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Analysts Raise Concerns over Tier 2 Banks’ Health



Recession bites

Although Nigerian banks are contending with the effects on earnings of weak oil prices, shortages of US dollars, devaluation of the naira and slowing economic growth, these challenges appear to be having a more profound effect on the Tier 2 banks, a report has indicated.

Analysts at Lagos-based CSL Stockbrokers Limited in a report titled: “A Health Check,” obtained by THISDAY, said the situation was having a weighty effect on the Tier 2 banks owing to lower efficiency levels, their less capacity to absorb losses, smaller margins and in some cases, inability to compete for quality loans resulting in lower asset quality.

The report was focused on Diamond Bank Plc, Sterling Bank and Fidelity Bank Plc, stating that the three banks are currently trading at an average price to earnings ratio of 2.5x and an average price-to-book value (PBV) of 0.2x. It stressed that such low valuations have not lured in investors who appear to be discounting these banks based on justifiable concerns over asset quality and capital adequacy.

According to the report, Diamond Bank is “currently dealing with deteriorating asset quality and capital adequacy issues.

“The bank has significant exposure to the oil and gas sector (37% of gross loans) and general commerce sectors (16% of gross loans), two sectors that have been hard hit by current macro-economic conditions.”

For Fidelity Bank, it pointed out that “though Fidelity Bank reports healthy asset quality ratios, we note that the bank has significant exposure to the oil and gas sector (25.8% of gross loans) and to the power sector (10.5% of gross loans).”

Furthermore, the report stated that although Fidelity Bank’s power sector loans do not currently form part of the bank’s non-performing loans, the sector is facing significant challenges presently.

“The bank has historically maintained high capital ratios but the recent devaluation of the naira has strained capital. At 16.4 per cent (compared with a regulatory minimum of 15.0%) we believe Fidelity might have capital issues to deal with in the near term.

“The bank also has a relatively high cost-to-income ratio (74.1% in H1 2016), which makes us believe that the bank’s capacity to absorb an elevated cost of risk (in the event of any deterioration of its oil and gas and power sector loans) is limited,” it added.

Commenting on Sterling Bank, the report stated that the devaluation of the naira in June put a strain on the bank’s capital position.

“The bank’s capital adequacy ratio of 10.9 per cent in first half of 2016 is close to its regulatory minimum of 10 per cent (for banks without international subsidiaries). Though the bank’s non-performing loan ratio and cost of risk remain at manageable levels, the bank also has a relatively high exposure (about 40% of gross loans) to the troubled oil and gas sector.

“The bank’s apparent difficulty in successfully raising capital and its relatively high cost-to-income ratio (76%), which makes it difficult for the bank to absorb an elevated cost of risk, puts a cap on its valuation in our view,” it added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Inflation and Forex Mismanagement Drive Petrol Truck Prices from N7M to N25M



Petrol Importation -

The Chairman of the Independent Petroleum Marketers Association of Nigeria in the Satellite Depot branch, Akin Akinrinade, has raised an alarm over the rising cost of petrol trucks in Nigeria.

According to Akinrinade, the cost of a petrol truck has surged from N7 million in May to an astonishing N25 million at present, attributed to inflation induced by poorly managed foreign exchange rates.

Akinrinade pointed out that the forex mismanagement has significantly impacted the landing cost of premium motor spirit (PMS), commonly known as petrol, consequently leading to a surge in pump prices.

The unstable business environment, coupled with the astronomical rise in expenses, has created challenges for marketers in the downstream oil sector.

Mele Kyari, the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), highlighted in October 2023 that foreign exchange challenges have hindered private companies from importing petroleum products.

As a result, the NNPCL has become the exclusive importer of petrol.

The decision to limit private entities from importing fuel comes after President Bola Tinubu’s initiatives aimed at deregulating the fuel market.

Initially, the plan was to allow private companies to import fuel starting June 2023, aligning with efforts to balance the market after removing petrol subsidies.

The ripple effects of the soaring petrol costs are already evident, with commercial transporters increasing fares, and private car owners seeking fuel-saving alternatives.

As Christmas approaches, the surge in demand for interstate travel is expected to further elevate costs, posing financial challenges for many Nigerians amidst stagnant income levels.

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Nigeria’s Presidential CNG Initiative Allocates N100bn for CNG Buses and EV Adoption




The Presidential Compressed Natural Gas (CNG) Initiative has allocated N100 billion to expedite the deployment of CNG buses nationwide, according to a statement released on Wednesday.

The initiative, designed to catalyze an Auto-gas and Electric Vehicle (EV) revolution in mass transit and transportation, aims to enhance sustainability and cost-effectiveness.

The statement revealed that the fund would be instrumental in supporting the adoption of auto-gas and electric vehicles, signaling a commitment to a more sustainable and economical future in the transportation sector.

The Presidential CNG Initiative plans to leverage over 11,500 CNG and electric-fueled vehicles, along with the deployment of 55,000 conversion kits.

This strategic approach is intended to reduce transportation costs for Nigerians and mitigate the challenges posed by the rising cost of living.

Under the Renewed Hope Agenda, the Presidential CNG Initiative is dedicated to realizing the President’s vision, guided by its steering committee led by FIRS Chairman Zacch Adedeji.

The statement highlighted recent achievements, including strategic technical partnerships and the ongoing commissioning of CNG Conversion centers in key states such as Lagos, Abuja, Kaduna, Ogun, and Rivers.

Several more centers are slated for commissioning in the coming weeks, reflecting the initiative’s momentum and commitment to achieving its objectives.

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Nigeria’s Power Transformation: 53 Projects Worth N122bn on Track for May 2024 Completion



power project

The Central Bank of Nigeria (CBN), in collaboration with the Transmission Company of Nigeria (TCN) and power distribution companies, is set to complete 53 power projects by May next year.

Valued at N122 billion, these projects aim to add over 1,000 megawatts to TCN’s wheeling capacity.

During a recent tour of three ongoing projects in Lagos, TCN’s Programme Coordinator, Mathew Ajibade, assured that the projects were not abandoned, refuting speculations.

He confirmed that work is progressing smoothly and is expected to be completed by May 2024, as initially planned.

Assistant Director/Head of Infrastructure Finance Office at the CBN, Tumba Tijani, highlighted the CBN’s support for the power sector, revealing that the bank released a loan at a 9% interest rate in August last year for the projects.

The funding, part of the Nigeria Electricity Market Stabilisation Facility-3, amounts to N122,289,344 and aims to address transmission/distribution bottlenecks, enhance supply to end-users, and unlock unutilized generation capacity.

Tijani disclosed that N85.43 billion has been disbursed into the Advance Payment Guarantee account of the 53 contractors responsible for executing the projects.

The comprehensive project list includes the delivery of power transformers, re-conductoring existing transmission lines, upgrading existing substations, and constructing 33KV line bays.

The initiative reflects a concerted effort to enhance Nigeria’s power infrastructure and meet growing energy demands.

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