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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.

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.

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Tesla’s Valuation Crosses $1 Trillion Mark After Hertz Orders 100,000 Vehicles

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Tesla Model 3 - Investors King

Price of Tesla stock rose by $115.18 or 12.66 percent on Monday after Hertz, an American car rental company based in Estero, Florida, ordered 100,000 Tesla electric vehicles in a deal worth $4.2 billion.

Four months after surviving bankruptcy, Hertz Global Holdings Inc. is strategically moving away from fuel cars to electrify its rental-car fleet.

According to Hertz, customers will be able to order Tesla Model 3 at airports and other locations in major U.S. markets and some cities in Europe starting from early November.

The announcement bolstered Tesla’s market value above $1.03 trillion before it moderated to $1.01 trillion at the close of business on Monday.

Tesla’s valuation has risen at an unusual pace since the COVID-19 outbreak. The company’s valuation jumped from $100 billion to $1 trillion in less than two years, according to data available on Dow Jones. It took Amazon, Apple and others more years to attain the same status. To put it in perspective, it took Amazon more than eight years to move from a $100 billion valuation company to $1 trillion.

Despite analysts saying Tesla is extremely overvalued and a series of price adjustments post-COVID-19 are predicted, Tesla Inc and Elon Musk, the company’s CEO and Co-founder, seem not to be slowing down.

Musk’s Tesla holdings, including vested and unvested options, were valued at around $297 billion as of Monday, October 25, 2021, according to corporate-governance data company Equilar Inc. Elon Musk’s holdings in Tesla is more than the valuation of Toyota Motor Corp., the second-largest automaker by market capitalization.

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Merger and Acquisition

Access Bank and African Banking Corporation Zambia Limited Merge to Deepen Presence in Zambia

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Access bank

Access Bank Plc on Monday announced it has signed a binding agreement with Atlas Mara Limited on a proposed merger between Access Bank’s subsidiary in Zambia, Access bank Zambia Limited and African Banking Corporation (Atlas Mara Zambia).

Upon completion of this prospective transaction, the Bank is expected to retain or increase its current shareholding in Access Bank Zambia, which following the merger will have over 70 branches and agencies, approximately US$1 billion in total assets and over 300,000 customers in Zambia.

The transaction will not require significant additional capital investment requirements from the Bank given the capital and other synergies created from the merger between Access Bank Zambia with Cavmont Bank in 2020. The proposed transaction is expected to be concluded in 2022, subject to fulfillment of conditions precedent including regulatory approvals in Nigeria and Zambia.

Commenting on the transaction, Dr. Herbert Wigwe, GMD/CEO of the Bank said, “This transaction represents another milestone that brings us closer to the achievement of our broader strategic objectives. The merger of Atlas Mara Zambia with Access bank Zambia is expected to augment our presence in Zambia and the broader COMESA region, Africa’s largest free trade area.

“We are particularly excited by the prospects of increased earnings contribution to the Bank from the enlarged Access Bank Zambia, which has also announced the appointment of a new Managing Director, Mr. Lishala Situmbeko, who brings over 25 years of cognate experience and deep local relationships into our Zambian operation.

“Today’s announcement is a testament to the strong confidence of the Zambian market in the Bank’s country and regional strategy as well as our strong confidence in the long-term prospects for the Zambian economy.”

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Merger and Acquisition

Verdant Capital Advises Baxi, a Leading Super-agent in Nigeria, on its Sale to MFS Africa

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Edmund Higenbottam, MD of Verdant Capital - Investorsking.com

MFS Africa is acquiring Baxi to expand its network into Nigeria, Africa’s largest economy and perhaps its most fintech dynamic market. Nigeria is also the largest remittance market in Africa representing one-third of intra-Africa remittance flows, and is home to the largest number of SMEs.

Verdant Capital views the two businesses as highly complimentary:  Baxi simplifies and integrates online and offline payments for SMEs and merchants in Nigeria through its omni-channel distribution network; MFS Africa simplifies cross-border payments, integrating payments via one hub. The transaction further extends Verdant Capital’s track-record of advising on transactions shaping the fintech sector in Africa.

The sale of Baxi is Verdant Capital’s fifth successful fintech transaction of the year, having advised Retail Capital, a leading tech-enabled SME-financier in South Africa on a USD 10 million capital raise; Zeepay, a leading pan-African digital remittance and mobile payments business on its USD 8 million Series-A and on its acquisition of Mangwee in Zambia; and Tugende, a leading tech-enabled SME-financier in East Africa on its USD 10 million Series-A.  The transactions cover West, East and South Africa.  In part because of its successful track-record in transactions in the fintech sector, as well as because of its leading private equity franchise, Verdant Capital was named the best independent advisor of the year, pan-Africa, by Africa Global Funds, for the second year running in October 2021.

Founded in 2014 by Degbola Abudu and Folu Majekodunmi, Baxi is one of Nigeria’s largest independent SME-focused electronic payment networks. Baxi provides a comprehensive range of services to the last mile including cash-in/cash-out, account opening, money transfer and bill payment. Through its network of more than 90,000 agents, Baxi processed over USD 1 billion in transactions in the first nine months of 2021.  Following the close of the transaction, MFS Africa plans to build Baxi into a key node on its digital payment network, allowing customers to make regional and global payments to and from Nigeria. MFS Africa also intends to expand Baxi’s proposition for offline SMEs to select markets within MFS Africa’s footprint of 320 million mobile wallets across more than 35 African countries.

Strong agent networks are the crucial interface for fintechs to reach Nigeria’s circa 100 million financially unserved or underserved population. Supporting and nurturing SMEs is crucial to Nigeria’s economy, as they contribute 50% of Gross Domestic Product and provide 76% of jobs (source:  Federal Ministry of Information and Culture).  With its presence in all 36 Nigerian states, Baxi fills a critical gap by providing informal SMEs and other unbanked Nigerians access to financial services.  Verdant Capital is proud to support the leading businesses that support SMEs across the Continent.

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