Indices plummet by N129b in five trading days Market operators have bemoaned the recent decision by Monetary Policy Committee (MPC) to increase interest rate from 12 to 14 percent, stating that it may depress investors’ appetite for equities.
They argued that in portfolio management, the logical assumption is that relationship between interest rate and stock market is reverse. Indeed, the stock market indices have plunged by N129 billion on the announcement of decision last week Tuesday.
Specifically, market capitalisation of the Nigerian Stock Exchange (NSE) dropped by N129 billion or 1.3 per cent from N9, 687 trillion recorded last week Wednesday to N9,558 trillion yesterday, while the All- share index fell by 362.62 points from 28,205.96 to 27,831.95
Reacting to the development, a stockbroker and the Chief Executive Officer of Sofunix investment, Olusola Oni explained that when interest rate is low, speculators move their funds from the money market instruments to the stock market for higher yield.
He added that the same speculators move from the stock market to other asset classes, especially, fixed income securities when the interest rate is high.“In portfolio management, the logical assumption is that relationship between interest rate and stock market is inverse. This implies that when interest rate is low, speculators move their funds from the money market instruments to the stock market to make a kill.
“As a corollary, the same speculators move from the stock market to other asset classes, especially, fixed income securities when the interest rate is high.“By this logic, one can assume that the current increase in the MPR would boost investment in the fixed income securities while it may depress investors’ appetite for equity investment.”
However, he noted that there are many exogenous factors that affect investment decision at the level of investment objective, adding that the stock market mirrors the economy.The Managing Director of Highcap securities, David Adonri explained that when interest rate increases, it favors fixed income investments and drives assets from equity.
“The rate at which interest rate may crowd out the productive sector because Iam sure it is only government that can issue fixed income securities at high interest rate. “I understand that foreign investors are asking for a yield of about 20 per cent so the productive activities in real sector may not be profitable at that interest rate so we may have government crowding out the productive sector together with the equities market.
“The big decisions have been taken already, the flexible exchange rate is a major one that will impact positively on the economy, then the partial deregulation of the price of petrol is another major one. So far, those two policies will appropriately manage the demand side of the economy.
“It is left for the fiscal entities to come up with measures that would stimulate the supply side of the economy that means, they have to come up with incentives that would enable supply of goods in the economy to be stimulated.” The President, Renaissance Shareholders Association of Nigeria, Timothy Olufemi said: “ It will be hard to get good returns on investment at 2016 year-end. The year is definitely going to favor less forex dependent companies.
“There will be great losses to Forex & interest rate on loans. There will be greater apathy to stocks market investment going forward in 2016. Times are hard,” he added. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), had on July 26, 2016, favored the increase of the Monetary Policy Rate by 200 basis points, saying it is to curtail negative rates against inflation level and attract foreign investment.
Against expectations of financial analysts that the Monetary Policy Rate would remain unchanged at 12 per cent, CBN, has kept the rate at which it lends to banks at 14 per cent, which serves as the barometer for the direction of interest rate charged by banks.
The apex bank said when considered from the standpoint that the primary mandate of the CBN was to maintain price stability, the committee decided to focus on its mandate by checking inflationary pressures.
CBN added that members of the committee agreed that the economy was passing through a difficult phase, adding that the concern was that headline inflation had risen significantly in June.
The Central Bank of Nigeria, CBN, yesterday, directed banks operating in the country to accept deposit of cheques into savings account and to begin to embed Bank Verification Number, BVN in payment cards.
The CBN, in a circular signed by Director, Banking & Payments System Department, Dipo Fatokun, dated July 28, 2016, sent to all banks and financial institutions and released, yesterday, stated: “The CBN in furtherance of its efforts at strengthening the Nigerian payments system hereby issues the following directives:
“The removal of fixed interest rate on credit cards; Discontinuation of actual address verification in account opening for customers with customers with the BVN; Banks should begin to embed BVN biometric data in payment cards issued henceforth, to facilitate offline BVN verification and biometric based customer authentication on such payment devices as Automated Teller Machines, ATMs, Point of Sales Terminals, POS, Kiosks, etc.”
Other directives by the CBN to banks include: “Approval of BVN Watch-listing modalities and release by CBN of necessary Credit Risk Management System (CRMS) data, to facilitate its use for enriching the BVN watch-list; savings account customers with BVN should be allowed to deposit cheques worth not more than N2,000,000.00 (Two million naira) into their accounts, per customer, per day.
It will be recalled that in furtherance of efforts in the development of a safe, reliable and efficient payments system in Nigeria, the CBN in conjunction with the Bankers’ Committee, undertook some major initiatives. One of such was the launching of the BVN Project in February 2014, which was sponsored by the bankers committee.
The CBN had observed the progress so far in the implementation of BVN Project. In order to increase the tempo in the enrolment by the Deposit Money Banks (DMBs) customers on the the BVN, and to start reaping the benefits of the project, it is imperative to stipulate milestone for the implementation of the Project.
The CBN had in an earlier circular stated: “All stakeholders are hereby advised to note and implement the following: That by March 2015, transactions valued at N100,000,000.00 (One hundred million Naira) and above, should be allowed for customers with the BVN; (These include, but not limited to, money transfers, loans, contingencies, etc). It saidt that by June 2015, all banks’ customers should have BVN. Any bank customer without the BVN would be deemed to have inadequate Know Your Customer, KYC. DMBs should intensify efforts to sensitize their customers on the aforementioned development and enrol them for the BVN accordingly. It further said that DMBs are required to submit to NIBSS, as part of their weekly returns on Customers Account Details, the account status of customers that have submitted their BVN and those that have not. NIBSS in turn, will render consolidated returns to the CBN, on weekly basis, starting from 1st October 2015.”
It should be noted also that the CBN had told banks operating in the country that bank accounts without the BankVerification Number (BVN) would be operated as “No Customer Initiated Debit”. The apex bank said this in a circular titled: “Classification on Accounts with BVN Related Issues” sent to all commercial banks and posted on its website.
The circular had said that such accounts would remain dormant until the account holder obtains and attaches the BVN to the account. The circular read: “It has, however, come to our notice, that some customers could not link their BVN to their accounts.This is due to discrepancies between the record on the BVN database and the records on the core banking applications of the DMBs. “Such customers can approach their bankers for correction, but some of the banks could not effect the corrections.”
The apex bank, in the circular, said that in view of this development, it had become imperative for the CBN to issue the clarifications. It said that such clarifications included corrections of Date of Birth on the BVN record. This should be allowed once, with supporting documents, evidencing the correct date of birth. The CBN said that change of names due to marriage should be allowed with supporting documents, such as marriage certificates or affidavits, among others. The apex bank said that minor correction of names, due to misspelling should be allowed, with supporting documents such as international passport, showing the correct name. According to CBN, change of names that are totally different should only be allowed after customer has produced supporting documents. The CBN had said that this should be reported to the Nigerian Financial Intelligence Unit (NFIU) as a suspicious transaction by the bank customer.
As part of efforts to reposition the bank and record better future performance, Skye Bank Plc has made a total provision of N34.681 billion for impairment charges for the year ended December 31, 2015. Although the bank ended the year with higher interest income of N127 billion in 2015, up from N107 billion in 2014, the impairment charges made the bank to record a loss of N40.726 billion compared with a profit of N18.717 billion in 2014.
While N27.53 billion impairment charges were for loans, N7.145 billion was provided for as impairment charges for other financial assets.
The bank’s huge exposure to the oil gas, energy and other sectors of the economy affected its loan performance, a development that made the Central Bank of Nigeria (CBN) to intervene in the bank last month.
The new Group Managing Director of Skye Bank, Mr. Tokunboh Abiru had assured capital market operators that the management team and the board would work to achieve value enhancement for shareholders, customers and other stakeholders by bringing the cost-income ratio to acceptable levels, improve the risk assets quality and work towards increasing the liquidity and capital adequacy of the bank.
Abiru described the reconstitution of the bank’s board as an intervention, saying the lender’s fundamentals are good and strong.
Also, the Chairman of Skye Bank Plc, Mr. M.K. Ahmad had explained that the CBN did not take over the bank but only intervened to correct observed corporate governance issues under the old board. According to him, the ownership of the bank remains in the hands of the shareholders, stressing that the CBN does not own the bank and has not taken over the bank, saying the CBN was fully behind the bank and would support it to fully stabilise.
Ahmad, a former Director General of the National Pension Commission, re-assured the bank’s stakeholders that the bank was not distressed but only had corporate governance issues under the old board. He said the bank’s fundamentals remain strong and that it remains one of Nigeria’s leading and retail banks.
Forte Oil Plc has reiterated its resolve to hit N11 billion target in Profit Before Tax (PBT) for 2016, even as the firm is currently projecting a market share of 20 per cent in short to medium term basis. Besides, the firm also unveiled plans to raise additional capital from the stock market to boost operations.The company, which is currently at N4.2 billion PBT, is hinging its projection and confidence of impressive performance for 2016 in company’s involvement in crude oil lifting, especially the completion of the major overhaul and increase in the capacity of Geregu power plant to 435 megawatts.
The Group Chief Executive Officer of the company, Akin Akinfemiwa, while addressing stockbrokers during the company’s ‘Facts Behind the Figures’ in Lagos on Wednesday, explained that the overhaul is expected to impact positively on its operating margin and boost its profitability in the second half of the year.
“We are currently at N4.2 billion PBT in the first half because we have only one turbine running but in the second half of the year, we would have our three turbines running and we may even surpass our budget of N11 billion PBT. But we are sure of attaining the budget.” The Forte Oil boss said the company’s diversification from downstream player to an integrated energy solution provider underpins the firm’s medium and long-term strategy to drive future profitability.
According to him, the company would deepen its focus on high margin products such as lubricant, exploit LPG business particularly LPG retailing and bottle refilling, optimize and expand the Geregu power plant asset.
Other areas of focus, according to Akinfemiwa includes introducing new products offerings such as solar solutions, harnessing partnership with convenience stores, diversifying into high marginal related business among others.
He assured shareholders that the company has effectively identified the risk factors that could affect its business operations, adding that it has put measures in place to mitigate these risks.
The company for the half-year ended June 30, 2016 posted revenue of N84.48 billion against N61.17 billion achieved in the corresponding period of 2015.PBT stood at N4.25 billion in contrast with N3.26 billion in the preceding period, indicating an increase of 31 per cent.Profit after tax rose to N3.11 billion from N2.53 billion recorded in the comparative period of 2015.
Dangote Sugar Refinery Plc last week has announced a profit before tax (PBT) of N11.1 billion for the six months ended 30 June, 2016. The unaudited results for the half year indicated that all performance measurement indices trended upwards. The results showed that profit before tax rose by 13.3 per cent compared to N9.8 billion in the same period in 2015. Similarly, the sugar group recorded a profit after tax (PAT) of N7.4billion, which rose by 17.5 percent over N6.3billion posted in the corresponding period in 2015.
Group revenue increased by 37.86 percent to N70.5 billion compared to N51.1 billion in 2015, reflecting the increase in sales volumes during the period.
Gross profit increased by 9.57 percent to N13.9 billion in contrast to N12.7 billion despite higher production costs mainly driven by increased LPFO usage and currency devaluation. The unit prices for gas and LPFO were also higher than in the comparative period.
Speaking on the six months unaudited results, Acting Group Managing Director of DSR, Abdullahi Sule, said: “Despite market challenges experienced in the first quarter and operating challenges in the second quarter of 2015, we were able to grow our revenue compared to the same period in the previous year.
Our focus for the remainder on the year will be to increase sugar production at reduced conversion cost and improve distribution to match the increasing demand from our customers. Our greater growth strategy “Sugar for Nigeria” continues to gain momentum as we execute the first phase of our expansion plans.” According to him, the various operational and economic challenges the company was faced with during the period under review notwithstanding, the overall performance shows an improved outlook for the period.
Dangote Sugar is Nigeria’s largest producer of household and commercial sugar with 1.44 million tonnes of refining capacity, with the ability to supply most of the country through an extensive network of distributors. The Group’s refinery at Apapa imports raw sugar from Brazil and refines it into white, Vitamin A fortified sugar suitable for household and industrial uses while Savannah cane sugar factory located near Numan, in Adamawa State has an installed factory capacity of 50,000 tonnes. Covering 32,000 hectares in extent, the Savannah estate has considerable opportunity for expansion which is underway.
Global oil benchmark, Brent crude, fell by over three per cent on Monday to around $42 per barrel amid worries about growing glut in the market.
A Reuters survey on Friday found that output from the Organisation of Petroleum Exporting Countries likely rose in July to its highest in recent history as Iraq pumped more and Nigeria squeezed out additional crude exports despite militant attacks on oil installations.
Data on Friday also showed the United States added 44 new oil drilling rigs in July, the most for a month in two years, intensifying concerns that global production could once again get to unmanageable levels like in 2014-2015.
Brent crude was down by $1.47 to $42.06 per barrel as of 6:50pm Nigerian time, after a session low at $41.87, while US West Texas intermediate crude fell to $39.86, its lowest since April 20.
Meanwhile, a former Group Managing Director of the Nigerian National Petroleum Corporation, Mohammad Barkindo, on Monday assumed office as the secretary-general of OPEC at the secretariat in Vienna, Austria, the 13-member oil cartel said in a statement.
Barkindo was officially appointed to the post for a three-year term at OPEC’s 169th Meeting of the Conference on June 2, 2016 in Vienna.
He replaces Abdalla Salem El-Badri, who led the organisation since January 1, 2007.
An accomplished oil technocrat and veteran of OPEC, Barkindo brings with him a wealth of experience in the oil and gas industry, both in Nigeria and internationally, the group said.
From 2009 to 2010, he was Group Managing Director of the NNPC. Previous to that, he served as Deputy Managing Director of the Nigerian Liquefied Natural Gas, a joint venture between the NNPC, Shell, Total and Eni. Earlier in his career, he was Special Assistant to the former Minister of Petroleum Resources and OPEC Secretary-General, Dr. Rilwanu Lukman.
According to the statement, Barkindo also worked in several key roles at OPEC between 1986 and 2010. In 1986, he was appointed a member of Nigeria’s delegation to OPEC, and from 1993 to 2008 served as Nigeria’s national representative on the organisation’s Economic Commission Board.
In 2006, he served as acting secretary-general of OPEC, and represented Nigeria on the cartel’s Board of Governors from 2009 to 2010.
OPEC said in the statement, “He has also helped produce the United Nations Framework Convention on Climate Change and the Kyoto Protocol as the leader of Nigeria’s technical delegation to the UN negotiations since 1991.
“He also served as vice president of COP15 in 2010, when he chaired the opening session in Copenhagen attended by more than 100 heads of state and government. He is the longest serving member of the country’s delegation to the UNFCCC. He also served as chairman of the OPEC Task Force of the United Nations Commission on Sustainable Development for the 15th session.”
The naira dropped to 382 against the United States dollar at the parallel market on Monday, down from the 380 it closed on Friday.
The local currency had hovered between 375 and 380 against the greenback last week.
The naira has been under a persistent pressure as dollar scarcity continues to weigh on the local currency at both the parallel and interbank forex markets.
Economic and financial experts said inadequate forex liquidity at the interbank market was taking a toll on the parallel market.
Analysts had predicted that the naira would weaken further against the dollar this week owing to limited dollar supply as foreign portfolio investors continued to stay on the sidelines until the Nigerian economy showed signs of recovering from the impact of currency controls.
The naira had hit an all-time low of 334.50 per dollar on Wednesday, a day after the Central Bank of Nigeria hiked interest rates to try to lure foreign investors back into local assets.
On Monday, the naira closed at 316.37 against the dollar at the interbank market. On Friday, it closed at 321.16 to the dollar, compared to 292.40 the previous Friday.
According to financial analysts and experts, the naira may weaken further, especially at the interbank market, if the CBN fails to intervene at the market this week.
The CBN had asked for quotes of $5m each from currency traders on Wednesday as it sold the US currency to boost dollar liquidity and support the naira, traders said on Monday.
The naira opened at 315 to the dollar and weakened to 324 before the central bank intervened to help the currency close at 316.37. A total of $27.05m was traded on Monday, Thomson Reuters data showed.
“The market still lacks enough liquidity, we need to do more to boost liquidity. The current rate is a measure of the amount of dollar liquidity at the interbank market,” a currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, said.
He believes that the market will improve in the coming months and boost the naira value.
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “We are in a very challenging situation as a country and the CBN needs to do something urgently to stabilise the exchange rate at the interbank market.
“If the CBN fails to intervene, the naira may fall further against the dollar at the interbank market. If it does, the naira may appreciate to say about 310 to the dollar. But the point is that the market needs sustained intervention until there is a calm that will assure the foreign investors that things are now normal.”
Chukwu noted that the CBN might need to access close to $10bn facility from the World Bank to stabilise the forex market.
A research analyst at FXTM, Mr. Lukman Otunuga, noted that the elevated concerns over a potential technical recession in Nigeria had forced the CBN to relinquish its naira peg.
“With the parallel and official markets potentially closing the gap as the naira floats, liquidity could increase as investors send their dollars to the official exchange. As of now, the naira could depreciate further as a combination of rising US Fed rate hike expectations and ongoing fears over the domestic economy encourage investors to install another round of selling,” he said.
The country’s earnings from crude oil export have continued to fall, as latest data from the Central Bank of Nigeria showed that the volume of crude export dropped by 10.23 million barrels in the month of May.
At the official exchange rate of N315.5 to a dollar, and an average of $47.59 per barrel of crude during the review period, Nigeria’s earnings from the export of the commodity dropped by N153.5bn in May.
The country’s crude oil export opened at 1.45 million barrels per day or 44.95 million barrels in the month of January, but it recorded declines in the preceding months and reduced to 0.9 million bpd or 27.9 million barrels in May.
In April, Nigeria’s crude export stood at 1.23 million bpd, but this dropped by 330,000 bpd in May.
According to the CBN, the drop in oil export was largely due to destruction of oil and natural gas infrastructure in the Niger Delta by militants.
The apex bank, in its report for May 2016, said, “Nigeria’s crude oil production, including condensates and natural gas liquids, stood at an average of 1.35 million barrels per day or 41.85 million barrels in the review month. This represented a decline of 0.33 million bpd or 19.6 per cent below the average of 1.68 million bpd or 52.08 million barrels recorded in the preceding month.
“Crude oil export stood at 0.90 million bpd or 27.90 million barrels, which represented a decrease of 26.83 per cent, compared with 1.23 million bpd or 38.13 million barrels recorded in the preceding month. The development in crude oil production was attributed largely to the destruction of oil and natural gas infrastructure in the Niger Delta by militants.”
It, however, noted that allocation of crude oil for domestic consumption remained at 0.45 million bpd or 13.95 million barrels during the period under review.
It added, “At an estimated average of $47.59 per barrel, the average spot price of Nigeria’s reference crude, the Bonny Light, indicated an increase of 12.6 per cent, compared with the level in the preceding month. The development was attributed, largely, to increasing global oil supply outages and the growth in global oil demand, plus ongoing declines in the United States rig count and in crude oil production.”
The report put the United Kingdom Brent at $44.77 per barrel, the WTI at $46.61/b, and the Forcados at $47.19/b, adding that the commodities exhibited similar trends as the Bonny Light.
“The average price of OPEC basket of 11 selected crude streams stood at $43.23/b in May 2016. This represented a rise of 14.2 per cent, compared with the average price of $37.86/b recorded in the preceding month. It, however, showed a decline of 30 per cent relative to the level in the corresponding period of 2015,” it added.
Analysts have condemned the continued destruction of oil installations in the Niger Delta by militants, stressing that the development has put a serious strain on the country’s foreign exchange earnings.
The Director of Emerald Energy Institute, University of Port Harcourt, Prof. Wumi Iledare, told our correspondent that “the destruction of oil installations in Nigeria is costing our economy so much, let alone how these activities have so depleted our forex reserves, which is not good for a developing economy like ours.”
Wema Bank Plc, which plans to expand its branch network this year, is to issue N20billion ($63 million) in bonds this month, its chief finance officer said on Monday.
The bank is issuing local currency bonds after scrapping plans last year to issue a $100 million seven-year dollar bond because of currency risks.
“We expect to open in a couple of weeks. We are awaiting final regulatory approvals and we expect to conclude the process this quarter,” Tunde Mabawonku told Reuters monrday.
Wema, which won regulatory approval last year to switch from a regional to a national bank, plans to re-open branches in Nigeria which it closed to become a regional player, he said.
Wema obtained shareholders’ approval in May to issue bonds or preference shares this year to raise N20 billion in the first tranche of a N50 billion programme, but market conditions then deteriorated.
The naira has dropped 40 per cent since June, when Nigeria ditched its 16-month-old peg of N197 to the dollar in a bid to lure back foreign investors who had fled after a plunge in the price of oil, Nigeria’s economic mainstay. Mabawonku said the mid-tier lender was watching debt markets closely for rates, adding that it had a target break-even rate at which it wanted to issue the notes.
Nigeria’s one-year treasury bill is offering around 18 per cent yield, traders said. Yields on fixed income securities have been rising in recent months with the central bank mopping up naira liquidity to lure back foreigners.
The central bank lifted interest rates by 200 basis points last week to 14 per cent to help fight inflation, which hit a 10-year high of 16.5 per cent in June.
“Yes the economy has slowed but there are still business opportunities,” Mabawonku said. “We are opening locations in areas where we are not present and we see that the population is under-banked.” Wema, which has more than 100 branches, has also said it aimed to buy a mid-sized commercial lender to build scale.
Nigerians will, from today, struggle harder for foreign exchange as banks are also looking for it, especially the United States dollar, to scale up their loan provisions.
The Central Bank of Nigeria (CBN) gave August 5, 2016, as the deadline for all Deposit Money Banks (DMBs) to increase their provisioning for foreign currency-denominated loans and related exposures.
An increased loan provisioning for banks became necessary following a new foreign exchange policy that brought imbalance in earlier provisioning made on the basis of N197/$ official exchange rate.
The apex bank yesterday said the development was one of the effects of the new foreign exchange guidelines, which liberalised the market. Naira currently exchanges for more than $305 at the interbank in response to forex trade liberalisation. Analysts say it will now be more difficult for Nigerians to secure foreign exchange as banks struggle to keep as much dollars as they can in their coffers. The possible use of naira to back up dollar demand could further weaken the local currency and escalate prices of goods and services.
Apart from being owed, two big banks have topped the list of dollar-denominated borrowers to the tune of $1.6 billion and $915 million to cover their shortfalls, according to Thomson Reuters.
The exchange, which is now above N300 per US$ increased balances on foreign currency-denominated loans and advances in the books of banks, especially facilities that had been fully provided for under the previous exchange rate regime, but were yet to be written off.
The Director of Banking Supervision, Central Bank of Nigeria (CBN), Mrs. Tokunbo Martins, who signed the circular, said: “To ensure adequate and proper provisioning, banks are by this circular, required to ensure that the non provisioned portion on all such facilities are fully provided for immediately in the income statements and evidence of the additional provisions forwarded” to her office latest Friday this week.
She added that henceforth, all foreign currency-denominated loans should be reviewed and adequate provisioning made on all delinquent ones in line with the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.
Meanwhile, pressure seems to be persisting as industry’s loan book has shown that almost half of the total is dollar-denominated debts, with uncertainty still shrouding the recovery.
The uncertainty rose further as the naira ended the week at N321.16 to the dollar at the interbank market, coupled with foreign exchange shortages.
According to Agusto & Co, Nigeria rating agency, non-performing loan will rise to 12.5 per cent of total loans by the end of the year, far from apex bank’s five per cent threshold.
Already, there are heightened expectations that more banks’ workers would be laid off, while some branches will be closed and at extreme projections, some banks are unlikely to survive the challenging times.
There are also speculations that the regulator is monitoring one or two lenders for their liquidity levels, while four medium-sized banks might need to raise capital and soon.
CBN, on the sidelines of the last Monetary Policy Committee meeting in Abuja, reiterated that the strategic health of the Nigerian banking industry remains strong notwithstanding any economic challenges.
It noted that there is no need for anybody to embark on panic withdrawals or raise concerns that any bank is in distress.
