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Financial Services

Most Nigerian banks may fail stress tests if economic downturn persists

Should the current economic downturn linger and deepen, Nigerian banks may fail the requisite stress tests.

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net interest income, Nigerian Banks, Fitch, Nigerian banks tremble over Cyber attack, Most Nigerian banks are very likely to fail stress tests should the economic downturn persists and deepens, What Banks can do to improve Real Sector Lending in 2021

There is fear that most Nigerian banks may fail the requisite stress tests, should the current economic downturn lingers and deepens, as most lenders will surely drop below the regulatory minimum capital thresholds, which could jeopardize the fragile financial systems.

According to Bloomberg, the tests show that a 3.5% contraction in the gross domestic product in the third quarter, may drop most banks’ capital adequacy ratio to an average of 11.2% from 15%, and a further decline by 4% in Q4 2020 will bring the indices to 9.3%.

“The stress test was conducted within the background of a sharp fall in oil prices, reduced global demand for Nigeria’s oil products, the decline in government revenue, unfavorable current-account position, and a fall in GDP. The severity of the simulated GDP contraction may be contained by a combination of fiscal and monetary interventions,” the CBN stated.

The CBN is exploring key strategic imperatives and policy thrusts over the next five years (2019-2024), that would preserve financial stability through enhancement of its on-site and off-site supervision tools and processes.

(READ MORE: China’s economy bounces back from COVID-19 slump, with a growth of 4.9% in Q3 2020)

In its efforts towards stabilizing the financial systems, CBN is done with the draft review of its framework, as well as the dynamic macroeconomic, and top-down stress testing tools that would be complementing the existing early warning system tools and enhancing the bank’s ability to proactively and timely identify potential risks to the financial system, as well as, risks to the individual banks.

What you should know

The COVID-19 pandemic lockdown impacted heavily on the overall economic activities, in addition to the slump in the oil price with its resultant effect on government revenues.

After the lockdowns, several businesses are yet to come back to life and many are still struggling to remain afloat.

There are imminent risks to the banking sector, arising from the spillover effects of the COVID-19 pandemic. For example, there is potential default risk by obligors with oil-related repayment sources or others unable to meet obligations due to the economic downturn, increased concentration of oil and gas exposures, deterioration in the foreign currency asset book, pressure on capital adequacy from currency depreciation, pressure on liquidity from reduced trading lines, and heightened exposure to cyber threats, etc

Bottom line

The lenders require much more vigilance to mitigate all the emerging risks and other complementary measures they may put in place, as well as, restructuring the credit lines for their loan customers, in addition to the provision of liquidity backstops as and when required to safeguard the fragile financial system.

Johnson is a risk management professional and banker with unbridled passion for research and writing. He graduated top of the class with B.sc Statistics from the University of Nigeria and an MBA degree with specialization in Finance from Ambrose Alli University Ekpoma, with fellowships from the Association of Enterprise Risk management Professionals(FERP) and Institute of Credit and Collections management of Nigeria (FICCM). He is currently pursuing his PhD in Risk management in one of the top-rated universities in the UK.

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Cryptocurrency

PayPal is buying a Crypto security startup for less than $200 million

PayPal is set to outrightly purchase a crypto-security firm, Curv as part of its campaign in building its crypto ecosystem.

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Paypal

PayPal is set to outrightly purchase a crypto-security firm Curv as part of its campaign in building its crypto ecosystem, the company disclosed today.

According to a report credited to CNBC, the deal is estimated to be worth less than $200 million, it’s expected to close before June this year.

The company’s stock price however recorded some selling pressures at the time of writing amid rising U.S Treasury yields and greenback keeping global investors on their toes.

READ: CBN and cryptocurrency ban

The crypto startup about to be acquired by PayPal provides companies with Crypto security technology via the cloud. PayPal revealed that the purchase would help its expansion on supporting crypto.

“The acquisition of Curv is part of our effort to invest in the talent and technology to realize our vision for a more inclusive financial system,” PayPal’s Jose Fernandez da Ponte said in a statement.

In a press statement seen by Nairametrics, Dan Schulman, president, and CEO, PayPal, gave key insights on why the global payment company was going crypto; The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of; financial inclusion and access, efficiency, speed, the resilience of the payments system and the ability for governments to disburse funds to citizens quickly.

READ: U.S customers can now buy Cryptos with Paypal

“Our global reach, digital payments expertise, two-sided network, and rigorous security and compliance controls provide us with the opportunity, and the responsibility, to help facilitate the understanding, redemption, and inter-operability of these new instruments of exchange,” he said.

Furthermore, he said, “We are eager to work with central banks and regulators around the world to offer our support and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce.”

This offering was made possible through a partnership with Paxos Trust Company, a regulated provider of crypto services and products.

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Financial Services

Growing performances demands have necessitated Bank’s Balance Sheet Management practices – CWG Plc

Balance Sheet Management practices Is needed to embrace advanced platforms and technologies.

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CWG Plc

CWG Plc has stated that the growing demand by banks to improve performances, increase transparency and comply with complex regulations has necessitated Balance Sheet Management practices to embrace advanced platforms and technologies.

The platforms are expected to provide greater data navigation and analytic capabilities to manage Risk, Returns & Capital.

This was disclosed by Business Director, FSI, Abayomi Olomu, in a statement issued by CWG Plc ahead of its Balance Sheet of the Future: Risk-Data-Analytics Conference on Wednesday.

READ: How the CBN sourced the $25 billion (N10 trillion) it lent the FG

According to him, the conference, which is organised in partnership with Surya software, a global Financial Control & Risk Management solution provider, will host key players in the Banking and Financial Services industry.

He said, “There is need to explore the role of Balance Sheet Management and Asset Liability Management in future considering the volatile and dynamic markets and how technology can be leveraged to manage these areas.  

”Banks have increased demands to improve performance, increase transparency and comply with newer and complex regulations. 

“These growing demands have necessitated Bank’s Balance Sheet Management practices to embrace advanced platforms and technologies that provide greater data navigation and analytic capabilities to manage its Risk, Returns & Capital.” 

READ: What banks can do to improve Real Sector Lending in 2021

He added that the ‘Balance Sheet of the Future’ conference amplifies CWG and Surya software’s commitment to deploy versatile solutions and technology platforms within the Nigerian and Ghanaian Financial Services market.

What you should know

The keynote address of the event will be delivered by Her Excellency, Zainab S. Ahmed, Honourable Minister of Finance, Budget & National Planning. There will be a guest address from Mr Pravat Dash, Senior VP – Head of Market Risk, Axis Bank which is one of the top private sector banks in India.

Some of the thought leaders from the Nigerian Banking and Financial Industry will also participate in the conference to discuss and share their views on the subject matter.

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