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Concerns Over Interest Rates, Capacity, as DBN Kicks Off With N398.45b

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  • Concerns Over Interest Rates, Capacity, as DBN Kicks Off With N398.45b

With about 70,000 micro, small and medium enterprises seeking various forms of financial intervention to take their businesses to the next level, there are concerns about the ability of the Development Bank of Nigeria (DBN) to meet such demands with its $1.3 billion (N398.45 billion:N306.5/$1) start-up capital.

After over two years of delay, the Development Bank of Nigeria (DBN) is set to take off following the approval of its operating license by the Central Bank of Nigeria (CBN) and would have to battle with a growing market of small businesses, many of which are unstructured and seek access to finance at single-digit interest rates.

With a major mandate to spur growth through financing of projects, particularly the medium, small and medium scale industries, the $1.3 billion (N398.45billion) Development Bank of Nigeria is jointly funded by the World Bank (WB), KfW (German Development Bank), the African Development Bank (AfDB) and the Agence Française de Development (French Development Agency). The bank is also finalising agreements with the European Investment Bank (EIB) for more investment.

The newly-licensed bank however dismissed concerns saying that it will finance 20,000 micro, small and medium enterprises (SMEs) in the first year of its operation.
Its Managing Director, Tony Okpanachi, said part of the strategies of the bank was to de-risk the sector by making sure that loans were provided at a longer period of 10 years with a moratorium that would enable the loans to be repaid within 12 years.

He said the loans would be given at a competitive rate, adding that this would be used to promote the development of the sector.

Okpanachi said: “DBN is a new dawn for MSMEs because we will provide small businesses with funds and this will create the needed impact on the economy.

“We will create a sustainable finding model and also ensure financial inclusion through access to funding.

“We are also looking at more female participation and about 20,000 SMEs will be funded in the first year of our operation.”

Okpanachi said the bank would not be dealing directly with individuals, but rather through their conventional bankers like microfinance and commercial banks.

On the DBN operations, the Ministry of Finance explained that the DBN will provide loans to all sectors of the economy including, manufacturing, services and other industries not currently served by existing development banks thereby filling an important gap in the provision of finance to Micro, Small and Medium Enterprises (MSMEs).

In his reaction, President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs believes the bank’s capital base is strong to meet the demands of SMEs adding that it would be a support to the efforts of the Bank of Industry (BoI) in addressing the financing needs of the real sector of the economy.

Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, said the $1.3 billion take off fund is huge, considering the exchange rate and represents more than 12 commercial banks’ minimum capital base.

He dismissed concerns over duplication of roles, saying that the new bank is focused on small businesses, not industries, as well as provision of funds for that purpose to commercial banks, which will in turn meet the needs of the small businesses.

“It is a commendable move. If this segment does not exist today, Nigeria would have stopped existing and we must ensure their sustainability to go forward,” he said.

“The more the merrier. The initial proposal was to scrap BoI and BoA but it didn’t happen. A mix of financial needs and this will further have impact on the real sector. Development banks usually have concessionary rates and their rates are generally lower and better than that of commercial banks”, Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf added.

On the number of financial institutions that will work with DBN as participating financial institutions, the ministry noted that banks and financial institutions that meet up with a full set of eligibility requirements will be qualified to receive funds from the bank, adding that the operations of the DBN will not in any way, result in the elimination of the Bank of Industry (BoI), Bank of Agriculture (BOA) or any other existing development bank.

Operators in the real sector had raised objection on the repealing of BoI Act in order to set up the DBN.

Addressing concerns, the Ministry of Finance said: “The operations of the DBN is distinct from other development banks as it is focused on supporting small businesses defined by size and not by sectors.

“The DBN will provide loans to all sectors of the economy including, manufacturing, services and other industries not currently served by existing development banks thereby filling and important financing gap.

“The influx of additional capital from the DBN will lower borrowing rates and the longer tenure of the loans, will provide the required flexibility in the management of cash flows, giving businesses the opportunity to make capital improvements and acquire equipment or supplies.

“As the economy diversifies, the growth of the MSME sector will have a positive impact on the economy through employment generation, wealth creation and economic growth”.

Already, the Bank has completed the recruitment of the executive management team ahead of its date of commencement of operations.

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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Crude Oil

Oil Prices Dip Amidst Middle East Tensions, Market Reaction Limited

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Oil prices fell on Monday as market participants reevaluated their risk premiums in the wake of Iran’s weekend attack on Israel, which the Israeli government said caused limited damage.

Brent crude oil, against which Nigerian oil is priced,  dipped by 50 cents, or 0.5%, to $89.95 a barrel while West Texas Intermediate (WTI) oil fell by 52 cents, or 0.6%, to $85.14 a barrel.

The attack, involving over 300 missiles and drones, marked the first assault on Israel from another country in more than three decades. It heightened concerns over a potential broader regional conflict impacting oil traffic through the Middle East.

However, Israel’s Iron Dome defense system intercepted many of the missiles, and the attack resulted in only modest damage and no reported loss of life.

Warren Patterson, head of commodities strategy at ING, noted that the market had largely priced in the potential attack in the days leading up to it. The limited damage and the absence of casualties suggest that Israel’s response may be more measured, which could help stabilize the oil market.

Iran, a major oil producer within OPEC, currently produces over 3 million barrels per day (bpd) of crude oil. The potential risks include stricter enforcement of oil sanctions and the possibility of Israeli targeting of Iran’s energy infrastructure, according to ING.

Nevertheless, OPEC possesses over 5 million bpd of spare production capacity, which could help mitigate any supply disruptions.

Analysts from ANZ Research and Citi Research have suggested that further significant impact on oil prices would require a material disruption to supply, such as constraints on shipping in the Strait of Hormuz. So far, the Israel-Hamas conflict has not had a notable effect on oil supply.

The market remains watchful of Israel’s response to the attack, which could influence the future trajectory of oil prices and broader geopolitical tensions in the region.

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Nigeria’s Crude Oil Production Falls for Second Consecutive Month, OPEC Reports

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Crude Oil

Nigeria’s crude oil production declined for the second consecutive month in March, according to the latest report from the Organization of Petroleum Exporting Countries (OPEC).

Data obtained from OPEC’s Monthly Oil Market Report for April 2024 reveals that Nigeria’s crude oil production depreciated from 1.322 million barrels per day (mbpd) in February to 1.231 mbpd in March.

This decline underscores the challenges faced by Africa’s largest oil-producing nation in maintaining consistent output levels.

Despite efforts to stabilize production, Nigeria has struggled to curb the impact of oil theft and pipeline vandalism, which continue to plague the industry.

The theft and sabotage of oil infrastructure have resulted in significant disruptions, contributing to the decline in crude oil production observed in recent months.

The Nigerian National Petroleum Company Limited (NNPCL) recently disclosed alarming statistics regarding oil theft incidents in the country.

According to reports, the NNPCL recorded 155 oil theft incidents within a single week, these incidents included illegal pipeline connections, refinery operations, vessel infractions, and oil spills, among others.

The persistent menace of oil theft poses a considerable threat to Nigeria’s economy and its position as a key player in the global oil market.

The illicit activities not only lead to revenue losses for the government but also disrupt the operations of oil companies and undermine investor confidence in the sector.

In response to the escalating problem, the Nigerian government has intensified efforts to combat oil theft and vandalism.

However, addressing these challenges requires a multi-faceted approach, including enhanced security measures, regulatory reforms, and community engagement initiatives.

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Oil Prices Edge Higher Amidst Fear of Middle East Conflict

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Crude Oil

Amidst growing apprehensions of a potential conflict in the Middle East, oil prices have inched higher as investors anticipate a strike from Iran.

The specter of a showdown between Iran or its proxies and Israel has sent tremors across the oil market as traders brace for possible supply disruptions in the region.

Brent crude oil climbed above the $90 price level following a 1.1% gain on Wednesday while West Texas Intermediate (WTI) hovered near $86.

The anticipation of a strike, believed to be imminent by the United States and its allies, has cast a shadow over market sentiment. Such an escalation would follow Iran’s recent threat to retaliate against Israel for an attack on a diplomatic compound in Syria.

The trajectory of oil prices this year has been heavily influenced by geopolitical tensions and supply dynamics. Geopolitical unrest, coupled with ongoing OPEC+ supply cuts, has propelled oil prices nearly 18% higher since the beginning of the year.

However, this upward momentum is tempered by concerns such as swelling US crude stockpiles, now at their highest since July, and the impact of a hot US inflation print on Federal Reserve rate-cut expectations.

Despite the bullish sentiment prevailing among many of the world’s top traders and Wall Street banks, with some envisioning a return to $100 for the global benchmark, caution lingers.

Macquarie Group has cautioned that Brent could enter a bear market in the second half of the year if geopolitical events fail to materialize into actual supply disruptions.

“The current geopolitical environment continues to provide support to oil prices,” remarked Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. However, he added, “further upside is limited without a fresh catalyst or further escalation in the Middle East.”

The rhetoric from Iran’s Supreme Leader, Ayatollah Ali Khamenei, reaffirming a vow to retaliate against Israel, has only heightened tensions in the region.

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