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Interbank Overnight Rate Rises by 6%

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Interbank rate

The scramble for funds by commercial banks forced the interbank overnight rate to jump by six per cent to 13.33 per cent on Thursday, from 7.33 per cent the previous day.

Similarly, the open buy-back and overnight rate also rose to 12.75 per cent, from 6.75 per cent.

This came barely 48 hours after the Central Bank of Nigeria’s Monetary Policy Committee increased the Cash Reserve Ratio for commercial banks to 22.5 per cent from 20 per cent, and the benchmark interest rate from 11 per cent to 12 per cent, as part of measures to curb rising inflation.

Similarly, customers’ deposits in the vaults of banks fell significantly on Thursday after the CBN withdrew about N400bn from the banking system to meet a new CRR on deposits, it was learnt.

The significant drop in the Deposit Money Banks’ deposits forced a number of them to the interbank market to borrow funds to cover their positions ahead of the Easter break.

Data posted on the FMDQ OTC website showed that the interbank overnight rate rose to 13.33 per cent from 7.33 per cent on Wednesday.

“We have had major fund placers in the market quoting between 20 and 25 per cent for overnight placement, while takers are quoting between seven and 10 per cent,” one dealer told Reuters, adding that no deals had yet been done on the rates being quoted.

Traders said there was additional cash outflow for premium payments to the Nigerian Deposit Insurance Corporation, which further put pressure on liquidity in the system and forced lending rates up.

On Wednesday, yields on Nigeria’s benchmark 20-year bond rose by 55 basis points to 12.7 per cent after the CBN unexpectedly tightened monetary policy.

The total commercial lenders’ credit balance with the central bank stood at N320.9bn on Thursday, up from N217bn last week.

However, traders said the level of cash in the banks’ vaults would have dropped significantly due to cash withdrawals to meet the new CRR and premium payments on customer deposits.

Commenting on the MPC decision, analysts at Afrinvest said, “The move to hike the CRR by 2.5 per cent to 22.5 per cent was in a bid to curb speculative activities in the foreign exchange market.

“We estimate this to quarantine the sum of N409.7bn from the system. However, we are of the view that this reflects the notion that previous decision to reduce the CRR by five per cent was largely premature given that the operating environment remains unattractive for loan growth.

“We do not expect a reversal in this tightening stance in the medium term as committee members would remain wary of the liquidity impulse from expansionary budget. In the interim, we expect to see a 100bps-200bps increase in yields in the fixed income market, while the cost of funds may likely rise for Tier-2 banks as the interbank market adjusts to the tightening of liquidity. However, assets repricing of fixed income securities and other risk assets will likely compensate for this.”

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

Federal High Court Sets Date for Contempt Hearing in GTB vs. AFEX Loan Case

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The Federal High Court in Lagos has scheduled June 27, 2024, for the next hearing in the ongoing contempt suit filed by Guaranty Trust Bank Plc (GTB) against directors of AFEX Exchange Commodities Limited.

The case revolves around a disputed N17.81 billion loan obtained under the Central Bank of Nigeria’s Anchor Borrowers’ Programme.

Presiding over the court, Justice Chukwujekwu Aneke set the date following a session where arguments were presented by the plaintiff’s lead counsel, Mr. Ade Adedeji (SAN), and the respondent’s counsel, Prof. Olawoyin (SAN).

The core issue pertains to the alleged disobedience of a court order by the directors of AFEX Exchange Commodities Limited.

GTB, through its counsel Ajibola Aribisala (SAN), has accused AFEX and its directors—Ayodele Balogun, Jendayi Fraaser, Justin Topilow, Mobolaji Adeoye, and Koonal Ghandi—of contempt for failing to comply with a court directive.

The bank alleges that these directors did not appear in court as mandated, which led to the initiation of contempt proceedings.

During the latest session, Adedeji emphasized the necessity for the directors to appear in person, stating, “My lord, the parties in contempt are not in court. The contemnors cannot sit in the comfort of their homes and send a lawyer to court in contempt proceedings. The law is trite that they must appear before the court.”

In response, Olawoyin argued that he had only recently been briefed on the matter and was not fully aware of the prior developments.

He noted that some of the individuals listed as directors were no longer with the company, adding that one current director, Mr. Akinyinka, was present in court, while another was on pilgrimage.

The contempt case traces back to a suit marked FHC/L/CS/911/2024, where GTB sought to recover the loan amount through legal measures.

On May 27, Justice Aneke granted an interim Global Standing Instruction (GSI) injunction, which directs over 20 banks to transfer funds credited to AFEX into its account with GTB until the debt is settled.

Also, the court authorized GTB to take possession of AFEX’s 16 warehouses across seven states and sell the commodities stored within, as these were procured using the CBN’s loan facility.

The N17.81 billion loan comprises N15.77 billion in principal and interest outstanding as of April 17, 2024, and an additional N2.04 billion covering recovery costs and incidental expenses.

As the court prepares for the next hearing, the financial and legal communities are closely watching the proceedings.

The outcome will significantly impact not only the involved parties but also set a precedent for handling similar cases in the future.

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Banking Sector

CRC Credit Bureau Celebrates 15 Years with Record 14% Credit Penetration in Nigeria

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CRC Credit Bureau Limited celebrated its 15th anniversary with a record 14% credit penetration rate.

The occasion was marked with the CRC Finance and Credit Conference 2024 held in Lagos, where key industry stakeholders gathered to reflect on the bureau’s journey and discuss future trends in credit risk management.

Founded in January 2010 and licensed by the Central Bank of Nigeria (CBN), CRC Credit Bureau has played a pivotal role in enhancing access to credit across Nigeria.

Dr. Tunde Popoola, the Group Managing Director/CEO of CRC Credit Bureau Limited, highlighted the bureau’s journey, noting that from its inception with a single product, CRC has expanded its offerings to 18 products covering all aspects of the lending value chain.

Speaking at the conference, Dr. Popoola underscored the bureau’s contribution to Nigeria’s financial sector, stating, “CRC Credit Bureau has been instrumental in transforming access to credit in Nigeria over the past 15 years. We started with a vision to simplify credit access through reliable data and have since grown to serve millions of Nigerians.”

The event focused on the theme “Sustainable Financing Options: Innovations in Credit Risk Management,” emphasizing the importance of sustainable finance amid economic challenges.

The conference provided a platform for stakeholders to discuss strategies for mitigating risks and enhancing the efficiency of credit operations in Nigeria.

Reflecting on the current state of credit penetration, Dr. Popoola noted that while Nigeria has made significant progress, the 14% penetration rate still falls below global benchmarks.

He highlighted that CRC Credit Bureau currently holds credit scores for 33 million Nigerians, facilitating over 29.4 million searches in 2023 alone, with an additional 10 million searches conducted in the first quarter of 2024.

Joel Owoade, Chairman of CRC’s Board of Directors, acknowledged the economic headwinds impacting businesses in Nigeria but stressed the importance of sustainable financing to mitigate risks associated with lending.

“As we navigate economic fluctuations, sustainable financing remains crucial to fostering economic stability and growth,” Owoade remarked.

The conference also featured insights from industry experts on leveraging artificial intelligence (AI) in credit risk management and regulatory frameworks to support AI-driven innovations.

Olaniyi Yusuf, Managing Partner of Verraki, highlighted the potential of AI to create jobs and enhance economic productivity, calling for supportive regulatory environments that balance innovation with risk management.

Representatives from the Central Bank of Nigeria (CBN) emphasized the regulator’s efforts to promote sustainable credit practices.

Dr. Adetona Adedeji, Acting Director of the Banking Supervision Department at CBN, outlined initiatives such as the National Collateral Registry and Global Standing Instruction aimed at enhancing credit access while minimizing risks.

As CRC Credit Bureau looks ahead, Dr. Popoola expressed optimism about the future, stating, “We remain committed to driving greater financial inclusion and expanding credit access in Nigeria. Our focus is on leveraging technology and strategic partnerships to deliver innovative solutions that meet the evolving needs of consumers and lenders.”

The celebration of CRC Credit Bureau’s 15th anniversary underscored its pivotal role in Nigeria’s financial sector, marking a milestone in the nation’s journey towards broader financial inclusion and sustainable economic growth.

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Nigeria’s Public Debt Hits N101tn as World Bank Loans Soar to $4.95bn

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Nigeria’s public debt has breached the N101 trillion mark, driven by a substantial influx of loans from the World Bank totaling $4.95 billion over the past twelve months.

This surge in borrowing has raised concerns about the country’s ability to service its growing debt obligations amidst economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices.

As of December 2023, Nigeria’s debt stood at approximately N97 trillion, according to data from the Debt Management Office (DMO).

The recent borrowing spree has propelled this figure to N101 trillion, reflecting a rapid escalation in the country’s indebtedness.

The loans from the World Bank are earmarked for various developmental projects, including critical sectors such as power, women empowerment, education, renewable energy, and economic reforms.

These initiatives are part of Nigeria’s broader strategy to enhance infrastructure, socio-economic development, and institutional reforms aimed at bolstering long-term growth and resilience.

The breakdown of the World Bank funding includes $750 million allocated for power sector financing aimed at improving electricity generation and distribution, which remains a persistent challenge in Nigeria.

Another $500 million is dedicated to women’s empowerment programs, focusing on expanding opportunities and economic inclusion for women across the country.

Also, $700 million has been allocated to support education initiatives, particularly for adolescent girls under the Adolescent Girls Initiative for Learning and Empowerment project.

This funding seeks to enhance access to quality education and empower young girls in Nigeria.

Moreover, the World Bank has committed $750 million to the Distributed Access through Renewable Energy Scale-up project, aimed at increasing electricity access through renewable energy solutions.

This initiative targets over 17.5 million Nigerians who currently lack reliable electricity.

The largest tranche of $1.5 billion is designated for Economic Stabilisation to Enable Transformation Development Policy Financing Programme. This funding is intended to bolster fiscal revenues, expand social safety nets, and support economic diversification efforts to reduce dependency on oil revenues.

Despite these investments aimed at driving economic growth and improving living standards, concerns linger over Nigeria’s ability to effectively manage its escalating debt burden.

The country’s debt servicing costs have risen significantly, diverting resources away from critical sectors such as healthcare, education, and infrastructure development.

Critics argue that while external financing is necessary for development, the government must ensure transparency, accountability, and effective utilization of borrowed funds to avoid the pitfalls of previous debt mismanagement.

There is also a growing call for stringent fiscal discipline and reforms to enhance revenue generation and reduce dependency on borrowing.

President Muhammadu Buhari’s administration has defended the borrowing, asserting that it is crucial for bridging infrastructure gaps, stimulating economic growth, and creating job opportunities.

However, stakeholders emphasize the need for prudent debt management and sustainable economic policies to safeguard Nigeria’s financial stability and long-term prosperity.

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