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Financial Services

Microfinance Banks record 82% boom in lending in 2020

Microfinance Banks are now the fastest creator of credit in the financial services space.

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Most Nigerian Households took loans for feeding purposes during the peri-COVID-19 era – NBS 

Microfinance Banks in Nigeria recorded an 82% boost in lending rising from N300.2 billion in 2019 to N546.6 billion in 2020. This is according to the latest data from the National Bureau of Statistics.

As of 2018 total microfinance loans to the private sector was just N250 billion. This has now doubled in two years due to improved technology, easier processing of loans, better loan recovery methods, increased competition, and a growing class of employees with an appetite for short-term credit.

What this means: This is the clearest confirmation yet that this is the fastest-growing credit segment in the financial lending space. Microfinance banks have led the charge on consumer loans in the last three years extending credit to the risky retail end of the market which has for years being ignored by commercial banks.

Other sectors: Commercial and merchant banks on the other hand recorded a 12.4% increase in credit to the private sector while Primary Mortgage Banks recorded a 35.1% increase. Non-interest banks such as Islamic banking recorded a 57.9% spike in lending.

READ: Nigerian Banks spend N551.9 billion on employee cost in 2020

How they did it

Sources within the sector inform Nairametrics that requests for loans spiked amidst the Covid-19 lockdowns as employees seek alternative funding to meet immediate expenditure. Most of the borrowings often occurred over the use of mobile phones or simple email exchanges between borrowers and their microfinance banks.

Microfinance Banks such as Renmoney, Page Finance, VFD have focused most of their lending on employees who only need to provide evidence of steady salaries and working for structured organizations. The commercial banking sector alone boasts of over 100,000 employees whom these microfinance banks can target. They also make lending very easy to access requiring borrowers to just provide their payslips as well as consenting to direct debit of their bank accounts via channels such as Remita.

READ: CBN moves against bad debtors to other financial institutions in new circular

Direct debits allow the lenders to debit the bank accounts of their borrowers without having to seek their consent or forcing them to transfer their salary to the microfinance banks. This was a major breakthrough in the operations of microfinance banking as it allowed operators to take on more risk without having to worry much about deliberate defaults especially where the customers actually have the funds but refuse to pay.

Another factor that has worked well for the banks is the micro-nature of the loans. The loans are short-term, usually within a year or less, and as little as N50,000. Borrowers use these loans to meet short-term obligations which they quickly pay back from their salaries at the end of the month.

Intense competition in the last two years has also played a major role in driving up loans and advances. According to data from the CBN, there are over 900 microfinance banks in the country with state, regional, and national licenses. Newer entrants from the FinTech community have also paved the way for innovation improving how some of these banks lend money to their customers and also manage risks.

READ: Only 9% of Nigerian households obtained loans from banks and microfinance institutions since March – NBS

Despite the improvements, analysts still worry about the spate of loan defaults with some in their double digits even though official sources suggest it is around 5-6% for some of the leading MFBs as they are also called.

Primary Mortgage Bank also recorded a much-improved performance during the year rising by 35.1% to N180.2 billion. Non-interest banks, which mostly adhere to Islamic tenets also crossed the hundred billion market recording a 57.9% spike to N105.7 billion.

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Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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    Financial Services

    Ratings agency, Moody’s reveals it is reviewing First Bank’s ratings

    Moody’s explained why it might downgrade First Bank’s ratings.

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    Moody’s Ratings agency said on Thursday that it has put First Bank of Nigeria on review for a downgrade after the central bank sacked the board of directors and replaced them with new directors.

    Moody’s made this statement in a report titled ‘Removal of Non-Executive Board Members Highlights Governance Shortcomings.’

    In a quote, Moody’s said:

    “Moody’s Investors Service, (“Moody’s”) has today placed all long-term ratings and assessments of First Bank of Nigeria Limited (First Bank) on review for downgrade. The review will focus primarily on an assessment of evolving governance considerations at First Bank, specifically corporate governance developments. The rating action follows the dissolution of First Bank’s board by the Central Bank of Nigeria (CBN), the bank’s primary regulator, on 29 April 2021. As a result of this action by the CBN, all the non-executive directors were removed while the executive management remained in place.”

    The Governor of the Central Bank of Nigeria, Godwin Emefiele, had last week announced the sack of the entire board of directors of FBN Holdings Plc and its subsidiary, First Bank of Nigeria Ltd following the initial removal of its MD/CEO Dr Sola Adeduntan. Following his sacking of the board, he set up a new board for the bank holding company and its subsidiary and also reinstated Adeduntan as MD/CEO.

    Moody’s mentioned that the regulatory actions demanded of First Bank by the CBN introduces a clould of uncertainty over the outlook of the bank. For example, the CBN had asked the bank to divest from its holdings in two listed companies while also recovering its loans from one of them.

    “The review for possible downgrade reflects the rating agency’s view that the removal of all non-executive directors of the bank’s board by the regulator demonstrates corporate governance shortcomings and weaknesses in board oversight. The bank also needs to implement regulatory directives concerning the resolutions of loans to, and shareholding in non-banking related parties, which reportedly had not been executed in the recent past.

    Moody’s notes that the outcomes of these developments are uncertain at this point, and the final and long-term governance, reputational and financial implications of the events for First Bank are also unclear.”

    The central bank directive sacking the board of the bank also retained its executive management perhaps suggesting that the CBN had confidence in the ability of the MD and his team to manage the bank. Moody’s also noted this in its briefing.

    “While the bank’s executive management team remained the same, the rating agency believes these developments could distract management’s focus on implementing the bank’s strategic plan and road to recovery. First Bank management’s immediate key target was to reduce nonperforming loans (NPLs) to levels comparable with domestic peers. The rating agency recognises that, in the context of asset risks, the bank took steps to reduce its stock of problem loans, with its reported NPL ratio falling to 7.7% at year-end 2020 from 25.9% in 2018.”

    Will Moody’s downgrade First Bank?

    The rating agency explained that the decision to downgrade will depend on how strong the bank’s corporate governance structure is and whether the CBN will impose additional sanctions. If any of these crystallizes, it could downgrade its ratings.

    “The bank’s long-term deposit ratings can be downgraded if flaws in the bank’s governance systems exist, and if the CBN imposes additional sanctions on the bank, including, but not limited to, conditions to address any vulnerabilities that may be discovered. Financial output that is less than anticipated could also result in a rating downgrade.”

    Moody’s, however, poured water on any optimism around a rating upgrade.

    Given the review for downgrade and the pessimistic outlook on the government of Nigeria, there is a slim chance that First Bank’s ratings will be upgraded. Stronger solvency progress than currently reflected in the ratings, combined with a stabilization of the sovereign outlook, could result in the outlook being stabilized.

    Why is rating important?

    Corporate Organizations desire positive ratings because of the effect it has on their ability to raise capital as well as the cost of capital. A high credit rating typically attracts positive investor sentiments helping organizations tap the debt and equity markets, especially from institutional investors.

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    Business

    Insurance companies paid N4 billion in claims after EndSARS protests – NIA

    The NIA chief assured that some insurance operators were still working to settle genuine claims as most claims from insured businesses had been paid.

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    Insurance companies paid N4 billion in claims after EndSARS protests - NIA

    The Nigerian Insurers Association (NIA) says Insurance companies paid N4 billion in claims to over 2000 businesses affected by the aftermath of the EndSARS protest after hoodlums took to the streets.

    This was disclosed by Mr Ganiyu Musa, Chairman, NIA, on Thursday in Lagos.

    The NIA chief assured that some Insurances operators were still working to settle genuine claims as most claims from insured businesses had been paid.

    READ: Marginal oilfield: Bid winners allowed to make payments in naira – Minister

    “The number of insured businesses that were affected at the last count was about 2,000 insured loss and the industry has settled N4 billion claims out of N4.5 billion in respect of the #EndSARS protests.

    Once they are documented and completed, we have the commitment of our members that the claims will be paid timely,” he said.

    He added that the association would continue ensuring members pay genuine claims to clients.

    What you should know

    Recall Speaker of the House of Representatives, Femi Gbajabiamila disclosed that Lagos State will need about N1 trillion for the reconstruction and repair of the properties and infrastructure that was vandalized and destroyed by hoodlums.

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