Recession: Analysts Canvass Collaboration Between Regulators, Banks

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”.