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Non-performing Loan Ratio Crashes to 13.4%

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  • Non-performing Loan Ratio Crashes to 13.4%

As economic recession continues to weigh on the banking sector, non-performing loans ratio in the banking industry has crashed further above the Central Bank of Nigeria’s five per cent threshold.

The NPLs ratio fell to 13.4 per cent in September 2016, up 11.7 per cent recorded in June 2016, according to a Bloomberg report.

The industry-wide NPLs ratio had hit 5.3 per cent in December 2015, exceeding the prudential limit of 5.0 per cent, the CBN Financial Stability Report for the first half of last year revealed.

Specifically, the NPLs in the period under review grew by 158 per cent from N649.63bn at end-December 2015, to N1.679tn at end-June 2016, the CBN report showed.

The Group Managing Director, Access Bank Plc, Mr. Herbert Wigwe, predicted that the level of troubled loans would continue to climb before an economic recovery in the second half of the year would bring relief to the banks.

“Across the entire industry, you’ll see an uptick in non-performing loan ratios,” Bloomberg quoted Wigwe as saying in a report on Friday.

“We are better than most,” the Access Bank GMD added.

Access Bank, the country’s fourth-largest bank by assets, expects that its NPLs will climb to “slightly below” three per cent of total loans by the end of this year, compared with 2.1 per cent for the nine months through September last year.

The picture is not as rosy for the rest of the industry as lower crude prices and foreign-currency shortages cause the economy to contract.

Wigwe said the lender was targeting companies that sourced their raw materials locally for loans to reduce the risk of unpaid debt.

First Bank of Nigeria Limited, the country’s biggest lender by assets, stood out among the largest banks with an NPL ratio of 22.8 per cent at the end of September last year.

Zenith Bank Plc, United Bank for Africa Plc and Guaranty Trust Bank Plc had the NPL ratios ranging from 2.2 per cent to 4.1 per cent.

Capital levels also decreased. The sector’s capital adequacy ratio fell to 14.7 per cent in June from 16.1 per cent in December 2015.

For big banks, which the CBN classified as having more than N1tn of assets, the ratio fell to 15.65 per cent, still above the requirement of 15 per cent.

According to Wigwe, conditions in the economy should start improving in the second half of the year if monetary and fiscal measures take hold.

The CBN left its benchmark interest rate unchanged at a record 14 per cent in November as it seeks to contain inflation that rose to the highest level in more than a decade, with President Muhammadu Buhari planning to boost spending this year by 20 per cent to revive growth.

The Access Bank GMD said the lender had managed to get into an “extremely liquid” position by raising N35bn in the last quarter of 2016 by tapping a N100bn commercial bond programme.

“We will continue to raise until we can get to that programme limit; some of it may mature, which we will repay, then raise again,” Wigwe said.

“The whole idea is that we must always have that liquidity buffer,” he added.

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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FG Acknowledges Labour’s Protest, Assures Continued Dialogue

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The Federal Government through the Ministry of Power has acknowledged the organised Labour request for a reduction in electric tariff.

The Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) had picketed offices of the National Electricity Regulatory Commission (NERC) and Distribution Companies nationwide over the hike in electricity tariff.

The unions had described the upward review, demanding outright cancellation.

Addressing State House correspondents after the Federal Executive Council (FEC) meeting on Tuesday, Minister of Power, Adebayo Adelabu, said labour had the right to protest.

“We cannot stop them from organizing peaceful protest or laying down their demands. Let me make that clear. President Bola Tinubu’s administration is also a listening government.”

“We have heard their demands, we’re going to look at it, we’ll make further engagements and I believe we’re going to reach a peaceful resolution with the labor because no government can succeed without the cooperation, collaboration and partnership with the Labour unions. So we welcome the peaceful protest and I’m happy that it was not a violent protest. They’ve made their positions known and government has taken in their demands and we’re looking at it.

“But one thing that I want to state here is from the statistics of those affected by the hike in tariff, the people on the road yesterday, who embarked on the peaceful protests, more than 95% of them are not affected by the increase in the tariff of electricity. They still enjoy almost 70% government subsidy in the tariff they pay because the average costs of generating, transmitting and distributing electricity is not less than N180 today.

“A lot of them are paying below N60 so they still enjoy government’s subsidy. So when they say we should reverse the recently increased tariff, sincerely it’s not affecting them. That’s one position.

“My appeal again is that they should please not derail or distract our transformation plan for the industry. We have a clearly documented reform roadmap to take us to our desired destination, where we’re going to have reliable, functional, cost-effective and affordable electricity in Nigeria. It cannot be achieved overnight because this is a decay of almost 60 years, which we are trying to correct.”

He said there was the need for sacrifice from everybody, “from the government’s side, from the people’s side, from the private sector side. So we must bear this sacrifice for us to have a permanent gain”.

“I don’t want us to go back to the situation we were in February and March, where we had very low generation. We all felt the impact of this whereby electricity supply was very low and every household, every company, every institution, felt it. From the little reform that we’ve embarked upon since the beginning of April, we have seen the impact that electricity has improved and it can only get better.”

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Nigeria, China Collaborate to Bridge $18 Billion Trade Gap Through Agricultural Exports

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In a concerted effort to address the $18 billion trade deficit between Nigeria and China, both nations have embarked on a collaborative endeavor aimed at bolstering agricultural exports from Nigeria to China.

This strategic partnership, heralded as a landmark initiative in bilateral trade relations, seeks to narrow the trade gap and foster more balanced economic exchanges between the two countries.

The Executive Director of the Nigerian Export Promotion Council (NEPC), Nonye Ayeni, revealed this collaboration during a joint meeting between the Council and the Department of Commerce of Hunan province, China, held in Abuja on Monday.

Addressing the trade imbalance, Ayeni said collaborative efforts will help close the gap and stimulate more equitable trade relations between the two nations.

With Nigeria importing approximately $20.4 billion worth of goods from China, while its exports to China stood at around $2 billion, representing a $18 billion in trade deficit.

This significant imbalance has prompted officials from both countries to strategize on how to rebalance trade dynamics and promote mutually beneficial economic exchanges.

The collaborative effort between Nigeria and China focuses on leveraging the vast potential of Nigeria’s agricultural sector to expand export opportunities to the Chinese market.

Ayeni highlighted Nigeria’s abundant supply of over 1,000 exportable products, emphasizing the need to identify and promote the top 20 products with high demand in global markets, particularly in China.

“We have over 1,000 products in large quantities, and we expect that the collaboration will help us improve. The NEPC is focused on a 12-18 month target, focusing on the top 20 products based on global demand in the markets in which China is a top destination,” Ayeni explained, outlining the strategic objectives of the collaboration.

The initiative not only aims to reduce the trade deficit but also seeks to capitalize on China’s growing appetite for agricultural products. Nigeria, with its diverse agricultural landscape, sees an opportunity to expand its export market and capitalize on China’s increasing demand for agricultural imports.

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IMF Urges Nigeria to End Fuel and Electricity Subsidies

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In a recent report titled “Nigeria: 2024 Article IV Consultation,” the International Monetary Fund (IMF) has advised the Nigerian government to terminate all forms of fuel and electricity subsidies, arguing that they predominantly benefit the wealthy rather than the intended vulnerable population.

The IMF’s recommendation comes amidst Nigeria’s struggle with record-high inflation and economic challenges exacerbated by the COVID-19 pandemic.

The report highlights the inefficiency and ineffectiveness of subsidies, noting that they are costly and poorly targeted.

According to the IMF, higher-income groups tend to benefit more from these subsidies, resulting in a misallocation of resources. With pump prices and electricity tariffs currently below cost-recovery levels, subsidy costs are projected to increase significantly, reaching up to three percent of the gross domestic product (GDP) in 2024.

The IMF suggests that once Nigeria’s social protection schemes are enhanced and inflation is brought under control, subsidies should be phased out.

The government’s social intervention scheme, developed with support from the World Bank, aims to provide targeted support to vulnerable households, potentially benefiting around 15 million households or 60 million Nigerians.

However, concerns persist regarding the removal of subsidies, particularly in light of the recent announcement of an increase in electricity tariffs by the Nigerian Electricity Regulatory Commission (NERC).

While the government has taken steps to reduce subsidies, including the removal of the costly petrol subsidy, there are lingering challenges in fully implementing these reforms.

Nigeria’s fiscal deficit is projected to be higher than anticipated, according to the IMF staff’s analysis.

The persistence of fuel and electricity subsidies is expected to contribute to this fiscal imbalance, along with lower oil and gas revenue projections and higher interest costs.

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