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Cash Crunch Hits Banks as CBN Mops up Naira

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  • Cash Crunch Hits Banks as CBN Mops up Naira

In order to reduce demand for foreign exchange, especially the dollar, the Central Bank of Nigeria has engaged in continuous and aggressive mop up of cash from the economy in the past six months.

The development is said to be responsible for the cash crunch that has hit the economy with a heavy toll on consumers (households), companies and commercial banks, especially mid-size lenders in the country.

Specifically, through its twice-a-month primary market auction of Treasury Bills and now almost daily Open Market Operations (secondary market auction), the CBN has mopped up trillions of naira in the past six months, according to top bankers who spoke on condition of anonymity.

The development has made the lending rate to soar, especially among the Tier-1 banks, which are able to do little lending at the moment.

While mid-sized banks are struggling to maintain their liquidity positions due to the shortage of naira, the situation is making it increasingly difficult for companies to access credit to expand their operations.

“The loan book of banks is growing leaner and leaner because of the tight liquidity situation the CBN’s actions have put the banks,” a top executive of a commercial bank, who spoke on condition of anonymity, said.

Just on Friday, the CBN disclosed that it sold about N204.9bn in treasury bills following its auction held on Wednesday July 19, 2017.

It sold one-year treasury bills at 23 per cent and 182 days at 19 per cent true yield, respectively.

The CBN reportedly raised N1.129tn through the auction of the TBs in the second quarter of 2017.

In its TB issuance programme, running from March 16 to June, the apex bank also said N1.086tn worth of bills would mature during the same period.

The CBN is planning to issue the TBs worth N1.24tn in the third quarter of this year.

A CBN debt calendar for the third quarter released on Friday showed that it would sell N1.24tn worth of treasury bills from June 15 to August 31.

The apex bank aims to auction N226.64bn in 91-day bills, N311.32bn in 182-day and N698.64bn in 364-day debt.

Aside from the regular mop up of liquidity through the regular primary and secondary markets’ action of the TBs, the CBN was said to be mopping up huge amounts of cash from the banking system through a special Open Market Operation.

The special OMO has been described by industry players as a pre-emptive action by the CBN to stop banks from speculating against the naira.

It was learnt that the CBN was not ready to allow the banks to be in possession of large amounts of cash to buy the dollars the regulator was pushing into the forex markets almost on weekly basis.

A top banker, who chose to speak on condition of anonymity, explained, “The CBN has carried out about three of such special OMOs this year. This is a situation where the CBN forced down the TBs on some banks, whether they want it or not. This happens when the CBN carefully watched the maturity day of some particular TBs.

“Once it sees that some banks have huge cash at the maturity date of some instruments, the regulator debits their accounts and offers the TBs, whether they want it or not. The idea is just to ensure that banks don’t have huge cash to buy forex. The legality of this special OMO is another thing entirely.

“It is part of the proactive moves to stop banks and other key players from attacking the naira through speculative demand.”

According to other bankers, the CBN forces the special OMOs on banks, which have refused to lend to others and buy the TBs.

Industry analysts said the development had reduced the purchasing power of most households with many consumers no longer able to afford high-value goods.

They added that high-ticket transactions like yearly house rents were now being settled in instalments.

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “The policy measures may be counter-productive, because it may slow down the rate of economic recovery due to low purchasing power and slow economic activities.

“Due to the cash crunch we are now experiencing in the country, banks are not able to lend to firms to expand their business. This is going to affect growth and economic recovery.”

According to the analyst, low purchasing power of consumers will reduce the demand for products and services, thereby affecting the rate of economic activities, which will in turn affect growth.

The chief executive officer of a commercial bank, who spoke on condition of anonymity, said the cash crunch had been made worse by the regulator’s tactical move to make the Cash Reserve Ratio higher than the official figure of 27.5 per cent.

The bank CEO said, “Since March this year, what the CBN has been doing is that whenever there is an increase in the deposit reserves of banks, the CBN debits the banks in line with the CRR figure of 27.5 per cent of the marginal amount.

“This effectively increases the CRR. But whenever there is a decrease in the deposit reserves of banks, the CBN fails to credit them. This way, the apex bank has made the CRR higher than the official figure of 27.5 per cent.”

It is unclear if the CBN intends to review its strategy in the near future. Its spokesperson, Mr. Isaac Okorafor, could not be reached for immediate comments. Calls and text messages sent to his telephone line were not responded to.

An economist and industry expert, Mr. Amoo Abegunde, said the CBN should not have sacrificed the need to maintain a stronger naira for economic growth, noting that growth was key to the country.

Corroborating other economists, he said the current rate of N365/dollar might not be sustainable if the CBN continued to deny the economy of the needed naira in order to achieve a stronger currency.

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.

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Banking Sector

FCMB Group Posts 22.1 Percent Decline in Profit in H1 2021

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FCMB - Investors King

FCMB Group Plc, a leading financial institution in Nigeria, recorded a 22.1 percent decline in profit after tax in the first half (H1) of 2021 despite zero COVID-19 restrictions.

The lender gross earnings dipped by 4.02 percent from N98.179 billion achieved in the first half of 2020 to N94.228 billion in the period under review, the bank disclosed in its unaudited financial statements seen by Investors King.

Net interest income also moderated by 5.25 percent from N45.379 billion reported in H1 2020 to N42.998 billion in H1 2021. While net fee and commission income increased to N12.934 billion in the period under review, representing an increase of 33.51 percent from N9.688 billion achieved in the same period of 2020.

Net trading income drop from N3.925 billion in H1 2020 to N2.639 billion in H1 2021, this represents a decline of 32.78 percent.

Other revenue sheds 39.7 percent from N7.555 billion in H1 2020 to N4.552 billion in H1 2021. Profit before minimum tax and income tax decreased by 24.2 percent to N8.911 billion in H1 2021, down from N11.071 billion recorded in H1 2020.

The bank paid N450 million as minimum tax and income tax of N903.797 million to push profit after tax down by 22.1 percent from N9.701 billion in H1 2020 to N7.557 billion in H1 2021.

The lender realised N974.744 million from foreign currency translation differences for foreign operations. This brings the total comprehensive income for the period N8.545 billion.

Earnings per share dipped from N0.49 H1 2020 to N0.38 in H1 2021.

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Banking Sector

Ecobank Grows Profit After Tax by 29 Percent to N62.6 Billion in H1 2021

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Ecobank - Investors King

Ecobank Transnational Incorporated, a leading lender in Nigeria and across Africa, grew gross earnings by 13 percent to N442.9 billion in the first six months ended June 30, 2021.

The bank disclosed in its unaudited financial statements released through the Nigerian Exchange Limited and seen by Investors King on Monday.

Revenue expanded by 15 percent to N334.9 billion in the period under review while operating profit before impairment charges rose by 33 percent to N138.3 billion.

The bank grew profit before tax to N85.3 billion in the first half of 2021, up by 33 percent when compared to N64.133 billion recorded in the same period of 2020.

Profit after tax increased by 29 percent to N62.6 billion, up from N48.535 billion recorded in the corresponding period of 2020. Total assets expanded by 6 percent to N11.022 trillion with loans and advances rising by 7 percent to N7.861 trillion.

However, total equity was down by 1 percent to N803.2 billion.

Speaking on the bank’s performance, Ade Ayeyemi, Ecobank Group CEO, said: “We saw continued and sustained resilience in our performance, which is indicative of the success of our ‘execution momentum’ drive. As a result, we generated a return on tangible equity of 16.1% versus 15.2% a year ago and increased diluted EPS and tangible book value per share by 19% and 6%, respectively. In addition, profit before tax increased 23% to $210 million.”

“Group revenues rose 7% to $825 million, despite the challenging operating environment with the third wave of coronavirus infections threatening economic recovery. Our diversified pan-African business model continued to rise to the challenge. Revenues grew 13% and 6% in our Commercial and Consumer businesses, while our focus on growing the trade business led to increased trade assets.

The slowly increasing business and spend activity drove a 20% rise in our Payments business’s revenue to $90 million. Deposits growth was strong, with total deposits now over $19 billion, an increase of $1.0 billion in the second quarter and $2.4 billion in a year, driven by our omnichannel strategy. Though loan growth remained
flat, we are focused on providing support to MSMEs for growth,” Ayeyemi added.

“I am proud of the team’s hard work in driving efficiency, which continues to reflect in our cost-to-income ratio of 58.7% ahead of guidance and progressing well toward our medium-term goal of approximately 55%. In addition, credit quality continued to be exceptionally strong. As a result, our NPL ratio of 7.4% is a substantial improvement from the prior year’s 9.8%, as we also build reserves to insulate the balance sheet with an NPL coverage ratio of 86.7% and pushing towards our nearterm target of 90%,” Ayeyemi continued.

“We successfully raised $350 million Tier 2 Sustainability Notes in June, the first-ever by a financial institution in sub-Saharan Africa and first to have a Basel III-compliant 10-year non-call 5 structure outside South Africa in 144A/RegS format. The Bond was 3.6 times oversubscribed, demonstrating strong confidence in the Ecobank Group and our commitment to the sustainability of our communities and their social needs. I am deeply grateful to all stakeholders and must thank our clients for continuing to put their trust in Ecobank for their diverse banking needs.” Ayeyemi concluded.

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Africa Prudential Posts 24 Percent Decline in Profit for H1 2021

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African Prudential - Investors King

African Prudential Plc, a digital technology business provider in Nigeria, has reported a 24 percent decline in profit after tax to N830 million in the period ended June 30, 2021.

The company stated in its unaudited financial statements released on Friday. Below is a year-on-year comparison between the first half of 2021 and the first half of 2020.

Income Statement:

• Revenue from contracts with customers: N0.52 Billion, compared to N0.59 Billion in HY 2020 (12% YoY Decline);
• Interest Income: N1.15 Billion, compared to N1.28 Billion in HY 2020 (10% YoY Decline);
• Gross Earnings: N1.67 Billion, compared to N1.87 Billion in HY 2020 (11% YoY Decline);
• Profit Before Tax: N0.97 Billion, compared to N1.22 Billion in HY 2020 (20% YoY Decline);
• Profit After Tax: N0.83 Billion, compared to N1.08 Billion in HY 2020 (24% YoY Decline);
• Earnings Per Share: 41kobo. (54kobo in HY 2020)

Balance Sheet:

• Total Assets: N88.87 Billion, compared to N17.73 Billion as at FY 2020 (401% YTD Increase);
• Total Liabilities: N80.71 Billion, compared to N9.36 Billion as at FY 2020 (762% YTD Increase);
• Shareholders’ Fund stood at N8.16 Billion, a 2% YTD decline from N8.37 Billion as at FY 2020.

Comparing HY 2021 to HY 2020, we observed the following key items worthy of note:

Revenue from contracts with customers: During the period under review, Revenue from contracts with customers contracted by 12% year-on-year on the back of a significant renegotiation of fees rate by customers along our corporate actions revenue lines as well as slow sign off of contracts within the period in digital consultancy. However, revenue from register maintenance increased by 8%.

Interest income: While the company was bullish with 436% increase in the interest realized from bonds and also a 193% increase in the interest realized from short term deposits, there was a slight 10% year-on-year decline in interest income owing to a 4% decline in interest on loans and advances and a nil income on T-Bills relative to HY 2020.

Profit After Tax: On account of the business considerations around revenue and operating cost, PAT dereased by 24% year-on-year. Comparing HY 2021 to FY 2020, the following were observed in the Balance Sheet:

Total Assets: In the second quarter of 2021, the total assets increased 401% on the back of 7336% surge in cash and cash equivalents as well as an 70% increase in trade and other receivables.

Total Liabilities: The company total liabilities increased by 762% Year-till-date driven by a 829% increase in customers’ deposits which accounted for about 99% of the company’s liabilities.

Shareholder’s Wealth: Due to slight drop in earnings, total equity marginally declined by 2% year-to-date.

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