N2.60, amounting to N7.46million.
  • Fifth tranche: 1,339,810 units of the bank’s share were bought at N2.56, amounting to N3.43million.

(READ MORE: Fidelity Bank slashes growth forecast, readies Eurobond coupon ahead of due date)

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In summary, the total transactions incurred by the MD in buying 5 million additional shares grossed N12.97million.

What this means

The recent corporate action indicates growing optimism in the bank’s future and potentials, which could be a pull factor to other investors.

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Financial Services

CBN issues subtle warning explaining how domiciliary accounts should be used

The CBN has issued a new circular explaining how domiciliary accounts should be used.

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parallel market, Covid-19: N3.5 trillion disbursed as stimulus package for the Nigerian economy, CBN Vs NESG: Waving the white flag for the benefit of Nigerians, Exchange Rate Unification: CBN devalues official rate to N380/$1, Nigerian banks have written off N1.9 trillion impaired loans in past 4 years, CBN sandbox operations, Stirling Trust Company Limited, Key highlights of the October 2020 Business Expectations Survey Report, A Total of N3.5 trillion was disbursed in the wake of the COVID-19 pandemic, in addition to several other interventions to reflate the economy - CBN, BOFIA 2020: Steps forward or backwards for Nigerian banks, Total credit to the economy rose to N19.54trillion – CBN Governor

The Central Bank of Nigeria (CBN) issued a circular on Monday clarifying how domiciliary accounts will be operated in the country. According to the CBN, domiciliary accounts used to deposits export proceeds (inflow from exports of goods and services from Nigeria) can only be used for business operations.

The directive also allows any extra funds remaining in the domiciliary accounts to be sold in the Investors and Exporters (I&E) Window, suggesting that the CBN is warning exporters not to sell their foreign proceeds in the black market.

This disclosure was made in a circular dated November 30, 2020, issued by CBN to all authorized dealers and the general public and signed by its Director for Trade & Exchange Department, Dr O.S. Nnaji.

On Export Proceeds

These accounts will continue to be operated based on existing regulations which allow account holders use of their funds for business operations only, with any extra funds sold in the Investors & Exporters window.’

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On other domiciliary accounts

“Where accounts are funded by electronic/wire transfer, account holders will be allowed unfettered and unrestricted use of these funds for eligible transactions. Where accounts are funded by cash lodgments, the existing regulations will continue to apply.”

The CBN also claimed it was issuing these clarifications in view of its “vastly improved capabilities of the CBN to monitor transactions, forestall money laundering and prevent the adverse effect of dollarization in Nigeria’s economy” which the CBN has frowned upon for years.

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The CBN’s statement also alluded to the use of BVN in tracking compliance with its guidelines.

What this means

The latest regulations from the CBN appears to be directed at clarifying widespread information that there are plans for a clampdown of domiciliary accounts.

  • For export proceeds, this circular appears to be warning exporters to use their forex proceeds for “legitimate” transactions and sell the rest in the I&E window instead of selling it in the black market.
  • On Domiciliary accounts, the CBN is basically saying that inflows through electronic wires will be allowed for use by Nigerians for transactions deemed eligible. This means, if you received a foreign transfer into your account, you can use it to pay for transactions such as e-commerce payments or transfers to anyone at any time.
  • However, for dollar cash deposits into your accounts, the central bank is reiterating that there will be restrictions on how that money used such as restricting it from direct transfers or even using it to pay for e-commerce transactions. These rules have existed for some time.
  • Currently, a limit of $10,000 applies when you want to utilize foreign currency cash deposits.
  • The central bank is basically dissuading the black market purchase of forex by limiting the number of dollars that can be purchased on the streets where forex is sold in the black market. However, the majority of black market transactions, particularly in dollar value are traded using wired transfers.

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Financial Services

Stamp Duty on Nigerian Stock market transactions pegged at 0.08% from December 7

The NSE has given clarifications on the public notice released by the FIRS, itemizing contract notes at an ad valorem rate of 0.08%.

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NSE prepares to launch West Africa’s first Exchange-traded derivatives

The Nigerian Stock Exchange has given clarifications on the public notice released by the Federal Inland Revenue Service (FIRS) in July, itemizing contract notes at an ad valorem rate of 0.08% up from 0.075%, effective 7th December 2020.

The circular released by the Nigerian Stock Exchange reads:

“In reference to the Public Notice in the Business Day Newspaper of Monday, 20 July 2020, captioned ‘Clarification of Administration of Stamp Duties in Nigeria’ issued by the Federal Inland Revenue Service (FIRS) (A copy is attached as Appendix A for ease of reference).

The Public Notice provided, amongst other things, information on dutiable instruments and the applicable flat or ad valorem rates, with Contract Notes 1 itemized at an ad valorem rate of 0.08%. As you know, this is at variance with the current rate of 0.075% administered in the Nigerian Capital Market.”

To that extent, Dealing Members of the Nigerian Stock Exchange are to note the following:

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  • Effective December 7, 2020, the Central Securities Clearing System Plc. (CSCS) will adjust its system to implement the automated deduction of the Stamp Duty rate of 0.08%.
  • Dealing Members are required to immediately engage their software vendors for the required adjustments to their technology applications, to reflect the 0.08% rate ahead of the effective date of 7 December 2020.
  • Dealing Members are required to communicate the changes above to their clients immediately, ahead of the effective date.

What you should know

Nairametrics revealed that the FIRS listed at least 50 types of transactions that are eligible for stamp duty deductions.

Some of the listed chargeable transactions include bank deposit or transfer, loan agreement, Memorandum of Understanding (MoU), sales agreement, will, tenancy/lease agreement, and all receipts.

The FIRS noted that the recently inaugurated FIRS Adhesive Stamp is not the same as the postage stamp administered by NIPOST for the purposes of delivery of items and documents.

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The Stamp Duties Act, 19391 defines Contact Notes as “the note sent by a broker or agent to his principal, or by any person who, by way of business, deals, or holds himself out as dealing, as a principal in any stock or marketable securities, advising the principal, or the vendor or purchaser, as the case may be, of the sale or purchase of any stock or marketable security, but does not include a note sent by a broker or agent to his principal where the principal is himself acting as broker or agent for a principal.”

See the circular below:

Download (PDF, 566KB)

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