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CBN Raises Benchmark Interest Rate to 12%

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The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday announced a tightening of the monetary policy stance by increasing the Monetary Policy Rate by 100 basis point from 11 per cent to 12 per cent.

It also increased the Cash Reserve Ratio by 250 basis points from 20 per cent to 22.5 per cent, while retaining the liquidity ratio at the rate of 30 per cent.

However, the committee narrowed the asymmetric corridor from +200 and -700 basis points to +200 and -500 basis points.

The MPR is the anchor rate at which the CBN, in performing its role as lender of last resort, lends to Deposit Money Banks to boost liquidity in the banking system.

By this increase of 100 basis points in the MPR, the cost of funds to the banking system from the central bank will now increase, thus leading to a rise in lending rate from commercial banks to businesses.

Addressing journalists shortly after the two-day MPC meeting held at the central bank headquarters in Abuja, the CBN Governor, Mr. Godwin Emefiele, said the committee expressed concern that the excess liquidity in the banking system was contributing to the current pressure in the foreign exchange market.

This, according to him, has a negative impact on consumer prices, with the inflation rate rising to its highest level in three years at 11.38 per cent.

The governor said at 11.38 per cent, the inflation rate had breached the CBN’s policy reference band of six per cent to nine per cent.

He lamented that previous efforts to reflate the economy in order to spur growth had not elicited the required response from the DMBs as there had been a resurgence in liquidity in the interbank market.

Emefiele said, “The committee, in its assessment of relevant internal and external indices, came to the conclusion that the balance of risks is tilted against price stability. The MPC, therefore, voted to tighten the stance of the monetary policy. One member voted to retain the CRR at 20 per cent, while another member voted to retain the current width of the asymmetric corridor.”

Concerned about the need for low interest rates to support growth and employment, the governor said the committee urged the CBN to explore innovative ways of ensuring unhindered flow of credit at low cost to key growth sectors.

The CBN governor stated that despite the accommodative monetary policy stance embarked upon by the apex bank since July 2015 by lowering the CRR and MPR to free up more funds, banks had yet to access these funds.

He said, “The bank (CBN) had adopted accommodative monetary policy since July 2015 in the hope of addressing growth concerns in the economy, effectively freeing up more funds for the DMBs by lowering both the CRR and MPR, with excess liquidity arising from the lower CRR warehoused at the CBN.

“The DMBs were to access these funds by submitting verifiable investment proposals in the real sector of the economy. The funds have not impacted the market yet because the CBN is still processing some of the proposals submitted by the DMBs.

“In the first episode of easing, which resulted in injecting liquidity into the banking system, the DMBs did not grant credit as envisaged.

“The cautious approach to lending by the banking system underpinned by a strict regulatory regime conditioned by the Basel Committee in the post global financial crisis era has further alienated investors from access to credit as banks prefer to build liquidity profiles in anticipation of government borrowing.”

He  also said, “The delay in the passage of the 2016 budget has further accentuated the difficult financial condition of economic agents as output continues to decline due to low investment arising from weak demand.”

The governor said the sluggish growth in output was partly attributable to certain fiscal uncertainties.

This, he noted, had inadvertently hampered investment spending and flows as well as led to slow growth in credit to the private sector in preference to high credit growth to the public sector.

He lamented that the challenges facing the economy were part of the reasons why businesses were currently finding it difficult to service their loan obligations to banks.

The development, according to him, has led to the resurgence of non-performing loan portfolio, with the banking sector recording about five per cent NPLs as against the three per cent recorded few months back.

Emefiele said the committee of governors would be meeting with the affected banks to discuss the type of loans that had been granted that led to the rising NPLs, with a view to reducing them.

The governor also denied claims that the CBN planned to convert the $20bn in bank customers’ domiciliary accounts into naira, stating that such had never been considered by the apex bank.

He said, “There are customers who have $20bn in domiciliary accounts and I want to use this opportunity to say that those funds are not idle contrary to what was made people to believe. Those funds on the balance sheet are funding certain assets on the other side of the balance sheet. The $20bn is a liability on the balance sheet and so, there is nothing like it being idle.

“I need to reiterate the fact that there is no intention and there will never be that intention. It is not within our view to begin to start to convert people’s domiciliary account balance and I wish to say that this should be taken very seriously.”

When asked why the apex bank had yet to harmonise its foreign exchange policy, the governor said this would be done after officials of the bank had met all the relevant stakeholders in the financial system.

Emefiele stated, “The issue is to improve the foreign exchange supply in the foreign exchange market. The price of crude oil is improving and we hope to improve on the supply.”

Financial and economic experts, in separate interviews with one of our correspondents, said  that the latest move by the MPC would further slow the growth of the economy.

The Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said, “I think it is a move in the right direction. But it doesn’t address the absence of an exchange rate policy. It addresses inflationary fears, but it doesn’t address the exchange rate policy. So, I think there is still more action expected.”

“There is some wiggle room. The story is credible. It is clear. But the absence of an exchange rate policy makes the story slightly inconsistent,” Rewane added.

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said the MPC was faced with declining growth rate and increasing inflation rate, adding that the decision would not resolve the issue of rising inflation.

He stated, “The increase in inflation rate is not driven by banking system liquidity or credit expansion. So, increasing the CRR and MPR will not reduce inflationary pressure. Inflationary pressure is coming from the price of petroleum products, increase in electricity tariff and then the pass-through effect of the increased exchange rate at the parallel market.”

The Head, Research and Investment Advisory, Sterling Capital, Mr. Sewa Wusu said, “Raising the interest rate will mean that even if banks were to lend, it will be at higher rates, and that will stifle investment. I think this policy is somehow counter-productive.

The Head of Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said Afrinvest Research had projected an increase in the MPR to 12 per cent in its 2016 outlook, adding, “But we are particularly surprised that the MPC would be taking the tightening course this early into its easing mode.”

Ebo said the suggestion that increase in banking system liquidity was fundamentally driving the pressure on exchange rate was not also subject to fact as “we have continued to see high subscription at CBN interbank auctions despite intermittent OMO (open market operation) mop-ups conducted, and exchange rate certainty plays as much impact on foreign capital inflows as interest rate competitiveness, and the current tightening is too mild to compensate for the exchange rate risk.”

Punch

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Finance

An Uptick in The FAAC Payout

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Naira Exchange Rates - Investors King

The latest gross monthly distribution for the Federation Account Allocation Committee (FAAC) to the three tiers of government and public agencies amounted to N990bn in January (from December revenue).

This was an increase of 9.8% or N88.1bn from the previous payout (N902bn recorded in November ’22) and marks the highest FAAC payout recorded in 2022. The increase can be partly attributed to improved non-oil revenue collection. Based on data from the local media, Companies’ Income Tax (CIT), VAT, oil and gas royalties and export duties recorded increases while import duties declined significantly.

The FGN received a total of N375.3bn while state governments received N299.6bn. Furthermore, oil-producing states received an additional N93.5bn representing the 13% derivation for mineral revenue. The headline figure consisted of N707.8bn gross statutory distribution.

This is a month on month increase of 3.9%. Additionally, N233.3bn came into the VAT pool, and N24.3bn from Electronic Money Transfer Levy (EMTL). The total deduction for cost of collection was N31.5bn.

Furthermore, the committee disclosed that the Excess Crude Account (ECA) remained unchanged from the previous month at USD473.7m. Despite elevated oil prices which were above the FGN’s 2022 oil price benchmark (USD73/barrel), the ECA has remained relatively low. In 2014, the ECA was as high as USD4.1bn.

It is worth highlighting that the NNPC made zero contributions to FAAC in 2022, largely due to high fuel subsidy costs. According to the NNPC, the total cumulative subsidy deductions stood at N2.04trn in July ’22 vs N1.5trn spent in 2021. The shortfall in oil revenue was partly offset by relatively higher non-oil revenue collection.

The net FAAC distribution to states and local governments hit the money market last week, as an inflow of N650bn was recorded, which supported market liquidity. We note that the FGN’s share of the FAAC allocation (c.N375bn) is transferred directly to the treasury single account.

To avoid overreliance on FAAC distributions and ensure more resilience against future shocks, state governments need to diversify their revenue base. Unemployment and underemployment continue to cost states billions of naira in forgone revenue through payment of income taxes (PAYE). To boost IGR, states should consider providing incentives for the private sector to support economic activities within their respective states.

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Banking Sector

CBN: New National Domestic Card Will Improve E-payment, Foreign Exchange 

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Godwin Emefiele - Investors King

The newly inaugurated Nigerian National Domestic Card Scheme is aimed at enhancing electronic payment and foreign exchange, the Central Bank of Nigeria (CBN) says.

The official launch of the National Domestic Card was done virtually on Thursday, Investors King reports.

Speaking on the benefits of the new domestic card, the CBN Governor, Godwin Emefiele said it will lessen operating costs, charges and strengthen foreign exchange in Nigeria.

Emefiele stated that the use of the new domestic card is with immediate effect and all local transactions will be done through the card.

His words, “Ladies and gentlemen, at this time when foreign exchange challenges persist globally, it is important that I say that we have come up with this card to ensure that all online transactions will now be effective and immediately begin to go on the Nigerian National Domestic Card system.

“All domestic transactions that are going to be conducted in Nigeria will have to be through the Nigerian domestic cards.”

He pointed out that the apex bank will collaborate with the Nigeria Inter-Bank Settlement System Plc and commercial banks to ensure that only international transactions are accompanied with charges as when done with Visa card or Master Card.

The CBN governor expressed concern over the large number of payments still carried out without cards despite the fact that card payment had been introduced in Nigeria a long time ago.

He highlighted some of the reasons as expensive card services which include charges due to foreign exchange requirements of the international card system and unlocalised cards in existence.

Emefiele averred that the new national domestic card scheme seeks to address these challenges and encourage more card transactions, adding that the card would be accessible to all citizens regardless of locality. 

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Loans

FG Releases List of 94 Approved Online Loan Applications

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Loan - Investors King

Federal Competition and Consumer Protection Commission, FCCPC under the Federal Ministry of Trade and Investment has assented to 94 online loan applications for operation in Nigeria.

Investors King reports that out of the 94 approved digital money lender companies in Nigeria, 49 companies were fully approved while the other 45 firms were issued conditional approval.

Google, in November 2022 threatened in its new policy to delete all unlicensed Nigerian loan apps from the Google play store by January 31, 2023, Investors King recalls.

Every loan app is required to tender their documents from the FCCPC which is saddled with the responsibility of safeguarding the interest and ensuring the well-being of consumers.

According to the FCCPC update on the registration of online loan applications which is still ongoing, the licensing is necessary to curb the menace of extortion by loan sharks. 

The Commission explained that the regulatory framework and guidelines for the digital lenders companies were earmarked in partnership with the Joint Task Force (JTF) aimed at ensuring fairness and advantageous alternative lending opportunities for the citizens. 

In the Commission’s laid down guidelines, the lending company will register with the FCCPC and fill two forms– Form DLG 001 and Form DLG 002.

“Form DLG OO1 is the registration form that requires the applicant company to provide identification and operational information to the FCCPC.

“The Form DLG 002 contains declarations relating to: Legitimacy; Compliance with applicable regulatory requirements; Lawful source of funds and conformity with anti-money laundering; and Data protection laws,” it stated.

As outlined by the Federal Competition and Consumer Protection Commission (FCCPC), the listed companies below have gotten the full approval of the commission—

  1. TRADE DEPOT  
  2. TAJOW INVESTMENT 
  3. BLUE RIDGE MICROFINANCE BANK LIMITED 
  4. GROLATECH CREDIT LIMITED 
  5. BRANCH INTERNATIONAL FINANCIAL SERVICES LIMITED 
  6. P2VEST TECHNOLOGY LIMITED 
  7. CREDITWAVE FINANCE LIMITED 
  8. KEENEST TECH SERVICE LIMITED 
  9. FAIRMONEY MICRO FINANCE BANK 
  10. ALTRACRED FINANCE INVESTIMENT LIMITED 
  11. CREVANCE CREDIT LIMITED 
  12. MENACRED COMPANY LIMITED 
  13. AFROWIDE DEVELOPMENT LTD 
  14. RED PLANET NIGERIA LIMITED 
  15. AFROFIRST MOBILE AND TECHNOLOGY COMPANY LIMITED 
  16. RANKCAPITALS LIMITED 
  17. IBS GOLDEN INVESTMENT COMPANY LIMITED 
  18. LENDVISERY SERVICES LIMITED 
  19. CREDITWAVE FINANCE LIMITED 
  20. RENMONEY MICROFINANCE BANK LIMITED 
  21. SWIPEBILL TECHNOLOGIES NIGERIA LIMITED. 
  22. HOMETOWN FINTECH LIMITED 
  23. GIASUN TECHNOLOGY NIGERIA LIMITED 
  24. BE RESOURCES LIMITED 
  25. ROCKIT LENDERS NIGERIA LIMITED 
  26. PIVO TECHNOLOGY LIMIED 
  27. YES CREDIT COMPANY LIMITED 
  28. FUBRIL CENTURY LIMITED 
  29. IRORUN TECHNOLOGIES LIMITED 
  30. CSENSE LIMITED 
  31. SUPREME HELP COOPERATIVE SOCIETY LIMITED 
  32. ORCOM AND ORCOM BUSSINESS SUPORT LIMITED 
  33. PAYHIPPO LIMITED. 
  34. EASYCHECK FINANCE INVESTMENT LIMITED 
  35. QUARK FINANCIAL NIGERIA LIMITED 
  36. EDMOND SOLUTIONS COMPANY LIMITED 
  37. TED ROCKET LIMITED 
  38. PENAID LIMITED 
  39. ARVE LIMITED 
  40. DOVER CREDIT LIMITED 
  41. RAGEKAY GLOBAL INVESTMENT LIMITED 
  42. MAYWOOD LENDING LIMITED 
  43. LINKPARK TECHNOLOGY NIGERIA LIMITED 
  44. MANGNET LENDING LIMITED 
  45. RUBYSTAR GLOBAL LIMITED 
  46. BESTFIN NIGERIA LIMITED 
  47. FUBRI CENTURY COMPANY LIMITED 
  48. BERLY SPRING GLOBAL LIMITED 
  49. SYCAMORE INTEGRATED SOLUTIONS LIMITED 

While those companies on conditional approval since they are yet to fulfil some requirements are:

  1. TRIPPDBASE LIMITED 
  2. BLACKCOPPER SERVICE  
  3. OWOAFAR FINTECH SERVICE 
  4. PAYLATER HUB 
  5. WINDVILLE FINANCIAL NIGERIA LIMITED 
  6. AFROFIRST MOBILE AND TECHNOLOGY COMPANY LIMITED 
  7. ORCOM AND ORCOM BUSINESS SUPPORT LIMITED 
  8. OTP INTERNET TECHNOLOGY LTD 
  9. RED HARBOR FINTECH LIMITED 
  10. BERYL SPRING GLOBAL LIMITED 
  11. HOMETOWN FINTECH LIMITED 
  12. AJAX LENDING LIMITED 
  13. RACEOVA NIG. LIMITED 
  14. LANTANA TECHNOLOGY LIMITED 
  15. THE PLATFORM DIGITAL NETWORK LIMITED 
  16. ZIPPY CAPITAL LIMITED 
  17. NEO-LINK TECHNOLOGY LIMITED 
  18. TRIPOBASE LIMITED 
  19. BESTFIN NIGERIA LIMITED 
  20. POCKETFUEL FINANCE LIMITED 
  21. LENDING EDGE LIMITED 
  22. TED ROCKET LIMITED 
  23. PENAID LIMITED 
  24. ALTARA CREDIT LIMITED 
  25. NEW CREDAGE NIGERIA LIMITED 
  26. LENDHA TECHNOLOGIES LIMITED 
  27. DOJA LEMAIRE GLOBAL LIMITED 
  28. PAYDAYHUB ONLINE NIGERIA LIMITED 
  29. RETAIL BOOSTER LIMITED 
  30. FINNEW FINTECH LIMITED 
  31. FEZOTECH NIGERIA LIMITED 
  32. ORANGE LOAN & PURPLE CREDIT LIMITED 
  33. CITADELE CAPITALS LIMITED 
  34. FEWCHORE FINANCE COMPANY LIMITED 
  35. A1 CAPITAL SOLUTION LIMITED 
  36. ONE PAYOUT LIMITED 
  37. LINKPARK TECHNOLOGY NIGERIA LIMITED 
  38. LIDYA GLOBAL LIMITED 
  39. PHOENIX PAYMENT SOLUTIONS LIMITED 
  40. RED PLANET NIGERIA LIMITED 
  41. KWABA INTERNATIONAL LIMITED. 
  42. MAYWOOD LENDING LIMITED. 
  43. PRINCEPS CREDIT SYSTEM LIMITED 
  44. LINKPARK TECHNOLOGY NIGERIA LIMITED 
  45. FINPADI TECHNOLOGIES LIMITED 

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