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With Improved FX Liquidity, Banks Foresee Green Shoots

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  • With Improved FX Liquidity, Banks Foresee Green Shoots

Following the significant improvement in foreign exchange(FX) liquidity in the economy, operators of commercial banks in the country believe the economy has past the worst of what was described as “the most severe downturn in 25 years.”

Renaissance Capital, a financial advisory firm stated this in a report, at the end of its 8th Annual Pan-Africa 1:1 Investor Conference in Lagos recently.

According to the firm, one of the big theme at the meeting with investors was the year-to-date (YTD) improvement in FX liquidity, which allowed for the unwinding of some outstanding obligations.

Trade facilities and velocity increased as a result, it cited one bank to have disclosed.

During the height of the FX shortages, trade cycles lengthened to 12 months, from a typical four-to-six months.

“The trade cycle is now contracting. Banks are cautiously optimistic about the Investors and Exporters (I&E) FX window. One bank thinks it is a tacit devaluation and precursor to a more liberal FX policy.

Another sees the FX rate settling at N370-400/$1,” it stated. In addition, the report revealed that banks see little incentive to lend with Treasury yields, while non-performing loans (NPLs) tend to lag the economy.

It also quoted another bank to have estimated that there was 18 months to go of high NPLs and downside surprises.

“Retail transactions fell, when households cut spending, have yet to pick up. That said, banks believe things are getting better. In the short term, they see opportunities in manufacturing, agriculture and infrastructure.

They are steering clear of the oil & gas, and haulage sectors. One bank thinks the nascent recovery is led by an improvement in the oil sector, and fears that if it is not sustained by structural reform, it will be fragile. The banks’ biggest concern is regulatory changes,” it added.

On the other hand, it stated that consumer companies held the opinion that the fundamentals of the microeconomy – consumers and businesses – have not changed.

“They think the consumer is still stressed; unemployment high and inflation elevated. Consumers have reduced the frequency of purchases, found substitutes and traded down. One consumer company shared with us the example of a middle-income mother buying smaller sachets of a product, when she can afford a larger pack. Her argument was that in these challenging times, she can control consumption more easily in her household with sachets.

“Lower income mobile subscribers are reacting to high inflation by dropping from two SIM cards to one, according to a telcos company. Tight FX liquidity led to some companies delaying capex. Some consumer companies cannot pass on the cost of FX to the end consumer. Even those with a relatively larger share of locally sourced raw materials told us that its pricing is still impacted by FX. The companies see stability returning,” it added.

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

CBN Maintains 11.5 Percent Monetary Policy Rate, Leaves Other Ratios Unchanged

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The Central Bank of Nigeria led Monetary Policy Committee (MPC) has left the interest rate unchanged at 11.5 percent to further stimulate activities in the real sector of the economy.

Godwin Emefiele, the Governor of Central Bank of Nigeria disclosed this at the end of the MPC meeting on Tuesday in Abuja.

He said other parameters, the Cash Reserve Ratio (CRR), Liquidity ratio, and asymmetric corridor, were left unchanged.

According to the Governor, the committee voted unanimously to maintain the current monetary policy and attributed the surge in inflation to structural policies, the increase in pump price and the recent #EndSARS protest.

Highlights of CBN-MPC’s  Decision

  • MPR was kept at 11.50%
  • The asymmetric corridor of +100/-700 basis points around the MPR
  • CRR was retained at 27.5%
  • Liquid Ratio was also kept at 30%

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Finance

Unity Bank Grew Gross Earnings by 8 Percent to N34 Billion in Nine Months

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Unity Bank Plc grew gross earnings by 8 percent despite COVID-19 and other headwinds that hurt the profitability of most businesses in the first nine months of the year.

A break down of the bank’s unaudited financial results for the period showed gross earnings rose by 8 percent to N33.91 billion for the nine months ended September 30, 2020, up from N31.26 billion posted in the same period of last year.

The lender’s total assets rose by 44 percent from N293.05 billion in the corresponding period of 2019 to N420.87 billion in the period under review.

Unity Bank grew profit before tax from N1.61 billion in 2019 to N1.71 billion in the period under review, while profit after tax expanded from N1.48 billion in the corresponding period to N1.57 billion in 2020.

Customers’ deposits stood at N332.36 billion during the period under review, up from N257.69 billion posted in 2019.

Commenting on the performance, Mrs. Tomi Somefun, the Managing Director/Chief Executive Officer, Unity Bank Plc, expressed delight at the strong growth recorded across the bank’s balance sheet, especially from both the liability and assets side of the business and across key indices.

She said, “even as the bank continues to innovate in its e-business product bouquet to target and support value chain business with robust technology and thus diversify its earnings base.”

Somefun said, “One of the areas that will define our strategic direction going forward is investment in alternative channels, leveraging further deployment of resources in technology.

“COVID-19 gave us a chance to test the integrity and scalability of our technology, the IT infrastructure, and the electronic banking channels, and provided us an opportunity to see where we needed to improve and strengthen, knowing that the future of sustainable banking business is in alternative channels.”

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Financial Sector Grew by 6.8 Percent in the Third Quarter

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The finance and insurance sector that comprises of both the financial institutions and insurance subsectors grew by 5.91 percent year-on-year in nominal terms in the third quarter (Q3).

According to the National Bureau of Statistics (NBS) latest report, the financial institutions’ subsector accounted for 88.89 percent of the sector in real terms in the quarter under review while the insurance subsector contributed the remaining 11.11 percent.

During the third quarter of 2020, the financial institutions’ subsector grew by 6.8 percent in Q3 2020 from 28.41 percent in Q2 2020 and 0.61 percent in Q3 2019 despite COVID-19 and a tough operating environment. The insurance subsector, however, contracted by -18.67 percent in Q3 2020 from -29.53 percent in Q2 2020 and 3.96 percent in Q3 2019.

On a quarterly basis, the sector declined by 24.76 percent.

In terms of contribution to GDP, the finance and insurance sector contributed 2.46 percent in Q3 2020, higher than the 2.40 percent it represented a year ago and lower than the contribution of 3.76 percent achieved in the previous quarter.

The economy contracted by 3.62 percent in the third quarter following a 6.10 percent decline posted in the second quarter. Nigeria is officially in the second economic recession in four years.

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