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Banks Demand More Collateral as Loan Defaults Rise

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Recession bites
  • Banks Demand More Collateral as Loan Defaults Rise

Banks are demanding more collateral from firms seeking loans as default rates have worsened, a new report from the Central Bank of Nigeria has revealed.

The Credit Conditions Survey Report for the fourth quarter 2016 said the overall availability of credit to the corporate sector increased in the quarter and was expected to further increase in the first quarter of 2017.

It said the major factors contributing to the increase in credit availability were changing sector specific risk, brighter economic outlook, favourable liquidity conditions and tight wholesale funding conditions.

According to the report, availability of credit increased for the large Private Non-Financial Corporations and other financial corporations in the fourth quarter but decreased for the small businesses and the medium PNFCs, and the same trend is expected in the next quarter.

The report said, “Corporate loan performance worsened across all firm sized business in the current quarter as default rates on lending to small, medium and large PNFCs worsened in the current quarter.

“Lenders demanded more collateral requirements from all firm sizes on approved new loan application in Q4 2016. Similarly, lenders expect to demand for more collateral from all firm sizes in the next quarter.”

The CBN said lenders had mixed opinions on default rates in the next quarter, adding that they were of the opinion that default rates for the medium and large PNFCs would improve, while the default rates for the small businesses and other financial corporations would further deteriorate.

It said tenors on new corporate loans deteriorated in the fourth quarter and were expected to further deteriorate in the next quarter.

The report noted that changes in the spread between bank rates and the Monetary Policy Rate on approved new loan applications to the small, medium, large PNFCs and OFCs widened in Q4 2016.

It said, “Following the widened spread, the proportion of loan applications approved for the small and medium-size firms decreased in the current quarter and was expected to increase and decrease, respectively in the next quarter.”

The report said lenders required lower loan covenants from small businesses and medium PNFCs-sized businesses, and stronger loan covenants from large PNFCs and other financial corporations in the current quarter.

It said, “Fees/commissions on approved new loan applications rose for all firm sized business in the current quarter. Fees/commissions were expected to rise further for all firm sized business in the next quarter.

“All firm sized businesses except the small businesses did not benefit from an increase in maximum credit lines on approved new loan application in Q4 2016. Similarly, lenders expect the small businesses and large PNFCs to benefit, while the medium PNFCs and other financial corporations will not benefit from an increase in maximum credit lines on approved new loan application in Q1 2017.”

The report found that demand for corporate lending from small businesses, medium large PNFCs and other financial corporations increased in Q4 2016, adding that it was expected to increase in the next quarter

Lenders were said to have reported that the demand for overdrafts/personal loans and secured lending from small businesses in the quarter was higher in comparison with other business types.

The most significant factors that influenced the demand for lending were the increase in capital investment and inventory finance, and they were expected to remain the main driver in the next quarter, according to the report.

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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Guinness Nigeria Postpones Spirits Importation Exit, Extends Deal with Diageo

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Guinness - Investors King

Guinness Nigeria Plc has announced a delay in its plan to halt the importation of spirits as it extended its agreement with multinational alcoholic beverage company Diageo until 2025.

The decision, communicated through a corporate notice filed with the Nigerian Exchange Limited on Tuesday, cited a longer-than-expected transition period for separating its business from Diageo’s.

Initially slated for discontinuation in April 2024, the importation of premium spirits like Johnnie Walker, Singleton, Baileys, and others under the 2016 sale and distribution agreement with Diageo will now continue for an additional year.

The extension comes as the process of business separation between Guinness Nigeria, a subsidiary of Diageo, and Diageo itself faces unexpected delays.

In October, Guinness Nigeria had announced plans to cease importing spirits from Diageo, a move aimed at reducing its foreign exchange requirements.

However, the separation process has encountered unforeseen hurdles, necessitating the extension of the importation agreement.

The notice, signed by the company’s Legal Director/Company Secretary, Abidemi Ademola, highlighted the ongoing efforts by Guinness Nigeria and Diageo to implement the separation, originally scheduled for completion by April 2024.

The extension underscores the complexity of disentangling the businesses and ensuring a smooth transition.

Guinness Nigeria reaffirmed its commitment to the long-term growth strategy, aligning with Diageo’s decision to establish a new, wholly-owned spirits-focused business.

Despite the delay, both companies remain dedicated to managing the importation and distribution of international premium spirits in West and Central Africa, with Nigeria as a key hub.

The postponement comes amid challenges faced by Guinness Nigeria, including significant exchange rate losses, which amounted to N49 billion in the 2023 half-year operations.

Despite these setbacks, the company remains optimistic about its future prospects in the Nigerian market.

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Private Sector Warns: Interest Rate Hike to Trigger Job Cuts and Inflation Surge

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As the Central Bank of Nigeria (CBN) announced a hike in the Monetary Policy Rate (MPR) from 22.75% to 24.75%, concerns have been raised by the private sector regarding the potential ramifications on job stability and inflationary pressures.

The move, aimed at curbing inflation and stabilizing the exchange rate, has prompted apprehension among business operators who fear adverse effects on the economy.

Representatives from the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and the Nigerian Association of Small Scale Industrialists have voiced their worries over the increased difficulty in accessing affordable credit.

They argue that the higher interest rates will impede the private sector’s ability to borrow funds for expansion and operational activities.

This, they fear, could lead to a reduction in business investments and subsequently result in widespread job cuts across various sectors.

The Lagos Chamber of Commerce and Industry (LCCI) acknowledged the necessity of the interest rate hike but emphasized the potential negative consequences it may bring.

While describing it as a “price businesses would have to pay,” the LCCI highlighted the current fragility of the economy, exacerbated by various policy missteps.

They cautioned that the increased cost of borrowing could stifle entrepreneurial activities and discourage expansion plans critical for economic growth and job creation.

Experts have echoed these concerns, warning that the tightening monetary conditions could exacerbate inflationary pressures and hinder economic recovery efforts.

With inflation already soaring at 31.70%, the rate hike could further fuel price hikes, especially in essential goods and services, thus eroding the purchasing power of consumers.

However, CBN Governor Yemi Cardoso defended the decision, citing the imperative to address current inflationary pressures and ensure sustained exchange rate stability.

He emphasized the need to restore the purchasing power of ordinary Nigerians and expressed confidence that the economy would stabilize by the end of the year.

Despite assurances from the CBN, stakeholders remain cautious, calling for a more nuanced approach that balances the need for price stability with the imperative of fostering economic growth and job creation.

As businesses brace for the impact of the interest rate hike, all eyes are on the evolving economic landscape and the measures taken to mitigate its effects on livelihoods and inflation.

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Breaking Barriers: Transcorp Hotels CEO Shares Journey from Crisis to Success

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Dupe Olusola

Dupe Olusola, the Managing Director/CEO of Transcorp Hotels Plc, reflects on her remarkable journey from navigating the depths of a global pandemic to achieving unprecedented success in the hospitality industry.

Appointed in March 2020, amidst the onset of the COVID-19 pandemic, Olusola found herself at the helm of a company grappling with the severe economic fallout and operational challenges inflicted by the crisis.

Faced with a drop in occupancy rates from 70% to a mere 5%, Olusola and her team were confronted with the daunting task of steering Transcorp Hotels through uncharted waters.

Undeterred by the adversity, they embarked on a journey of transformation, leveraging creativity and resilience to navigate the turbulent landscape.

Implementing innovative strategies such as introducing drive-through cinemas, setting up on-site COVID-19 testing facilities, and enhancing take-away services, Transcorp Hotels adapted to meet the evolving needs of its guests and ensure continuity amidst the crisis.

Embracing disruption as a catalyst for growth, Olusola fostered a culture of collaboration and teamwork, rallying her colleagues to overcome obstacles and embrace change.

Through unwavering determination and a commitment to excellence, Transcorp Hotels emerged from the pandemic stronger than ever, breaking profit and revenue records year after year.

“It’s indeed been a great opportunity to learn and relearn, to lead and to grow. When you see success stories, remember it’s a journey with twists, turns, ups and downs but in the end, it will all be okay”, she said.

Olusola’s leadership exemplifies the power of adaptability and perseverance, inspiring her team to transcend limitations and chart a course towards unprecedented success.

As Transcorp Hotels continues to flourish under her stewardship, Olusola remains steadfast in her dedication to driving innovation, fostering growth, and breaking barriers in the hospitality industry.

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