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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

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Banking Sector

Ecobank Partners NiDCOM to Mobilise Nigerians Abroad for National Development

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In a bid to fulfill it’s objectives and mandate, the Pan African Bank has promised to support Nigerians living and working abroad through it’s partnership with NiDCOM.

The Managing Director, Ecobank Nigeria, Patrick Akinwuntan has stated that the bank is privileged to work closely with the Nigerians in Diaspora Commission, (NiDCOM) and will continue to pursue one of its key mandates of helping to enhance the economic development and integration of Africa through its support to Nigerians living and working abroad.

Speaking at the maiden edition of the Diaspora Quarterly Lecture Series with Ecobank as the sole banking partner which took place on Saturday, 8th May 2021, he noted that Ecobank remains a critical bridge for Nigerians abroad, as it has made huge investments in the necessary platforms to enable them connect with home seamlessly. The event held online and had over 2000 participants from across all the continents in attendance.

“Nigerians in the diaspora play a major role in nation building, their contribution goes a long way to catalyse economic development. For us at Ecobank, we are a pan-African institution positioned to foster the economic growth and integration of our continent, so we are particularly pleased to work closely with the Nigerians in Diaspora Commission (NiDCOM), ably led by the Chairman/CEO, Hon Abike Dabiri-Erewa”.

“We are committed to ensuring that every Nigerian living abroad is able to remit home seamlessly and affordably, access viable investment opportunities and as the financial institution of choice for Nigerians abroad, we have deployed the necessary resources to actualise this.” He stated.

The Minister of Interior, Ogbeni Rauf Aregbesola, who was also present, reiterated the readiness of the government to collaborate with Nigerians in the diaspora, highlighting the new processes put in place to facilitate passport issuance, noting that all backlog of passport applications would be cleared by the end of May 2021.

Also speaking, the Hon. Minister of State, Foreign Affairs Amb. Zubairu Dada said harnessing the human capital and material resources of Nigerians in the diaspora towards the socio-economic, cultural, and political development of Nigeria can no longer be ignored. He pointed out that the Nigerian diaspora community is well educated, resourceful, skilled, and exposed to global best practices.

The NiDCOM Chairman/CEO, Hon. Abike Dabiri- Erewa explained that the Diaspora Quarterly Lecture Series is projected to be a major aspect of national discourse, where Nigerians abroad can be kept abreast of the government’s policies, programmes and projects.

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Finance

Increase in Price Boosts Revenue of Dangote Sugar by 41.5 Percent in Q1 2021

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Dangote Sugar - Investors King

Revenue of Dangote Sugar Refinery Plc rose by 41.5 percent to N67.394 billion in the first quarter (Q1) of 2021 from N47.643 billion recorded in the same quarter of 2020.

According to the leading sugar manufacturer, the increase in revenue was a result of the increase in the price of sugar in the first quarter. The company claimed price adjustment was necessary to mitigate the negative effect of inflation and depreciation on the company.

Volumes only rose by 5.7 percent during the quarter despite a 41.5 percent increase in revenue, meaning the increase in price was the main sales catalyst.

In the company’s unaudited financial statements, gross profit grew from N12.721 billion in Q1 2020 to N18.044 billion in Q1 2021.

Similarly, operating profit stood at N15.884 billion, up from N10.747 billion posted in Q1 2020.

Finance cost more than double from N1.353 billion in Q1 2020 to N3.412 billion in Q1 2021.

Dangote Sugar’s profit before tax rose from N9.509 billion recorded in the corresponding quarter to N11.949 billion in the quarter under review.

The company paid N3.646 billion in income tax, slightly higher than N3.137 paid in the same quarter of 2020.

Profit for the period grew from N6.372 billion in Q1 2020 to N8.302 billion in Q1 2021.

Commenting on the company’s performance, Dangote Sugar said “EBITDA increased by 34.7% to N17.02 billion (2020: N12.64 billion) on account of increased earnings. Group profit after taxation for the period increased by 30.3% to N8.30 billion (2020: N6.37 billion) reflecting management’s unrelenting drive to deliver consistent shareholder value.”

On price increase, the company hinged it on series of devaluation carried out in 2020 by the Central Bank of Nigeria (CBN), escalating inflation, port congestion and rising in price of global sugar. Dangote Sugar said its imported raw sugar from Brazil under Federal Government’s backward integration plan.

We have continued to witness high cost of raw materials, energy costs and other input costs due to rising inflation and FX rate fluctuation. Further cost escalation is anticipated in the year as inflationary pressure mounts,” the company said.

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FBN Holdings Suffers 39 Percent Drop in Profit to N15.6 Billion in Q1 2021

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FBN Holdings - Investors King

FBN Holdings Plc profit after tax declined by 39 percent from N23.140 billion recorded in the first quarter (Q1) of 2020 to N15.6 billion in the first quarter of 2021.

In the leading financial institution’s unaudited financial statements released through the Nigerian Exchange Limited, gross earnings declined by 14.5 percent to N137 billion in the period under review, down from N160 billion filed in the previous quarter.

Similarly, net interest income declined from N60.253 billion achieved in Q1 2020 to N52.793 billion.

Net interest income after impairment charge for losses also dipped from N50.547 billion in Q1 2020 to N39.619 billion in Q1 20201. While net fee and commission income rose from N20.773 billion in Q1 2020 to N28.427 billion in Q1 2021.

Profit before tax declined by 34 percent to N18.906 billion in the quarter under review, down from N28.680 billion posted in the corresponding quarter of 2020.

FBN Holdings paid N3.285 billion in income tax in the first quarter of 2020.

Therefore, profit for the period stood at N15.621 billion. While Net Assets contracted from N765.2 billion to N764.8 billion.

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