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Domestic Debt Servicing Gulped N474.06bn in First Quarter – DMO

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Forex Weekly Outlook March 6 - 10
  • Domestic Debt Servicing Gulped N474.06bn in First Quarter – DMO

The size of Federal Government’s loans has reflected on the debt servicing expenses as it spent N474.06bn to service domestic debts in the first three months of this year.

Statistics obtained from the Debt Management Office in Abuja on Wednesday showed that the country also spent $127.92m to service foreign debts in the first quarter of the year.

At the official exchange rate of N306.35 to a dollar, the cost of servicing the foreign loans amounted to N39.19bn in the first quarter of the year.

This means that the Federal Government spent N434.87bn more on servicing its domestic debts than on foreign debts in the first three months of the year.

As reported by Investors King on Tuesday, the nation’s total debt stood at N19.16tn as of March 31, 2017.

The Federal Government’s domestic component of the total debt stood at N11.97tn as of the end of March. The country’s external debt (for both the federal and state governments) stood at $13.81bn in the period, while the states’ domestic debts rose to N2.96tn.

For some years now, the Federal Government has been saying that it will move to borrowing less from domestic sources because of high interest rates and because it has crowded out private sector operators from the debt market.

However, it has not been able to achieve this as it continues to borrow from the domestic market every month, using a variety of instruments. In fact, a new borrowing instrument, FGN Savings Bond, was recently introduced into the market.

The World Bank had recently said that lower earnings had endangered the capacity of the Federal Government to sustain debt servicing even though the nation’s debt profile remained low in comparison to the Gross Domestic Product.

Our correspondent reported that the servicing of Federal Government’s domestic debt gulped N1.23tn in 2016.

The DMO statistics showed that the highest interest payment of N839.79bn was made on debt acquired using the instrument of FGN Bonds.

Similarly, N335.58bn interest was paid on loans borrowed with the instrument of Nigeria Treasury Bills, while debts incurred with Treasury Bonds incurred a servicing obligation of N29bn in the year 2016.

A principal value of N25bn of Treasury Bonds was also repaid within the year.

The N1.23tn paid in servicing the domestic debt of the Federal Government was spread throughout the 12 months of the year.

The Federal Government had in 2015 spent N1.02tn to service its domestic debt. This comprised of N25bn repayment of the principal and N993.13bn interest payment within the year.

This means that in one year, between 2015 and 2016, the cost of serving the Federal Government’s domestic debt rose by N208.76bn.

In a report on the cost of the domestic debt, the DMO attributed the increasing cost of debt servicing to an equally increasing domestic debt profile and an increasing interest rate.

The report stated, “The Federal Government’s domestic debt service as of end of December 2015 amounted to N1.02bn, compared to N865.81bn in the corresponding period of 2014, and representing an increase of N152.32bn or 17.59 per cent.

“This amount comprised principal repayment of N25bn and interest payment of N993.13bn. By instrument type, FGN bonds debt service accounted for 62.41 per cent of the total debt service payment, while payments in respect of the Nigerian Treasury Bills and Treasury Bonds were 31.83 and 5.76 per cent, respectively.

“The trend analysis shows a continued rise in FGN’s domestic debt service payments from 2011 to 2015, which was attributed to the increase in the domestic debt stock, as well as the higher interest rates, which led to the rise in the cost of borrowing in the domestic debt market.”

In another document titled: ‘Nigeria’s Debt Management Strategy 2016-2019’, the DMO said at least 30 per cent of the nation’s domestic debt would fall due within a one-year period.

It stated, “The implied interest rate was high at 10.77 per cent, due mainly to the higher interest cost on domestic debt. The portfolio is further characterised by a relatively high share of domestic debt falling due within the next one year.

“Interest rate risk is high, since maturing debt will have to be refinanced at market rates, which could be higher than interest rates on existing debt. The foreign exchange risk is relatively low given the predominance of domestic debt in the portfolio.”

It added that the main risks to the existing public debt portfolio were high refinancing risk, given that more than 30 per cent of the domestic debt would mature within one year; and high interest rate risk arising from the high proportion of domestic debt due for re-fixing in the coming year, and therefore, exposed to changes in interest rates.

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.

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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Banking Sector

BoI Grows Assets by 78.8% to N1.86 Trillion

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The Bank of Industry Group concluded the 2020 financial year with a 78.8 per cent growth of assets from N1.04tn to N1.86tn between 2019 and 2020.

A statement by the bank on Monday said the increase was driven to a large extent by the successful debt syndication of €1bn and $1bn that were concluded in March and December 2020 respectively.

BoI stated that the group’s financial statement demonstrated resilience and strength, noting that the period had significant challenges in the operating environment on account of the impact of COVID-19 pandemic on the economy.

“It also indicates synergy with the various interventions developed by the Federal Government, the Central Bank as well as other strategic partners towards ameliorating the impact of the pandemic on Nigerian enterprises,” the statement said.

The group’s total equity increased by 14.8 per cent from N293.08bn in the previous year to N336.48bn in 2020.

It added that as a reflection of the adverse impact of the challenging operating environment on growth of new facilities, loans and advances grew marginally in 2020 by 1.3 per cent to N749.84bn from the 2019 position.

The bank explained that this was largely due to the economic slowdown in the year as well as the various interventions and support initiated by the bank for its customers.

“The bank reviewed and restructured all its managed projects under the CBN intervention programme with interest rate reduction from nine to five per cent per annum for a period of one year and moratorium extension of three months (with a possible extension up to 12 months),” it said.

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Banking Sector

TAJBank Deploys NQR Solution To Ease Customer Transactions

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TAJBank, Nigeria’s non-interest bank, has announced the deployment of the NQR Payment solution, an indigenous Quick Response Code (QRC) by the Nigeria Interbank Settlement Scheme (NIBSS), for merchants and customers as the newest addition to its innovative e-business channels.

The NQR Payment solution is a secure QR-code-based payments and collections platform developed for merchants and customers to receive and make payments for goods and services in a quick, easy, contactless and secure manner.

A statement signed by the Founder/Chief Operating Officer of the bank, Mr. Hamid Joda, indicated that the ingenious solution would further drive TAJBank’s culture of innovation and create a seamless payment experience for its rapidly growing individual and corporate customers in their banking transactions.

“We are excited to have this payment channel introduced into the nation’s financial system as an addition to other innovative solutions we have deployed over the past few months.

This is a proof that, as we have said in our communications signature line, TAJBank’s interest is always in our customers”, Joda enthused.

In his remarks, the non-interest lender’s Chief Marketing Officer/Co-Founder, Mr. Sherif Idi, also maintained that the deployment of the NQR payment solution would revolutionize the e-payment experience and open new frontiers for small, medium and large scale businesses who are major stakeholders of the bank.

Since it commenced operations in the non-interest banking segment of the financial services industry, TAJBank is noted for its impeccable track record of growth and innovation, rendering exceptional quality services to customers.

The lender’s NQR solution is open to all customers of the bank, both merchants and individuals, across all its branches and digital channels globally.

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