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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, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Banking Sector

UBA Announces Final Dividend of N2.30 per Share for FY 2023, Totaling N95.8 Billion

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UBA House Marina

UBA (United Bank for Africa) shareholders are set to receive dividends as the bank announces a final dividend of N2.30 per share for the fiscal year 2023.

This translated to a total payout of N95.8 billion, more than the N37.6 billion paid out in 2022.

Despite the robust increase in dividend payments, UBA’s dividend payout to profit after tax (PAT) ratio experienced a decline of 6.3 percentage points, dropping from 22.1% in 2022 to 15.8% in 2023.

Shareholders will receive the dividends based on their shareholdings as of the close of business on Friday, May 10, 2024. The payment is scheduled for May 24, 2024.

UBA urges shareholders who have not completed the e-dividend registration process to obtain the E-Dividend Mandate Form to ensure a smooth disbursement process.

The bank’s unclaimed dividends increased to N14.9 billion in 2023, an 18% increase from the previous year.

The bank reported a profit after tax of N607.7 billion, representing a 257% increase from the N170.3 billion recorded in 2022. This increase in profitability includes a net FX revaluation gain of N26.6 billion.

However, it’s worth noting that the Central Bank of Nigeria (CBN) directive prohibits banks from utilizing FX revaluation gains for dividends payment or operational expenses.

Shareholders are advised to complete the e-dividend registration process or contact the registrar, Africa Prudential Plc, for assistance regarding outstanding dividend warrants or share certificates.

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Finance

President Tinubu Launches National Single Window Project

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Bola Tinubu

President Bola Tinubu inaugurated the National Single Window Project to streamline trade processes and combat bureaucratic bottlenecks.

The initiative promises to unlock significant economic benefits and bolster Nigeria’s position as a global trade leader.

Addressing stakeholders at the Council Chamber of the State House in Abuja, President Tinubu outlined the transformative potential of the Single Window Project.

He explained that Nigeria stands to gain approximately $2.7 billion annually by implementing the initiative, while also saving an estimated $4 billion lost to inefficiencies and corruption plaguing the trade sector.

The National Single Window Project, codenamed a digital trade compliance initiative, will serve as a cross-government website facilitating trade by providing a unified portal for Nigerian and international trade actors.

This centralized platform will offer access to a full range of resources and standardized services from various Nigerian agencies, promising to expedite cargo movement and optimize inter-African trade.

President Tinubu’s directive to dismantle obstacles hindering trade efficiency reflects a commitment to fostering a transparent, secure, and business-friendly environment.

He underscored the urgency of eliminating red tape, bureaucracy, delays, and corruption at Nigerian ports, asserting that the economy cannot afford to sustain such losses.

The President’s call to emulate success stories from countries like Singapore, Korea, Kenya, and Saudi Arabia highlights the transformative potential of the Single Window system.

By joining the ranks of nations that have significantly improved trade efficiency through similar initiatives, Nigeria aims to unlock new avenues for economic growth and prosperity.

Tinubu stated that the National Single Window Project transcends Nigeria’s borders, presenting opportunities for regional integration and inter-African trade optimization. By linking Nigeria’s system with those of other African nations, the initiative seeks to expedite cargo movement and enhance trade facilitation across the continent.

Managing Director of the Nigerian Ports Authority, Bello Koko, provided insights into the practical implications of the Single Window initiative.

He affirmed that imports would be cleared at all seaports within 24 hours, a significant improvement compared to neighboring countries where clearance often takes up to 72 hours.

Koko outlined how the initiative would streamline paperwork, enhance information sharing among government agencies, and foster greater efficiency in trade transactions.

With representatives from key government agencies and bodies forming the project secretariat, the National Single Window Project reflects a collaborative effort to drive comprehensive reform in Nigeria’s trade sector.

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Banking Sector

Fidelity Bank Grows Profit by 131.5% in FY 2023

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Mrs. Nneka Onyeali-Ikpe, MDCEO of Fidelity Bank Plc

Leading financial institution, Fidelity Bank Plc, has released its 2023 full year Audited Financial Statements, reporting a 131.5% growth in Profit Before Tax to N 124,26 billion.

According to the results, which was issued to the Nigerian Exchange (NGX) today, the bank grew Gross Earnings by 64.9% YoY to N555.83 billion, driven by 81.6% growth in Net interest income which increased from N152.7billion to N277.37 billion. This led to a Profit After Tax of N99.45 billion representing a 112.9% annual growth.

Commenting on the Bank’s commendable performance, Dr. Nneka Onyeali-Ikpe,OON, MD/CEO of Fidelity Bank Plc said, “We closed the financial year with strong double-digit growth across key income and balance-sheet lines. Our performance in 2023 is an attestation of our capacity to deliver superior returns to shareholders despite the difficulties in our operating environment. Profit before tax grew by 131.5% to N124.3bn from N53.7bn in 2022FY, leading to an increase in Return on Average Equity (RoAE) of 26.5% from 15.6% in 2022FY.”

A review of the financial performance showed that the bank grew Net interest income by 81.6% to N277.4bn driven by a 55.5% increase in interest income, thus reflecting a steady rise in asset yield throughout the year. The average funding cost dropped by 20bps to 4.4% due to increased low-cost funds that grew from 83.6% in 2022FY to 97.4% in 2023. The combination of higher asset yield and lower funding cost led to an increase in Net Interest Margin (NIM) of 8.1% from 6.3% in 2022FY.

Similarly, Total Customer Deposits crossed the N4tn mark as deposits grew by 55.6% from N2.6tn in 2022FY. The increase was driven by 81.1% growth in low-cost funds.

Despite the challenging operating environment, the bank reaffirmed its devotion to helping individuals grow, inspiring businesses to thrive and empowering economies to prosper by increasing Net Loans & Advances to N3.1tn from N2.1tn in 2022FY.

Despite the growth in its loan portfolio, Regulatory Ratios were maintained well above the required thresholds, with liquidity ratio at 45.3% from 39.6% in 2022FY and capital adequacy ratio (CAR) at 16.2% compared to the minimum requirement of 15.0%.

“We recognize the changing dynamics in the Nigerian banking space and the need to monitor and proactively manage evolving risks. The proposed final dividend of 60 kobo per share reflects our commitment to strong value creation and returns to our shareholders,” explained Onyeali-Ikpe.

Fidelity Bank has consistently paid dividend since 2006. With the proposed final dividend of 60 kobo per share, Fidelity Bank would be paying investors a total dividend of 85 kobo per share for the reporting period, a 70.0% increase compared to the 50 kobo per share paid to its shareholders in the previous year.

Ranked as one of the best banks in Nigeria, Fidelity Bank is a full-fledged customer commercial bank with over 8.3 million customers serviced across its 251 business offices in Nigeria and the United Kingdom as well as on digital banking channels.

The bank has won multiple local and international awards including the Export Finance Bank of the Year at the 2023 BusinessDay Banks and Other Financial Institutions (BAFI) Awards, the Best Payment Solution Provider Nigeria 2023 and Best SME Bank Nigeria 2022 by the Global Banking and Finance Awards; Best Bank for SMEs in Nigeria by the Euromoney Awards for Excellence 2023; and Best Domestic Private Bank in Nigeria by the Euromoney Global Private Banking Awards 2023.

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