Financial Services
Quick Take: SWOT analysis of Nigeria’s financial sector according to Fitch Solutions
The Coronavirus pandemic is top on the list of factors weakening the Nigerian financial sector.
Nigerian banks, insurance firms, and other financial services providers have the potential for long-term growth in Nigeria which is undoubtedly Africa’s most populous country. This is one of the top strengths of the Nigerian financial services sector, according to a SWOT analysis carried out by Fitch Solutions Country Risk & Industry Research.
The Strengths
Contained in a new report titled “Nigeria: Banking & Financial Services Report Q3 2020”, the SWOT analysis also identified improvements in the regulatory environment as another top strength.
In the meantime, there is an immense opportunity for growth in the Nigerian insurance sub-sector, especially as it pertains to life insurance. As the report explained, this is another major strength for the financial sector, because there is evidence to show that foreign investors are attracted to the country’s insurance sub-sector. Recall that in early March, Nairametrics reported that German-owned InsuResillience Investment Fund had completed the acquisition of 39.25% equity stake in Royal Exchange General Insurance Limited, a subsidiary of Royal Exchange Plc.
The Weaknesses
The Coronavirus pandemic is top on the list of factors weakening the Nigerian financial sector. This is mainly because the pandemic has caused a drastic decline in the demands for loans, even as there is now a high possibility that non-performing loans will skyrocket. This position is similar to one detailed in a recent report by The World Bank, as reported by Nairametrics.
Meanwhile, other weaknesses bedeviling the Nigerian financial industry, according to Fitch Solutions, include the following:
- Continued lack of major multinational competitors in the wider banking and financial services sector.
- The limited capacity of a broad section of Nigerians to spend on traditional insurance products due to poverty.
- The prevalence of fraud is another problem, especially so in the motor insurance sector.
- The COVID-19 pandemic and lowered oil price are said to have heightened liquidity concerns in the Nigerian financial sector.
The Opportunities
Thanks to reforms imposed by regulators such as the Central Bank of Nigeria, accounting practices are said to have improved considerably, thereby increasing the transparency level, especially in the banking sector.
Still on the opportunities, employers in the financial service sectors are now required to provide group life insurance coverage. This is said to provide an opportunity/improve knowledge of insurance in the country.
Meanwhile, Nigeria’s mostly young population provides immense growth opportunities for current players in the sector as well as future entrants; including foreign investors.
The Threats
- If the economic recovery doesn’t begin until later in 2021 then domestic demand for banking and financial services will remain muted.
- Perceptions of the Nigerian banking sector were badly damaged by the crisis in 2009 and have yet to fully recover.
- Expected higher inflation will weigh on credit demand.
- Nigeria’s economy remains overly dependent on oil price fluctuations, impacting the potential of the market’s banking and financial services sector.
Financial Services
CBN gives approval for Stirling Trust to start offering cash-in-transit services
Stirling Trust Company Limited specialises in financial services, investment, logistics & human capital management services.
The Central Bank of Nigeria (CBN) has approved Stirling Trust Company Limited’s bid to commence cash-in-transit operations in the country.
The approval, which became effective in April this year, was just recently announced by the apex bank in a circular that was signed by the Director of Currency Operations Department, Ahmed B Umar, and addressed to all deposit money banks as well as all licensed CITs and CPCs in the country.
The circular also encouraged all respective stakeholders to “assist” Stirling Trust Company Limited in the discharge of their new duty. The circular said:
“Please be informed that Stirling Trust Company Limited has been granted approval by the Central Bank of Nigeria (CBN) to commence Cash-in-Transit operations in Nigeria with effect from April 23, 2020.
“kindly accord Stirling Trust Company Limited all necessary assistance in the discharge of their functions as Cash-in-Transit service provider.”
Stirling Trust Company Limited, which is a Lagos-based company incorporated in 1989, specialises in financial services, investment, logistics & human capital management services. Following its newest license, the company will now utilise its state-of-the-art armored vehicles (bullion vans) to transport cash across the country. Already, Stirling Trust Company Limited has a notable list of clientele which include First Bank of Nigeria Limited.
It should be noted that cash-in-transit operation is very critical to the Nigerian economy, as cash needs to be constantly moved around in order to keep the economy running.
Financial Services
Why African Alliance has not released its FY 2019 and Q1 2020 results
The company was originally supposed to release the full-year 2019 financial statements in March this year.
African Alliance Insurance Plc announced yesterday that the reason it has been unable to file its audited financial statements for full-year 2019 and unaudited financial statements for Q1 2020 is that the National Insurance Commission (NAICOM) has not given approval to this effect.
The insurance firm was supposed to have released the full-year 2019 financial statements since March this year. However, it obtained permission from the Nigerian Stock Exchange to extend the deadline to June 30th, 2020. Interestingly, the FY 2019 financial report was not still filed within the extension period due to the reason stated above.
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The company said it is deeply regretful of the inconvenience this delay may have caused its stakeholders. In the meantime, it is working towards ensuring that the financial statements are filed latest by the end of July. Some parts of a statement issued by the company said:
“African Alliance Insurance Plc wishes to notify its esteemed shareholders and other stakeholders that the Company’s Audited financial statements for the year ended 31st December 2019 (AFS) together with the Unaudited financial statements for the period ended 31st March 2020 could not be filled within the period of the extension granted by the Nigerian Stock Exchange (30th June 2020).
“However, the Company has since concluded with the auditing of its accounts and has submitted same to its primary regulator (the National Insurance Commission) for approval. Regretfully, the Company is yet to obtain the approval of NAICOM, hence the delay.”
Note that the last earnings report by African Alliance was its unaudited Q4 2019 financial statements. The report showed that gross premium income for the period stood at N8.7 billion as against N6.8 billion during the comparable period in 2018. There was also a N6.5 billion loss for the period, compared to the N2.9 billion loss recorded in 2018.
African Alliance share price on the Nigerian Stock Exchange is currently N0.20. Year to date, the share price has remained unchanged.
Financial Services
Cornerstone Insurance’s board will meet July 22nd to consider 2 important issues
Directors typically meet to consider/approve financial statements before they are released.
Cornerstone Insurance Plc’s board of directors will meet on July 22nd to deliberate on two important company issues.
A public notice that was signed by the Company Secretary and issued to the Nigerian Stock Exchange (NSE), noted that the two main talking points at this meeting are the company’s unaudited Q2 2020 financial statements, and the proposed issuance of bonus shares to the company’s existing shareholders.
As you may well know, board members of many companies listed on the NSE are all scheduled to meet later this month, ahead of the release of these companies half-year 2020 earnings reports. Directors typically meet to consider/approve financial statements before they are released.
Meanwhile, between the time a company’s board of directors meet over their financial statements and the actual release of said financial statements, there is what is called “a closed period”. During this closed period, all persons with insider knowledge of the company’s affairs are prohibited from trading in the company’s stock.
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In the case of Cornerstone Insurance Plc, a closed period on its stock will start from tomorrow (July 7th, 2020) and will remain effective until 24 hours after the release of the company’s Q2 2020 financial statements. Note that no date was given for the release of the Q2 financial report.
“Accordingly, in line with the provisions of Rule 17.17: Closed Period, Rulebook of The Exchange, 2015 (Issuers’ Rule) and which has been incorporated into Sections 5 and 6 of the Company’s Securities Trading Policy, all Directors, Persons discharging managerial responsibility, Adviser(s) of the Company, or their connected persons shall not trade in the Company’s shares from Tuesday, July 7th, 2020 until 24 hours after the release of the Company’s Unaudited Financial Statements for the Second Quarter ended June 30, 2020 to the NSE and the general public,” part of the statement by the company said.
Recall that Nairametrics reported some months ago that Cornerstone Insurance Plc was in merger talks with some insurance companies ahead of the recapitalization deadline set by the National Insurance Commission (NAICOM). The company’s Group Managing Director, Ganiyu Musa, disclosed that consolidation is a more viable option towards meeting NAICOM’s recapitalisation requirement.
READ MORE: Dark Clouds loom for investors as stocks fall 8% in first half of 2020
It is uncertain, at this point, if the company is still considering a merger as a viable option. This is because in March 2020, Nairametrics reported that Cornerstone Insurance Plc is one of the insurance firms that have resorted to selling off their real estate properties in order to raise money. The reported had quoted the MD discussing how his company “took the big decision to sell the property which we did at a very handsome price. And just in one fell swoop, it resolved many issues. We now have a significant amount of liquidity, we do not have the headache of recapitalisation and we have done what the regulator wants, which is to convert any property to cash.”
Meanwhile, NAICOM has since postponed the recapitalisation deadline to September 2021 due to the economic challenges posed by the COVID-19 pandemic.
Note that the company reported a gross premium income of N4.6 billion in Q1 2020, compared to N4.8 billion in Q1 2019. However, profit for the period stood at N475.1 million, as against a loss after tax of N98.4 million during the comparable period in 2019.
The company’s stock opened today’s trading on the Nigerian Stock Exchange with a share price of N0.50. Year to date, the stock has gained roughly about 20%.
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Abdullahi Bilal
June 28, 2020 at 2:24 pm
I wonder how insecurity couldn’t make part of the threat to the economic and financial growth.