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.
Economy & Politics
CBN reduces MPR from 12.5% to 11.5%
The Governor of the CBN has announced the reduction of MPR from 12.5% to 11.5%.
The Monetary Policy Committee (MPC), of the Central Bank of Nigeria (CBN), has voted to reduce the Monetary Policy Rate (MPR), from 12.5% to 11.5%. This was disclosed by Governor, CBN, Godwin Emefiele, while reading the communique at the end of the MPC meeting on Tuesday.
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The committee retained CRR at 27.5%, stating that the recent inflationary pressures is not driven by monetary policies, rather as a result of structural policies.
Highlights of the Committee’s decision
- Reduce the MPR by 100 basis points, from 12.5% to 11.5%
- Adjust asymmetric corridor, from +200/-500 to +100/-700 basis points around the MPR
- Retain CRR at 27.5%
- Retain liquidity ratio at 30%
Explore the Nairametrics Research Website for Economic and Financial Data
According to Emefiele, the Committee reviewed the choices before it, bearing in mind its primary mandate of price stability, and the need to support the recovery of output growth. Consequently, the Committee noted that the likely action aimed to address the rise in domestic prices would have been to tighten the stance of policy, as this will not only moderate the upward pressure on prices, but will also attract fresh capital into the economy, and improve the level of the external reserves.
The Committee however, noted that this decision may stifle the recovery of output growth, and drive the economy further into contraction.
On easing the stance of policy
The MPC was of the view that this action would provide cheaper credit to improve aggregate demand, stimulate production, reduce unemployment, and support the recovery of output growth.
In addition, the Committee noted the tendency of an asymmetric response to downward price adjustments by ‘Other Depository Corporations’, thus undermining the overall beneficial impact of a reduction, to the cost of capital.
After all considerations, members were of the opinion that the option to loose will complement the Bank’s commitment to sustain the trajectory of the economic recovery, and reduce the negative impact of COVID-19.
He also stated that, liquidity injections are expected to stimulate credit expansion to the critically impacted sectors of the economy, and offer impetus for output growth and economic recovery.
Based on the foregoing, the Committee decided to reduce the MPR by 100 basis points to 11.5% and adjust the asymmetric corridor to +100/-700 around the MPR.
MPC projects economic growth
Recall, that the Nigerian economy contracted by 6.1% (year-on-year) in the second quarter of the year, as a result of the disruptions caused by the COVID-19 pandemic. The MPC however, projects a positive growth in the last quarter or at least Q1 2021.
“With a persistent focus on activities meant to reverse the contraction, the MPC projects growth at positive levels in Q4 2020, or latest by Q1 2021, based on the anticipated positive results from the coordinated and sustained interventions by both the monetary and fiscal authorities.”
Financial Services
CBN grants Greenwich Trust Limited operational license for merchant banking
CBN has upscaled Greenwich Trust Limited to the status of a merchant bank.
The Central Bank of Nigeria (CBN) has upscaled Greenwich Trust Limited and granted it, operational license for merchant banking in the country.
According to an official statement released by the firm, the entity would be known as Greenwich Merchant Bank Limited. This license allows Greenwich Merchant Bank to upscale and offer such diverse services as corporate banking, investment banking, financial advisory services, securities dealing, treasury wealth and asset management, etc., making it possible to provide increased value to stakeholders beyond its previous scope.
Explore the Nairametrics Research Website for Economic and Financial Data
Recall that the minimum capital requirements for establishing a merchant bank according to Merchant Banking Licensing Regulations in 2010 are N15 billion
(READ MORE: CBN debits banks N216.1 billion for CRR compliance)
With the addition of Greenwich Merchant Bank, Nigeria now has six merchant banks. The others are; FBN Quest, Coronation Merchant Bank, DSH Merchant Bank, Nova Merchant Bank and Rand Merchant Bank.
About Greenwich Trust Limited
Greenwich Trust Limited is an investment banking firm duly registered with relevant authorities such as the Nigerian Securities and Exchange Commission (SEC). It is a diversified firm with subsidiaries such as Asset management, GTL Properties, GTL Securities Limited, Cedar Express Limited and Meyer Plc.
Financial Services
AIICO Insurance to boost property, technology with proceeds from right issue
Right issue will increase the capital base of the firm from N11.6 billion to N15.1 billion.
AIICO Insurance Plc, to invest the proceeds of its on-going right issue on its property, plant, equipment and technology.
While 61.2% of the proceeds are planned to be invested in property, plant and equipment to be completed Q4 2024, 38.8% are expected to be invested in technology to ne completed Q2 2023.
This was disclosed by Chief Executive Officer, AIICO Insurance Plc, Mr. Babatunde Fajemirokun during a virtual Facts Behind the Issue on Friday.
According to him, the issue, which is between September 2, 2020, and October 7, 2020, worth a total of N3.5 billion, will be offered on the basis of 5 new ordinary shares for every 13 ordinary shares held at the close of business on Monday 15th June, 2020.
On the rationale for the right issue, Fajemirokun, remarked that NAICOM increased the regulatory capital requirements for the insurance industry, increasing the composite players to the tune of N18 billion by 2021.
He said, “If successfully implemented, the right issue will increase the capital base of the firm from N11.6 billion to N15.1 billion.”
He also expressed intent in capitalizing some of the firm’s retained earnings.
Speaking further, Fajemirokun remarked that the offering of the right issue will ensure networking and infrastructural upgrade, while empowering the firm to underwrite big-ticket transactions, especially in oil and gas industries.
Key highlights
- The right issue size is worth N3,486,216,763.20
- The number of shares is 4,357,770,954
- The price is N0.80 (representing a discount of 25.2% as of the qualification date)
- 5 new shares will be issued for every 13 shares held as of C.O.B, June 15th, 2020
- The issue period will be between September 2, 2020 and October 7, 2020
- 61.2% of the proceeds from the right issue will be invested in Property, Plant and equipment to be completed by Q4, 2024
- 38.8% of the proceeds from the right issue will be invested in technology, to be completed by Q2, 2023
Over the years, AIICO has evolved from an insurance agency to a leading diversified non-banking financial institution in Nigeria providing life, health and general insurance, as well as investment management.
About AIICO Insurance Plc
AIICO Insurance Plc was established in 1963 with a large Life and Non-life business, and complimentary focus on Asset Management, Health and Pension. Its market capitalization pre-issue is N9,064,163,584.00.
In 2019, AIICO Insurance Plc recorded 78% revenue from the Life business, 17% from Non-life business. On profit side, Life business contributed 91%, Asset Management contributed about 9%. It currently has 22 branches and 3 retail outlets across the federation.
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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.