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How foreign exchange risks and others affect the Nigerian pension industry 

A report has analysed risks militating against the Pension industry in Nigeria.

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This is why you should make voluntary contributions to your pension fund

Despite being one of the fastest-growing sectors in the Nigerian financial services industry, the Nigerian pension industry has been affected by various riskssuch as the volatility in the foreign exchange and other factors.

However, these risks have harsh consequences on the retirement income of contributors. For example, in Nigeria, whilst the pension assets in the last decade have grown by 21% annually, the growth in the value of assets when converted to USDhas been about 11% over the same period. 

READ: PenCom recovers N17.51billion from defaulting employers, imposes penalties

This is according to a recent report released on Pension Sector Forum by ARM Pension, with the theme “Pension Assets Risk Management in the Face of Uncertainties 

All other things being equal, the findings revealed that the Defined Contribution Pension scheme assets on a 10- year time frame, grew faster than Defined Benefits (CAGR 8.4% pa vs 4.8% pa). Increased member coverage and higher contributions were probable factors responsible for the growth In addition, most retirees might not have enough funds to maintain a decent standard of living, as retirement risk has been transferred to them. 

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Other risks outlined in the summit includeinterest rate risk, political risk, operation risk, and key macroeconomic risks such as unemployment, GDP, inflation, currency among others. 

READ: Is Zenith Bank thriving on the strength of sound financial indices?

With regards to who bears the retirement risk, 68% of the risk is borne from one’s sources, while 38% is from outside sources. 

The report also stated that the total pension contributions received in the industry from 2017- 2019, was almost equally split between the private and public sectors at the end of Q3 2019 

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Explore Economic and Financial Data on the Nairametrics Research Website

Way Forward 

In mitigating the risks inherent in the Nigerian pension industry, experts at the summit called for increased collaboration among stakeholders, engagement with all regulators, increased advocacy for corporate governance, increased awareness, and sensitization of contributors by stakeholders among others as viable options going forward. 

Key Highlights  

  • As of June 2020, only 11.3% of the Nigerian labour force had opened retirement savings accounts (RSAs), while pension assets stand at less than 10% of GDP. 
  • The total number of funds under management currently stands at N11.1 trillion. 
  • There are currently over 9.04 million subscribers and 32 operators. 

READ: Why May was bad for your Pension funds

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To view the report, click to download HERE

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Chidi Emenike is a graduate of economics, a Young African Leadership Initiative Fellow and an Investment Foundations certificate holder. He worked as a graduate Teaching Assistant in the Federal College of Education Kano and is also a trained National Peer Group Educator on Financial Inclusion

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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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