The Central Bank of Nigeria (CBN) has disclosed that 22 Nigerian banks submitted requests to restructure 35,639 credit facilities of businesses that were impacted by the coronavirus pandemic, as of July 20, 2020.
This represents 41.92% of the total industry loan portfolio and has partly reflected in improved industry risk profile, as non-performing loans ratio declined from 6.6% in April 2020 to 6.4% in June 2020.
The disclosure is part of the personal statement made by the CBN Deputy Governor, Financial System, Aisha Ahmad, during the last Monetary Policy Committee (MPC) on July 20, 2020.
She said that the net interest margin remained quite robust despite lower interest income, due to much lower industry interest expense, as deposit rates continued to decline.
This is seen as part of measures by the apex bank to curb the rise in non-performing loans in the system due to the impact of the coronavirus pandemic and low oil prices.
Also, as part of the drive to reduce non-performing loans, Nairametrics reported that the CBN had given approval to banks to debit bank accounts of chronic loan defaulters with other banks. They were given the power to debit loans and accrued interests due from bank accounts of loan defaulters across the banking system.
She also said, “The loan-to-deposit ratio (LDR), Global Standing Instruction, streamlining of access to Open Market Operations securities and other complementary measures have been strong tailwinds which have strengthened intermediation via increased lending to the key sectors such as manufacturing, agriculture and consumer markets (gross credit grew by an additional N300 billion from N18.6 trillion to N18.9 trillion between end April and end June 2020 respectively) and lower market lending rates, which have insulated the financial system from the worst impact of the pandemic.”
Aisha Ahmad explained that these efforts were supported by various ongoing CBN interventions to reduce the impact of the coronavirus pandemic on businesses and households.
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Some of these interventions include the N50 billion SME and household facility, out of which N49.195 billion has been disbursed to over 92,000 beneficiaries; the N100 billion healthcare facility, and N1 trillion manufacturing and agricultural interventions alongside other significant interventions.
In her note, she said sustained credit to the real economy, particularly for SMEs and households, would be crucial to economic recovery, therefore maintaining banking industry liquidity would be paramount.
Era of backlog of unsettled claims is over – NAICOM boss
NAICOM has stated that it will monitor and sanction insurance companies who fail to settle claims as at when due.
The National Insurance Commission (NAICOM) is out to seriously sanction any insurance companies with huge unsettled claims.
This disclosure was made by the Commissioner for Insurance, Mr. Sunday Thomas, at the on-going 2020 Insurance Directors’ Conference, jointly organized by NAICOM and the College of Insurance & Financial Management (CIFM), held at the Oriental Hotel in Lagos.
Mr. Thomas reiterated the need for the operators, post-pandemic, to appropriately strengthen their human and financial capital for effective participation in big-ticket risks to take advantage of the obvious gains of the domestication policy in the Nigeria Content Development Act 2010.
In his words, Mr. Thomas stated, “More businesses especially in the oil and gas and the Aviation sectors are now being reinsured abroad. Of more concern is the declining participation of life companies in the annuity business, which is the emerging business for our industry.
“These are the areas where the industry can impose itself on the economy through the control of funds for national development. The industry must invest handsomely in technology, one of our key drivers for developing the market.
“The Institutions should be prepared to digitalize their processes, procedures, and systems, in order to make their operations seamless and real-time. The Commission is investing heavily in automating its processes and expects nothing less from the insurance institutions. An industry Information Technology Guideline has been issued for the operators and the Commission requires your support and cooperation for effective compliance.”
Why this matters
Prompt settlement of claims should be a top priority for the insurance operators in achieving an excellent and responsive customer service experience. Settlement of claims has been a serious nightmare for quite a number of customers, resulting to the abysmally low insurance culture in Nigeria.
Customers are more likely to patronize the insurance companies that are prompt in claims settlement and by extension improve the industry penetration in the market.
Total credit to the economy rose to N19.54trillion – CBN Governor
The CBN revealed during the MPC meeting that the total credit to the economy rose to N19.54tn as of the end of November 13.
The CBN Governor, Godwin Emefiele, has disclosed during the Monetary Policy Committee meeting that the total credit to the economy rose to N19.54tn as of the end of November 13.
According to him, the aggregate domestic credit grew by 7.6% in October 2020 compared with 7.35% Month-on-Month in September.
In his words, “Total gross credit by the banking industry stood at N19.54tn as at 13th November 2020 compared with N19.33tn at end-August 2020, an increase of N290.13bn. When compared with N15.56tn at the commencement of the LDR policy in May 2019, total gross credit increased by N3.97tn.”
According to Emefiele, the composition of the loans are N738bn to Manufacturing, General commerce N874bn, Agric and forestry N301bn, Construction N291bn, ICT (N231bn), etc.
In the month of October 2020, he stated that 86.23% of the total loans granted to over one million customers by banks were at interest rates considerably below 20% per annum.
The MPC was quite optimistic and favorably disposed about the future impact of the disbursements from agri-business/Small and Medium Enterprise Investment Scheme of the sum of N92.90bn to 24,702 beneficiaries; Anchor Borrowers Program – N164.91bn disbursed to 954,279 beneficiaries; and COVID-19 Targeted Credit Facility to household and SMEs, with the sum of N149.21bn to 316,869 beneficiaries.
Despite CRR debits, Nigerian Banks record higher net interest income
Banks are recording higher net interest income, despite the CBN’s frequent CRR debits chalking off significant amounts of their cash.
Some of the top banks in Nigeria posted a total net interest income of N403 billion in the third quarter of 2020 compared to N369.5 billion in the same period in 2019.
In the first 9 months to date, the banks have reported a combined net interest income of N1.2 trillion compared to N1.1 trillion same period last year.
Nairametrics collated these figures from the following banks, FBNH, UBA, GT Bank, Access Bank, Zenith Bank, Fidelity Bank, Stanbic IBTC, Sterling Bank, and Union Bank. The banks recently released their third-quarter interim results.
Deposit money banks have complained bitterly over the central bank’s frequent CRR debits chalking off significant amounts of cash that they could have earned on.
A Nairametrics report indicates banks suffered CRR debits of over N1.9 trillion in the second quarter of 2020, taking the total amount of customer deposits held by the CBN at about N6.5 trillion.
The figure is likely higher now as more CRR debits have occurred in the third quarter of the year. Nairametrics reported banks were debited N226 billion CRR debit in a recent update provided by reliable sources.
However, as the above report indicates, the banks still earned more this year compared to 2020. Where banks may have suffered dips is in net interest margin, a measure of the percentage of income banks earn after netting off the cost of funds.
However, this has also been largely mitigated by low deposit rates even as banks maintain most of their lending rates.
Despite the rise in net interest income for the collection of banks under our review, some banks individually faired worse in 2020 compared to 2019. FBNH, Stanbic IBTC, and Access Bank all recorded lower net interest income in the first 9 months of 2020 compared to the same period in 2019. Significant gains over the prior year were however recorded with the other banks.
What is driving Margins
Banks are recording higher net interest income largely because interest rates on deposits are at near-record lows.
This drive down in the cost of funds helps boost the income of banks because they are also yet to significantly drop their lending rates.
In the first 9 months of the year, the banks reported total loans and advances of N1.6 trillion, 14% higher than the N1.4 trillion reported at the end of 2019.
Banks have also reported generally improved pre-tax earnings, posting a combined N737 billion in the first 9 months of 20120 compared to N723 billion in the same period last year.
The better than expected results has triggered a boost to their share price. Banks have also seen their share price rally in recent weeks as investors finally recognize their low valuations amidst strong earnings.
The Banking sector index is up 14.72% year to date and only fell last week after investors embarked on cashing out their profits.
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