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Recession: Analysts Canvass Collaboration Between Regulators, Banks

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Recession

Financial analysts in the country have called for a strong collaboration between financial sector regulators and the banking industry to chart an ideal course, given the receding state of the economy.

They identified huge communication gaps among the parties, saying the gaps must be closed if the country must move forward economically.

According to them, the country is going through hard times, which require a more holistic and thorough approach to check the level of economic decadence.

The analysts made this submission at a panel discussion organised for industries’ leaders held at the Nigerian Stock Exchange.

The Director of Investment Banking, Chapel Hill Denham, Mr. Ayo Fashina, noted that there was no need to borrow money when the country had assets to sell.

According to him, the Assets Management Corporation of Nigeria has over N3tn assets with the Central Bank of Nigeria, adding that the government, the banks and the regulators have to collaborate and help the country out of the current recession.

He said that banks already had liquidity challenges and the CBN needed to unlock liquidity in their balance sheet.

Other stakeholders at the meeting also urged the Federal Government to shelve the idea of borrowing from the international market considering the devaluation of the naira.

The Federal Government had said it would borrow $1bn from the international capital market to fund its expansionary budget and stimulate economic growth as inflation, slow growth and other challenges continued to hit the economy.

Fashina added, “If a foreign investor came in now, the same micro fundamental that happened in 2009 is happening now. Until the CBN issued special analysis of the banks because I am not sure that the assets level is right; for some banks, instead of qualifying their loans, they are putting them into watch list. How long will they continue to keep them in the watch list?”

Fashina attributed the drop in foreign portfolio investment in the country to volatility in foreign exchange, noting that unless the country fixed the exchange rate issues, foreign investors would not come to invest.

“The Nigerian economy is driven by the capital market and hence the NSE is currently constituted by 50 per cent foreign investors and 50 per cent local investors. The market is now coping with only the 50 per cent local investors while the 50 per cent foreign investors have taken flight for safety because of uncertainty of rate of foreign exchange,” he added.

Also, an economist and policy analyst, Dr. Ogho Okiti, said the country had not exited the problem of 2009 when AMCON was created, saying the non-performing loans had continued to increase.

He said, “I don’t know the facts from the banks. The stability and profitability of the banks are very weak. I hope we don’t repeat the same mistake of 2009.

“We have seen the symptoms and we don’t know how deep it will be. I am not saying the CBN is not going to bail out banks, but banks NPLs continue to increase.”

Nigeria officially slid into recession for the first time in more than 20 years as the National Bureau of Statistics recently announced a further contraction in the second quarter of the year.

The NBS said on Wednesday last week that the Gross Domestic Product contracted by 2.06 per cent after shrinking 0.36 in the first quarter.

It said the non-oil sector declined due to a weaker currency, while lower prices dragged the oil sector down.

A slump in crude prices, Nigeria’s mainstay, has hammered public finances and the naira, causing chronic dollar shortages. Crude sales account for around 70 per cent of government revenues.

Compounding the impact of low oil prices, attacks by militants on oil and gas facilities in the southern Niger Delta hub since the start of the year have cut crude production by about 700,000 barrels per day to 1.56 million bpd. The government’s 2016 budget assumed 2.2 million bpd.

The NBS said annual inflation reached 17.1 per cent in July from 16.5 per cent in June – a more than 10-year high – and food inflation rose to 15.8 per cent from 15.3.

Nigeria’s sovereign dollar bonds fell across the curve to their lowest value in more than two weeks after the NBS released its data, according to Reuters.

The NBS figures showed Nigeria attracted just $647.1m of capital in the second quarter, a 76 per cent fall year-on-year and nine per cent down from the first quarter.

Nigeria’s economy was last in recession, for less than a year, in 1991, the NBS data shows. It also experienced a prolonged recession from 1982 to 1984.

President Muhammadu Buhari was in power for some of that period as a military ruler after seizing power in a December 1983 coup and remained head of state until another military coup pushed him out in August 1985.

The office of the vice president, who oversees economic policy, said in a statement it expected a “better economic outlook” for the second half of 2016 “because many of the challenges faced in the first half either no longer exist or have eased”.

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.

Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

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Gold

Gold Gained Ahead of Joe Biden Inauguration 2021

Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.

The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.

According to Michael McCarthy, the Chief Market Strategies, CMC Markets, the surged in gold price is a result of the projected drop in dollar value or uncertainty.

He said, “The key factor appears to be the (U.S.) currency.”

As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.

Also, the effectiveness of the vaccines can not be ascertained until wider rollout.

Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.

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Crude Oil

Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

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Oil

Crude Oil Holds Steady Above $55 Per Barrel on Tuesday

Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.

Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.

While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.

On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”

“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.

Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.

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Crude Oil

Crude Oil Pulled Back Despite Joe Biden Stimulus

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Crude Oil Pulled Back Despite Joe Biden Stimulus

Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.

Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.

On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.

OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.

The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.

But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.

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