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Investors Await N62.4bn Maturing Treasury Bill

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Treasury bills
  • Investors Await N62.4bn Maturing Treasury Bill

Treasury bills maturity of 91-day and 182-day worth N62.4billion are expected to hit the market this week.

However, the maturing fixed income is expected to be offset by a rollover of the same amount while an open market operation (OMO) maturity of N168.1 billion is also expected to hit the system this week.

Analysts at Afrinvest West Africa Limited stated this in a report at the weekend, expressing optimism that the move would impact liquidity dynamics great deal.

But, they held the view that the aggressive liquidity mop-up signal of the Central Bank of Nigeria (CBN), would keep the open buy back (OBB) and overnight rates in check.

Financial system liquidity stayed negative on all trading days of trading last week, owing to increased primary market issuances and the Retail SMIS (Secondary Market Intervention Sales) foreign exchange auction conducted by the CBN during the week.

The CBN mopped up a total of N28.6 billion in OMO sales on four of five trading days of the week which hampered system liquidity. Thus, open buy back and overnight lending rates remained in double digits from the start of the week before rising to 105.0% and 107.8% last Wednesday from 25.0% and 26.3% respectively in the previous trading day. OBB and overnight rates dropped 58.3 percentage points and 55.6 percentage points to 46.7% and 52.2% respectively on Thursday as a result of an OMO maturity inflow of N113.05 billion into the system. Consequently, rates closed at 55.8% and 59.3% on Friday, up 33.8 percentage points and 36.8 percentage points week-on-week respectively.

At the treasury bills segment of the market, the Federal Executive Council approved the issuance of dollar-backed treasury instruments in the international capital market in order to reduce the country’s huge debt profile.

“Whilst we believe that this policy would enable the government to restructure the country’s debt profile by borrowing more in foreign currencies than naira, we expect that this will also drive down government’s borrowing cost while also lengthening the tenor for repayment,” Afrinvest stated.

Nevertheless, the treasury bills market closed bearish last week as average yield across benchmark bills rose 61 basis points week-on-week to settle at 18.5 per cent, owing to tight system liquidity. Average yields dropped at the start of the week, down 18 basis points to 17.7 per cent as investors showed interest in the market. However, yields trended upwards on the remaining days of the week owing to bearish sentiment towards short and medium term instruments. Consequently, average yield across benchmark instruments closed at 18.5 per cent last Friday.

Forex Market Outlook

In the forex market last week, the CBN continued with its weekly intervention in order to boost forex liquidity and keep investors’ confidence upbeat.

The CBN also auctioned US$100 million SMIS last Wednesday for the clearance of the backlog of matured forex obligations for raw materials and machineries, agriculture, airlines, petroleum products, letters of credit and bill for collection.

But at the official market, the naira exchange rate stayed flat at N305.55/$1, while it appreciated 0.4 per cent week-on-week to close the week at N365.91/$1 on the FMDQ NAFEX segment from N367/$1 the preceding week. The interbank NIFEX market also traded within similar level but depreciated 47 basis points to close at N365.20/US$1.00 from N363.49/US$1.00 in the previous week.

Also, the parallel market traded within a tight band with rate remaining unchanged from preceding week’s close of N367/$1.

“We opine that the convergence in rates between the NAFEX and Parallel market shows the high level of investor confidence in the CBN’s FX policy and continues to serve as a representation for the potential impact of the adoption of a full-fledged flexible exchange rate regime.

“In the FMDQ OTC Futures segment, the lukewarm appetite for contracts which has been recorded in recent weeks continued as investor appetite remains dampened by the upward revision of contract prices. During the week, the total value of open contracts marginally increased by US$53.1 million to US$2.6 billion as the NG/US AUG 2017 contract enjoyed the most buy sentiment.

“We believe the stability in the forex market will be sustained in the short to medium term as the CBN continues its drive to boost forex liquidity at the different segments of the forex market. Hence, we expect to see rates at current levels in the coming week,” they added.

Bond Market Review

Performance of the domestic bond market last week was bearish as investors’ interest stayed soft. Average yield stayed flat at 16.8 per cent on Friday, up five basis points week-on-week. Analysts anticipated that this week, yields might trend higher as investors free up positions ahead of the August Bond auction slated for 23rd August, 2017.

Also, across the Nigerian Corporate Eurobonds, performance remained mixed as Tier-1 banks’ bond yields fell while some Tier-2 yields rose. Investor interest was majorly centered on the ZENITH 2022 and 2019 bonds (which fell 17 basis points and three basis points respectively).

Debt Refinancing

As stated earlier, badly weighed down by the debilitating effect of Nigeria’s huge debts, the federal government last Wednesday sought a way out, approving the issuance of dollar-backed Treasury bills even as it extended the maturity period from between 91 and 364 days to two and three years respectively.

The initiative, according to an economic expert, who spoke said it was an impressive policy that would enable the government to restructure the country’s debt profile by borrowing less in naira but more in foreign currencies, explaining that it would bring down interest rate and facilitate the economy’s exit from recession. The federal government also approved the 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper (FSP), pegging oil benchmark at $45 and retaining the prevailing N305/$ exchange rate. The Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the MTEF targeted 3.5 per cent growth rate in 2018, 4.5 per cent in 2019 and 7 per cent in 2020, adding that government projected at 2.3 million barrel per day production volume.

Throwing light on the shift from naira denomination of treasury bills to dollars, the Minister of Finance, Mrs. Kemi Adeosun, said the council approved a memo restructuring the issuance of treasury bills using dollar instruments subject to the approval of the National Assembly. According to her, the extension of the tenor of Treasury bill from the current 91 and 364 days to two and three year period would provide the government with relief from the pressure to repay the debt. She also said the new initiative would reduce government borrowing to $3 billion, create more room for banks to lend money to private investors and consequently force down interest rates.

She explained that issuing the treasury bills in dollar instrument was not synonymous with paying interest in dollars but would instead, provide the government with the opportunity to obtain a bond in the international capital market and pay the debt in a cheaper way.

I & E Window

The importers’ and exporters’ forex window introduced by the CBN about four months ago has attracted $4 billion from foreign investors between April and now, the Bankers’ Committee disclosed last Thursday. This was a $1.8 billion growth over the $2.2 billion recorded in June. The window also posted a single transaction of $240 million on August 1, 2017.

Addressing reporters in Abuja Thursday at the end of its 34th meeting, the Bankers’ Committee said the economy was on the recovery path and on the verge of exiting the recession, going by various indicators.

The Director, Banking Supervision of the CBN, Mr. Ahmed Abdullahi; Managing Director, Union Bank of Nigeria Plc, Mr. Emeka Emuwa; Managing Director, FSDH, Mrs. Hamba Amba; and Executive Director, Standard Chartered Bank, Mrs. Mobola Faleye, addressed the press.

The committee noted that the FX market has continued to record positive gains, with the various exchange rates in the market nearing convergence.

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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Finance

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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