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Banks Scramble for Fresh Capital as Naira Weakens Further

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CBN
  • Banks Scramble for Fresh Capital as Naira Weakens Further

Rising non-performing loans and imminent fall in naira value have put banks in a precarious position and needing to raise fresh capital in a distressed economy.

Palpable fear has gripped the chief executives of many large-tier and mid-tier Deposit Money Banks as an imminent fall in the naira exchange rate throws up a need for additional capital raising.

Checks by our correspondent show that the Capital Adequacy Ratio of a number of the country’s mid-tier and weak large-tier banks is currently at the threshold stipulated by the Central Bank of Nigeria.

This means that in the absence of additional capital raising, a slight depletion in capital will make a number of the banks to fall below the minimum CAR prescribed by the CBN.

Aside from mounting non-performing loans among the country’s lenders, findings by our correspondent showed that a possible fall in the official exchange rate of the naira would make at least five of the banks to fall below the 16 per cent minimum CAR stipulated by the apex bank.

“The situation is a bit terrible now. Aside from the NPLs that are rising among a number of banks, any fall in the naira-dollar official rate will put many banks in trouble as far as the CBN’s CAR is concerned. This is because many of us are already at the threshold. A slight fall in the value of the naira means not less than five banks will sink below the CBN’s CAR,” an executive director in one of the leading banks told our correspondent on Sunday on the condition of anonymity, because he was not officially authorised to speak on the matter.

This came amid predictions by notable economic and financial experts that the naira would hit between 350 and 400/dollar at the official window this year instead of the current rate of 305.

The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, in the firm’s economic outlook for 2017 released recently, predicted that the naira would trade at 350 to the dollar at the official market and depreciate to 520 to the greenback at the parallel market.

Afrinvest West Africa Limited, a Nigeria-based investment bank and research advisory firm, in its 2017 economic outlook released last Tuesday, also said the official exchange rate of the naira might tumble by about 31 per cent to 400 per dollar before the end of this year.

“If you think about the monetary policy environment, we think that the CBN will be forced by the market to make a change. Currently, the naira is pegged at 305/dollar; we see it moving towards 400/dollar by the end of the year,” the firm said.

Banking sources said several banks were already looking at how to raise additional capital ahead of the possible fall in the value of the naira at the official market.

It was also learnt that because of the tough state of the economy, which has made it difficult to raise additional capital locally, many of the lenders were looking at getting foreign partners to make equity injection or buy stakes in the banks.

Already, some foreign banks operating in Africa are planning to acquire and recapitalise some weak banks in Nigeria.

The Chairman, FirstRand Limited, Laurie Dippenaar, whose firm is seeking to acquire a mid-sized lender in Nigeria, said the firm was also considering one other target after ending talks with two banks due to disagreement over price.

The weak banks are currently valued below their true worth in the country’s capital market following the prevailing negative sentiment of investors, which has diminished their capital status, thus putting them in dire need of additional capital.

The current devaluation of the naira is aggravating the problem and diluting the financial power of Nigerian banks

The Group Managing Director, Afrinvest, Mr. Ike Chioke, whose firm had predicted that the naira-dollar exchange rate at the official market would fall from 305 to 400 this year, said the exchange rate would drive the banking sector.

Chioke said, “The factor that will drive the banking sector this year is exchange rate. We are officially at 305, while the parallel market is 498. Quite a number of banks have dollar-denominated risk weighted assets on their balance sheets. The more we move towards a free floating of the naira or devaluing the naira, the more that drags down their capital adequacy ratio.

“And if the threshold is 15 per cent or 16 per cent (as the case may be), and at N305/dollar, you are just at 16.5 or 17 per cent; if I move the official rate to say 350, you may see the same bank because 30 per cent of its risk assets are in dollars, you find that its CAR has dropped to 14 per cent. At that point, it needs to then raise more capital.”

He also said, “I think quite a number of the mid-tier banks and some of the weaker large-tier banks are in that space where a slight movement in the exchange rate may force them to fall below the regulator minimum of CAR. In which case, they will need to raise capital, do rights issue and get new equity injection.

“And we are already seeing that; as they close their 2016 accounts soon, watch out for announcements on annual general meetings; you can see that they will be taking measures that will give them all kinds of flexibility to attract new capital. That is likely to happen.

“While we are talking about the need to reform the currency market, for the banks, it has this little biting on the backside because those reforms are what will create that requirement for additional capital injection.”

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said the structure of the risk assets in commercial banks differs in terms of currency and sector of exposure.

This, he said, would determine the extent the possible fall in the naira value would affect them.

Chukwu stated that banks with higher dollar-denominated risk assets and higher NPLs would suffer the most.

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.

Finance

NAIC Pays N1.7bn Claims to Farmers

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The Nigerian Agricultural Insurance Corporation (NAIC) said it paid a total of N1.7 billion claims to over 5,000 farmers in the past two years.

NAIC, which is the only federal government owned insurance company authorised to offer agric insurance services to farmers at subsidised rate, said a breakdown of the paid claims showed that it paid N856 million to insured farmers in 2019 and N848 million in 2020.

Commenting on the development, NAIC Managing Director, Mrs. Folashade Joseph, said the claims were paid to the farmers to cover losses incurred in the course of doing business.

Joseph, enjoined agricultural investors and lending institutions to continue to partner NAIC by taking agricultural insurance cover that will enable them remain firm in business despite unforeseen circumstances from weather conditions and other risks in order to realise the food security agenda of President Muhammadu Buhari.

She said the above-mentioned amount was shared among five million farmers who suffered various setbacks in their farms as a result of natural course.

According to her, the NAIC Agric Insurance Scheme was launched in 1987 by federal government to restore the confidence and productivity of Nigerian farmers who suffered losses as a result of natural disaster such as flood, drought, pest and diseases.

The NAIC boss explained that the essence of the sensitisation campaign embarked by the corporation was to let the farmers know and understand exactly what NAIC does, the importance of insurance, and make them understand how insurance works, how they can access NAIC products and services, how to process their claims, as well as what insurance stands to do for them.

“Agribusiness is evolving fast and so many risks are being thrown up, many new participants are coming into the business of agriculture, and the risks are on the increase if you look at them across the value chain, there is no so many participants so we need to keep sensitising the farmers and let them know we are serving them, and we need to know from them how to serve them,” she explained.

Speaking further, she said, “our assurance to farmers is that when they are insured and they suffer losses covered by any of the policies they purchased, including natural disasters and whatever, they will get paid for their losses, and that is the purpose of insurance and setting up NAIC.

“Our motor is ‘Plowing the Farmer Back to Business, Plowing the Farmers into Prosperity’, and we settle claims.”

She said NAIC currently deals with thousands of farmers (Small, Medium, and Large scale farmers) across the country, adding that the corporation serves farmers with investment as little as N100, 000, and at the same time serves multinational farmers.

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Banking Sector

UBA Organises Capacity Building Forum

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UBA Insider dealings

As part of its commitment to support the growth and sustainability of micro, small and medium-scale enterprises (MSME) in the continent, the United Bank for Africa (UBA) Plc, is set to organise the next edition of its UBA Business Series.

The UBA Business Series which is a monthly event, is an MSME Workshop as well as a capacity building initiative of the bank where business leaders and professionals share well-researched insights on best practices for running successful businesses, especially in the face of the difficult operating environment that dominates the African business landscape.

Through this initiative, UBA has been assisting with essential tips to help businesses re-examine their models and strategies and ensure that they stay afloat and remain thriving, a statement from the bank explained.

The topic for the next edition of the series is, “Managing Performance for Business Growth,” and it will be held today, via Microsoft Teams.

At this session, the Managing Director, Secure ID Limited, Mrs Kofo Akinkugbe, will be sharing useful tips and insights on the key strategies of performance management to boost business growth.

Akinkugbe is the founder of SecureID Nigeria, a MasterCard, VISA and Verve certified Smartcard Personalization Bureau and Digital Technology company. She currently serves as the Managing Director/CEO, Secure Card Manufacturing, – a Smartcard manufacturing plant producing high security identity cards and documents for the Banking, Telecoms and Public sectors across Africa and beyond.

UBA’s Head, SME Banking, Sampson Aneke said of Akinkugbe, “with her vast experience garnered over the years from various sectors, she will help business owners understand how performance management strategies can be effectively implemented to ensure business growth.”

He emphasised UBA’s commitment and deep passion for small businesses, which according to him, remains the engine of any developing economy adding, “We know small businesses are the backbone of the economy in every country. In many climes, businesses with fewer than 100 employees account for 98.2 per cent of all businesses. This no doubt captures the importance of SMEs to a thriving economy which is why UBA is committed to seeing them flourish.”

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Banking Sector

CBN to Extend Credit Risk Management System to OFIs

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In an effort to curb growing bad debt, the Central Bank of Nigeria has said it will extend its Credit Risk Management System to Other Financial Institutions (OFIs) operating in Nigeria to protect them from bad debtors.

According to the apex bank, this is important following the successful implementation of the credit risk system in other lending institutions operating in Nigeria.

The bank disclosed this in a circular titled ‘Credit Risk Management System: Commencement of enrolment of all Development Finance Institutions, Microfinance Banks, Primary Mortgage Banks and Finance Companies’ and signed by Kelvin Amugo, the Director, Financial Policy and Regulation Department, on Monday.

In part, the circular read, “As part of efforts to promote a safe and sound financial system in Nigeria, the CBN introduced the CRMS to improve credit risk management in commercial, merchant and non-interest banks as well as to prevent predatory borrowers from undermining the banking system.

“With the successful implementation of the CRMS in deposit money banks, it has become expedient to commence the enrolment of Other Financial Institutions on the CTMS platform.

“Accordingly, all DFIs, MfBs, PMBs and FCs are required to report all credit facilities (principal and interest) to the CRMs and to update same on monthly basis.

“OFIs shall note the Bank Verification Numbers and Tax Identification Numbers are the only basis for regulatory renditions”.

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