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Guarding Against Credit Risk Build-up



Forex Weekly Outlook October 10-14
  • Guarding Against Credit Risk Build-up

Since the last banking crisis in Nigeria, the financial market regulators have been working relentlessly not to lower their guard in view of the headwinds in both the local and global financial market.

To the regulators, close monitoring of financial institutions under their regulation as well as collaborative measures are needed to shield the industry from another crisis, return it to the path of sustainable growth, protect banks from delinquent borrowers as well as avoid the build-up of non-performing loans (NPLs) in the industry.

These concerns were elevated recently when banking sector non-performing loans rose to 11.7 per cent in 2016, up from 5.3 per cent the previous year.

In view of the current macro-economic challenges in the country, the Central Bank of Nigeria (CBN) had granted a one-off forbearance to banks to write-off their fully provided for NPLs without waiting for the mandatory one year.

The CBN stated that it acknowledged the request by banks to amend the requirements of S.3.21 (a) of the Prudential Guidelines, which mandates banks to retain in their records, fully provided for NPLs for a period of one year before they are written off.

“The CBN has no intention of repealing the provision of the above mentioned section of the guidelines. In view of the current macro-economic challenges, however, the CBN hereby grant a one-off forbearance this year 2016 to banks, to write-off fully provided for NPLs without waiting for the mandatory one year,” it added.

Clearly, as a country that is heavily dependent on oil, prolonged decline in oil prices always has a knock-on effect on the banking industry. Adverse commodity price shocks, according to the International Monetary Fund (IMF), also contribute to financial fragility through various channels. Firstly, a decline in commodity prices in commodity-dependent countries results in reduced export income, which could adversely impact economic activity and agents’ (including governments) ability to meet their debt obligations, thereby potentially weakening banks’ balance sheets. Secondly, a surge in bank withdrawals following a drop in commodity prices may significantly reduce banks’ liquidity and potentially lead to a liquidity mismatch, the IMF stated.

Therefore, in order to continue to guarantee a safe and sound banking system, the CBN last week unveiled to members of the public, a draft document for licensing of Private Asset Management Companies (PAMCs) in the country.

The Managing Director and Chief Executive of the Nigeria Deposit Insurance Corporation (NDIC), Umaru Ibrahim, had hinted of plans to introduce private assets management companies.

The Asset Management Corporation of Nigeria (AMCON), which has been playing that role, was established on the 19th July 2010. It was created to be a key stabilising and re-vitalising tool aimed at reviving the financial system by efficiently resolving the non-performing loan assets of the banks in the Nigerian economy.

Private Asset Management Companies

According to the CBN, the Private Asset Management Companies (PAMCs) are expected to play complementary role in the management of non-performing loans in the country.

The CBN, in the exposure draft for the licensing and regulation of PAMCs in Nigeria, signed by its Director, Financial Policy and Regulation, Mr. Kelvin Amugo, explained that developments in the Nigerian banking industry necessitated the initiative.

The draft framework stated that, “given the ever evolving developments in the industry, the decline in international commodity prices with its consequent impact on risk assets in the industry, it has become expedient to proactively widen the space for the management of NPLs through the establishment of PAMCs.

“This is in line with the CBN’s core mandate of promoting a sound and stable financial system in Nigeria.”

The CBN described the PAMC as a privately owned institution licensed by the CBN as another financial institution (OFI) to acquire, manage, restructure and dispose of eligible assets of banks, OFIs and banks in liquidation.

According to the draft framework, the PAMC would perform the functions of AMCON, which included buying off assets of banks and other financial institutions and disposing them.

Also, they would be expected to provide consultancy and advisory services to banks and other financial institutions for the purpose of restructuring receivables and other assets including sale of such assets to third parties.

They would however not be allowed to operate as banks by taking deposits or granting loans neither would they be able to obtain credit from banks and other financial institutions in the county. To be licensed, a PAMC would need a N10 billion paid-up capital.

In terms of risk management, the framework requires that PAMCs develop an enterprise risk management framework, which will serve as a guide in the identification, measurement monitoring and control risk.

It added: “The ERM framework should be approved by the board of directors and cover the different forms of risks to which a PAMC may be exposed. Such risks include liquidity, credit, operational market, legal and compliance risks.”

Role of AMCON

The role of AMCON in the economy has since been reviewed by various bodies such as the International Monetary Fund (IMF), Standard and Poor’s Ratings Agency, Fitch Ratings amongst others on several occasions. The mandate of the corporation was to help sanitise the banking industry. Prior to the creation of AMCON, various reports had indicated that the situation in the banking industry was extremely dangerous such that most people were afraid that the Nigerian financial industry would have completely collapsed. So, AMCON was established as a long-term solution to the perceived crises.

Indeed, the collaboration between AMCON and regulators in the banking industry succeeded in creating an environment where even the federal government and taxpayers did not bear the burden. Since its creation, the corporation has bought Eligible Bank Assets (EBAs) in three tranches in the Nigerian banking industry as well as provided financial accommodation to eight institutions. The EBAs comprised of NPLs as well as systemically important loans in the Nigerian banking sector.

However, the story of the strategic health of banks in the country could not be complete without the all-important role that was played by AMCON, in cleaning up the sector. Clearly, the creation of AMCON to clean up the huge amount of toxic assets from banks’ balance sheets in order to revive both corporate and consumer lending in the economy remains an integral part of the financial stability plan of the banking system.

The ‘bad bank’, created in the last quarter of 2010, has since completed its NPLs purchase mandate and that has continued to reflect in the positive results being churned out by the commercial banks.

Need for another ‘Bad Bank’

The Managing Director of NDIC, Alhaji Umaru Ibrahim, had disclosed that the corporation had been working closely with the CBN to set up another resolution mechanism for cleaning up banks’ non-performing loans when the terminal life of AMCON expires. The sunset period for AMCON may be by 2023.

Ibrahim, who said a joint NDIC and CBN committee was established to work on the fresh initiative, added that the new institution(s) would pave the way for the gradual folding up of AMCON. According to the NDIC boss, the new ‘bad bank’ to be established would be purely driven by the private sector.

This, he said, became necessary as there had been complaints against using taxpayers’ monies to bail out institutions.

“We are studying the need to establish what you may call AMCON. Two; that is the second round of AMCON, which would be driven by the private sector. This is very important because we know what has happened. There are concerns about using taxpayers’ money to bail out institutions.

“So, it is in line of the global best practice that we go back to the drawing board because our initial concept of AMCON in the early 90s was that it was going to be a joint venture between the private and public sectors’ investors, so as to minimise the risk of using taxpayers’ money to resolve the problem of buying and selling of bad loans.

“So, we established a joint committee to look into this and we hope that in the long run, we should be able to establish a second AMCON that would be private sector driven.

“Here, other investors can invest in it and the CBN, NDIC or the Finance Ministry can invest, so that going forward, buying and selling of bad loans would be under the control of that entity. That would pave the way for the gradual transition or folding up of the present AMCON.” the NDIC boss explained.

However, the Director General of the West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, advised the NDIC and central bank that instead of establishing “AMCON 2,” they should allow the existing AMCON to metamorphose into the private sector-driven resolution vehicle.

“They should amend the existing AMCON Act instead of spending resources to establish another institution. That would also amount to wasting taxpayers’ resources. We have learnt a lot from this AMCON.

“But what we need now is a private sector-driven AMCON that they said they are proposing, but this current AMCON should be allowed to be transformed into that. Also, if it is going to be private sector, let only those who have experience be appointed into the board and not by patronage,” the WAIFEM boss stated.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Nigeria’s Public Debt Hits ₦121.67 Trillion as Borrowings Surge – DMO



The Debt Management Office (DMO) of Nigeria has announced that the country’s total public debt has risen to ₦121.67 trillion ($91.46 billion) as of March 31, 2024.

This represents an increase of ₦24.33 trillion from the ₦97.34 trillion ($108.23 billion) recorded at the end of December 2023.

The surge in debt is attributed to both domestic and external borrowings by the Federal Government, the 36 state governments, and the Federal Capital Territory (FCT).

The DMO’s report reveals that Nigeria’s domestic debt now stands at ₦65.65 trillion ($46.29 billion), while the external debt is ₦56.02 trillion ($42.12 billion).

The DMO noted that the rapid increase in public debt is largely due to new borrowing to partially finance the 2024 Budget deficit and the securitization of a portion of the ₦7.3 trillion Ways and Means Advances at the Central Bank of Nigeria (CBN).

“The increase was from new borrowing to part-finance the 2024 Budget deficit and securitization of a portion of the ₦7.3 trillion Ways and Means Advances at the Central Bank of Nigeria,” the DMO stated.

Despite the rising debt, the DMO remains optimistic about future debt sustainability, contingent on improvements in government revenue.

“Whilst borrowing, as provided in the 2024 Appropriation Act, will continue, we expect improvements in the Government’s Revenue to enhance debt sustainability,” the DMO added.

The increase in debt comes at a time when President Bola Tinubu is preparing to present the 2024 Supplementary Budget to the National Assembly.

This follows the President’s approval of the ₦28.7 trillion 2024 Appropriation Bill on January 1, 2024, which was ₦1.2 trillion higher than the budget originally proposed in November 2023.

The 2024 budget, dubbed the “Budget of Renewed Hope,” set ambitious targets, including pegging the oil price at $77.96 per barrel and estimating daily oil production at 1.78 million barrels.

However, the naira has faced severe depreciation, plunging to nearly ₦2,000/$1 in February, before stabilizing around ₦1,500/$1.

Economic analysts warn that the escalating debt and currency depreciation could pose significant challenges to Nigeria’s economic stability.

The government’s ability to manage its borrowing and stimulate revenue generation will be critical in navigating these fiscal pressures.

As Nigeria grapples with these economic realities, the focus remains on finding sustainable solutions to manage the growing debt burden while fostering economic growth and stability.

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Banking Sector

Federal High Court Sets Date for Contempt Hearing in GTB vs. AFEX Loan Case



The Federal High Court in Lagos has scheduled June 27, 2024, for the next hearing in the ongoing contempt suit filed by Guaranty Trust Bank Plc (GTB) against directors of AFEX Exchange Commodities Limited.

The case revolves around a disputed N17.81 billion loan obtained under the Central Bank of Nigeria’s Anchor Borrowers’ Programme.

Presiding over the court, Justice Chukwujekwu Aneke set the date following a session where arguments were presented by the plaintiff’s lead counsel, Mr. Ade Adedeji (SAN), and the respondent’s counsel, Prof. Olawoyin (SAN).

The core issue pertains to the alleged disobedience of a court order by the directors of AFEX Exchange Commodities Limited.

GTB, through its counsel Ajibola Aribisala (SAN), has accused AFEX and its directors—Ayodele Balogun, Jendayi Fraaser, Justin Topilow, Mobolaji Adeoye, and Koonal Ghandi—of contempt for failing to comply with a court directive.

The bank alleges that these directors did not appear in court as mandated, which led to the initiation of contempt proceedings.

During the latest session, Adedeji emphasized the necessity for the directors to appear in person, stating, “My lord, the parties in contempt are not in court. The contemnors cannot sit in the comfort of their homes and send a lawyer to court in contempt proceedings. The law is trite that they must appear before the court.”

In response, Olawoyin argued that he had only recently been briefed on the matter and was not fully aware of the prior developments.

He noted that some of the individuals listed as directors were no longer with the company, adding that one current director, Mr. Akinyinka, was present in court, while another was on pilgrimage.

The contempt case traces back to a suit marked FHC/L/CS/911/2024, where GTB sought to recover the loan amount through legal measures.

On May 27, Justice Aneke granted an interim Global Standing Instruction (GSI) injunction, which directs over 20 banks to transfer funds credited to AFEX into its account with GTB until the debt is settled.

Also, the court authorized GTB to take possession of AFEX’s 16 warehouses across seven states and sell the commodities stored within, as these were procured using the CBN’s loan facility.

The N17.81 billion loan comprises N15.77 billion in principal and interest outstanding as of April 17, 2024, and an additional N2.04 billion covering recovery costs and incidental expenses.

As the court prepares for the next hearing, the financial and legal communities are closely watching the proceedings.

The outcome will significantly impact not only the involved parties but also set a precedent for handling similar cases in the future.

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Banking Sector

CRC Credit Bureau Celebrates 15 Years with Record 14% Credit Penetration in Nigeria



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CRC Credit Bureau Limited celebrated its 15th anniversary with a record 14% credit penetration rate.

The occasion was marked with the CRC Finance and Credit Conference 2024 held in Lagos, where key industry stakeholders gathered to reflect on the bureau’s journey and discuss future trends in credit risk management.

Founded in January 2010 and licensed by the Central Bank of Nigeria (CBN), CRC Credit Bureau has played a pivotal role in enhancing access to credit across Nigeria.

Dr. Tunde Popoola, the Group Managing Director/CEO of CRC Credit Bureau Limited, highlighted the bureau’s journey, noting that from its inception with a single product, CRC has expanded its offerings to 18 products covering all aspects of the lending value chain.

Speaking at the conference, Dr. Popoola underscored the bureau’s contribution to Nigeria’s financial sector, stating, “CRC Credit Bureau has been instrumental in transforming access to credit in Nigeria over the past 15 years. We started with a vision to simplify credit access through reliable data and have since grown to serve millions of Nigerians.”

The event focused on the theme “Sustainable Financing Options: Innovations in Credit Risk Management,” emphasizing the importance of sustainable finance amid economic challenges.

The conference provided a platform for stakeholders to discuss strategies for mitigating risks and enhancing the efficiency of credit operations in Nigeria.

Reflecting on the current state of credit penetration, Dr. Popoola noted that while Nigeria has made significant progress, the 14% penetration rate still falls below global benchmarks.

He highlighted that CRC Credit Bureau currently holds credit scores for 33 million Nigerians, facilitating over 29.4 million searches in 2023 alone, with an additional 10 million searches conducted in the first quarter of 2024.

Joel Owoade, Chairman of CRC’s Board of Directors, acknowledged the economic headwinds impacting businesses in Nigeria but stressed the importance of sustainable financing to mitigate risks associated with lending.

“As we navigate economic fluctuations, sustainable financing remains crucial to fostering economic stability and growth,” Owoade remarked.

The conference also featured insights from industry experts on leveraging artificial intelligence (AI) in credit risk management and regulatory frameworks to support AI-driven innovations.

Olaniyi Yusuf, Managing Partner of Verraki, highlighted the potential of AI to create jobs and enhance economic productivity, calling for supportive regulatory environments that balance innovation with risk management.

Representatives from the Central Bank of Nigeria (CBN) emphasized the regulator’s efforts to promote sustainable credit practices.

Dr. Adetona Adedeji, Acting Director of the Banking Supervision Department at CBN, outlined initiatives such as the National Collateral Registry and Global Standing Instruction aimed at enhancing credit access while minimizing risks.

As CRC Credit Bureau looks ahead, Dr. Popoola expressed optimism about the future, stating, “We remain committed to driving greater financial inclusion and expanding credit access in Nigeria. Our focus is on leveraging technology and strategic partnerships to deliver innovative solutions that meet the evolving needs of consumers and lenders.”

The celebration of CRC Credit Bureau’s 15th anniversary underscored its pivotal role in Nigeria’s financial sector, marking a milestone in the nation’s journey towards broader financial inclusion and sustainable economic growth.

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