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Foreign investment inflow into banking sector falls by 95% in Q2 2020

The foreign inflow of capital into the banking sector fell to as low as $140 million in the second quarter of 2020, the lowest inflow since 2017

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The foreign inflow of capital into the banking sector fell to as low as $140 million in the second quarter of 2020, the lowest inflow since the first quarter of 2017. This contrasts sharply with the $2.9 billion inflow reported in the first quarter this year

The report was contained in the Capital Importation report published by the National Bureau of Statistics, as seen by Nairametrics. Nigeria has suffered foreign currency shortages since the crash in oil prices triggered an outflow of foreign portfolio investments out of the country.

READ: Nigeria’s debt rises to $79.5 billion, as debt to revenue ratio worsens

The outbreak of the Covid-19 Pandemic has also affected foreign investments into emerging markets like Nigeria as investors flee to the safety of the risk-free assets in the United States. Some of the outflows have also been redirected to the United equities markets which have surged on the back of a tech bubble despite the Covid-19 pandemic.

Why the drop?

The drop in inflow into the banking sector is believed to be a fallout of the global economic crisis which has limited banking sector requirement for foreign investments either as debt or equity.

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  • The drop in inflow into the sector also correlates with the drop recorded in the money markets and equity.
  • For example, inflows into these sectors fell to $533.9 million in the second quarter from $4.5 billion reported in the previous quarter.
  • According to Nairametrics records, no bank has approached the Eurobond market since the pandemic started as the sector focusses on containing loan losses to shore up capital adequacy.
  • In contrast, banks have resorted to commercial papers and bonds taking advantage of the low-interest-rate environment to raise capital.
  • Another reason is the foreign currency risk associated with foreign currency-denominated capital in a deteriorating economy that is exposed to further devaluation and credit risks.

READ: Nigerian Stocks snap 7-year losing streak to post first gain in August

What this means: Covid-19 has been blamed for most of the challenges currently being faced in the economy. A fall in foreign investment inflow into the country can also be blamed on Covid-19 however much of this is also due to the low-interest-rate environment in the country.

Some of the central bank policies such as restriction on OMO bills, LDR, and CRR ratios have also contributed to the drop in interest rates.

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Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper.The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference.The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

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Financial Services

CBN issues framework for QR payments

CBN has issued a framework that would guide Quick response (QR) code payments in Nigeria.

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The Central Bank of Nigeria has issued the framework that would guide Quick Response (QR) Code Payments in Nigeria.

This is a proactive move by the Apex bank towards ensuring the safety and stability of the Nigerian Financial System, as well as promoting the use and adoption of electronic payments and foster innovation in the payments system.

READ: Over 1 million people took loans from banks below 20% interest rate in 1 year- CBN

Quick Response (QR) Codes are matrix barcodes representing information presented as square grids, made up of black squares against a contrasting background that can be scanned by an imaging device, processed and transmitted by appropriate technology.

The codes are used to present, capture and transmit payments information across payments infrastructure and further enable the mobile channel to facilitate payments and present another avenue for promoting electronic payments for micro and small enterprises.

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READ: Binance offers DeFi coders $100,000; DeFi market value hits $8 billion

What you should know

  • Quick Response (QR) codes are two-dimensional bar codes. QR code payments allow merchants to receive payments from customers simply by scanning generated QR codes using a smartphone camera. The QR code payments carry the purchase transaction information to the mobile device of the buyer/customer.
  • Making payments via QR codes is very secure. It is because the QR code is nothing but just a tool that is used to exchange information. Any data which is transferred via QR codes is encrypted, thus making the payment secure.
  • The Participants in QR Code Payment in Nigeria include Merchants, Customers, Issuers (Banks, MMOs and Other Financial Institutions), Acquirers (Banks, MMOs and Other Financial Institutions) and Payments Service Providers.
  • QR payments are increasingly becoming a popular means of payments in Nigeria, and some industry players would see the framework as a perfect way of regulating the sector.
  • QR codes are capable of storing lots of data. But no matter how much they contain, when scanned, the QR code should allow the user to access information instantly. It can be used for payments, sharing contacts and Wi-Fi passwords and lots more.
  • The popular and common argument is that since POS machines are expensive, cheaper options such as QR scanners should be pushed forward to local traders.

READ: Telecoms, FSI to hugely boost Nigerian Economy in 2021 – CWG’s Business Director

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Financial Services

CBN unveils framework for regulatory sandbox operations

CBN has issued a regulatory Sandbox framework towards engaging with the operators in the Fintech space.

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The Central Bank of Nigeria has taken proactive steps towards ensuring more flexible ways of engaging with operators in the payment solutions/fintech space, in a bid to tacitly regulate how operators churn out their new products and services.

To this end, CBN has introduced Regulatory Sandbox which is a formal process for firms to carry out live tests of new, innovative products, services, delivery channels, or business models in a controlled environment, with regulatory oversight, subject to appropriate conditions and safeguards.

It is expected that the CBN would stay abreast of innovations while promoting a safe, reliable and efficient Payments System to foster innovation, without compromising the delivery of its mandate.

What you should know

  • A regulatory sandbox is a framework set up by a regulator that allows FinTech start-ups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision. It encourages innovation that can improve the design and delivery of payment services.
  • No doubt, regulations around Fintech are still emerging and developing, there is still a high entry barrier for new entrants and it is expected that Sandboxes would present them with a safe testing environment and ease regulatory onboarding.
  • Sandbox is quite suited for new products, services or solutions that are either not contemplated under the prevailing laws and regulations, or do not precisely align with existing regulations.
  • Sandbox is intended to promote effective competition, embrace new technology, encourage financial inclusion and improve customer experience, with a view to engendering public confidence in the financial system.
  • The framework provides guidance on the establishment, the applicable rules and operations of a Regulatory Sandbox for the Nigerian Payments System, as well as providing standards for the operations of a Regulatory Sandbox, prescribes the processes and procedures for analysing, collecting, updating, integrating, and storing consumer data and information.

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Financial Services

Standard Chartered Nigeria Plc crashes ‘personal loans’ interest rate to 1% monthly

The Bank crashed its interest rate to one of the lowest in Nigeria’s lending space.

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Standard Chartered: Easy Banking at no cost

Standard Chartered Nigeria Plc, has crashed its interest rate for ‘personal overdraft’ from 1.25% to 1% per month, according to information seen by Nairametrics.

Nairametrics understands that this review makes the rate, one of the lowest in Nigeria’s lending space, especially when compared to other players in the industry.

READ: Telecoms, FSI to hugely boost Nigerian Economy in 2021 – CWG’s Business Director

This is a strategic move by the bank as it makes major inroads into Nigeria’s competitive but lucrative retail end of lending. The retail end which includes divisions such as personal loans, payday loans is highly competitive with Fintechs, and other banks all jostling for the same market.

READ: InfraCredit guarantees TSL’s issuance of a N12 billion 10-year Series 1 Infrastructure Bonds

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Despite efforts by some of the banks to restructure their loan books due to the adverse effect of the pandemic, banking sector credit to the private sector improved to N19 trillion in the third quarter of 2020 representing a 15.6% increase from 2019.

READ: Nigeria’s GDP growth to rebound between 1.7% and 2.0% in 2021 – United Capital report

Notably, according to a CBN survey on credit conditions as reported by Nairametrics, supply of secured and unsecured credits to households is expected to increase in the first quarter of 2021, having recorded an increase in the previous quarter (Q4 2020).

Meanwhile, a cursory review of lending data on the websites of some sampled financial institutions, revealed that some financial institutions retained or downwardly reviewed their monthly interest rate on payday loans. For example, GT Bank Quick credit crashed its rate from 1.75% to 1.33%.

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READ: Over 1 million people took loans from banks below 20% interest rate in 1 year- CBN

Furthermore, UBA Click credit maintained its 1.58% charge, Zenith Bank term loan remained at 2.16%, Renmoney retained its 2.98% interest rate, and a host of others.

READ: Nigeria Fintech startup, CredPal raises $1.5million funding

What you should know:

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  • According to Standard Chartered, Personal Overdraft facility provided by Standard Chartered Plc is a revolving facility targeted at salaried customers with 12 months tenor and usually based on 50% of the net monthly salary of customers.
  • A minimum salary qualification of N50,000 is specified.

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