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CBN Mulls Reducing CRR for SME-friendly Banks

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  • CBN Mulls Reducing CRR for SME-friendly Banks

As part of efforts to encourage commercial banks to lend more to operators of micro, small and medium scale enterprises (MSMEs), the Central Bank of Nigeria (CBN) is considering lowering the cash reserve requirement (CRR) for SME-focused banks.

This formed part of the deliberations at the ninth Bankers’ Committee retreat titled: “Improving Financial Access, Job Creation and Inclusive Growth in Nigeria,” whic took place in Lagos at the weekend.

Briefing reporters yesterday at the end of the two-day retreat, the CBN governor and chairman of the committee, Mr. Godwin Emefiele said the central bank would develop the framework for a strategy aimed at incentivising the banks to support MSMEs next month.

The Monetary Policy Committee of the CBN has kept the CRR at 22.5 per cent, Monetary Policy Rate (MPR) at 14 per cent and Liquidity Ratio at 30 per cent for several months, in a bid to check inflation and ease demand pressure in the foreign exchange market.

As a monetary policy tool, the CRR is used to set the minimum deposits commercial banks must hold as reserves rather than lend out. It is usually applied to influence borrowing and interest rates by altering the funds at banks’ disposal to create loans.

“We agreed that we need to come up with some form of regulation. What that means is that the CBN will provide some form of forbearance such that if a bank lends a certain percentage of its funds to SMEs, maybe its CRR would be lower than that of other banks that are not embracing the initiative.

“So, what that means is that if you want us to ease your CRR, then a certain percentage of your loans must go to this sector of the economy,” Emefiele explained.

Also, the Bankers Committee agreed that the central bank and the Nigerian Communications Commission (NCC) will review the framework for mobile money transactions in the country to accelerate access to finance and financial inclusion.

In addition, following the apathy that has trailed the disbursement of the Agri-business, SME Investment Scheme Fund (AGSMEIS) since its introduction by the Bankers’ Committee, Emefiele said the committee agreed to relax conditions for accessing the fund.

Emefiele said it was a shame that not even one firm was able to access the N26 billion AGSMEIS fund since it was set up.
Accordingly, the committee agreed to peg the interest rate for the fund at not more than five per cent, noting that it would no longer be an equity fund, “but in the form of preference shares arrangement or like a debt structure which makes it easy for those who want to access it”.

In terms of pricing, the Bankers Committee said it should not be more than five per cent for those accessing the fund.
“It was meant to be just equity. But we found out that because of apathy on the part of people who have businesses and would have wanted to be part of it, most people shied away from the equity requirement.

“We decided that the fund needed to be reviewed completely. Indeed, that this fund must be affordable and with the best possible pricing, so that it will be the contribution of the Bankers’ Committee towards national development,” Emefiele explained.

In order to achieve this, the CBN governor said it was agreed that the tenor of the SME and Agric-business fund should be at a minimum of seven years, with a moratorium, so that those to access the fund would be able to do so at a tenor that would give them ample time to repay.

According to Emefiele, the Bankers’ Committee agreed that the fund must be development-oriented and must be a non-profit maximisation scheme for the banks.

“Also, that there must be a professional and transparent management process around it, to give everybody comfort such that everybody will be happy contributing to this fund and we would know it is our contribution to job creation and economic growth in the country.

“We also agreed that under the governance principles, it must be seen to be sustainable and the fund must have a life and if possible, it must be in perpetuity. In which case, every year, banks must contribute. That means the fund would continue to grow,” he added.

In terms of the strategy for the allocation of the fund, Emefiele said it was agreed that 50 per cent of the N26 billion should be allocated to operators of micro businesses across the country, through what he described as a direct disbursement.

Under the arrangement, the banks were directed to set up MSME desks.

On the part of the CBN, the central bank is expected to make its entrepreneurial development centres in the six geo-political zones in the country available to train operators of MSMEs who will benefit from this scheme.

He explained: “We are saying this would be mainly for people who are really low on the cadre. There are some of them who want to go into the hair barbing business, hair salons, make up, etc.

“We are going to get people who will train them in those various skills, taking into consideration the various geo-political zones.

“After training them, we will not disburse cash to them just like we do under the Anchor Borrowers’ Programme where we buy seedlings, fertilizer and herbicides and give to farmers.

“In this case, we will buy the cosmetic equipment and deliver to them, we will buy the barbing equipment and deliver to them, we will buy the sewing machines, among others, and give to them.

“Also, if you are in the agriculture sector, we would buy the equipment, cost it and deliver to them.
“We would also provide them working capital in case they need to rent a store.

“We estimate that if we start this, the fund should be disbursed by latest February because it will take some time to get the equipment.”

He added: “On the part of the CBN, currently on the agriculture side, the central bak has an institution known as the Nigeria Incentive Risk-based Sharing for Agricultural Lending (NIRSAL).

“That is working but we feel there is a need to create a Nigeria Incentive Base Risk-based Sharing for SME Lending (NIRSME) under NIRSAL, where it affords the CBN, through its agency, to determine if you as a bank decides to lend X amount to a company, we will all consider and agree that this is an SME, a small manufacturer and we would share the risk with you.

“Sharing risks also goes to the point of talking about the interest drawback, because NIRSAL does not just engage in risk sharing but also the interest drawback.

“So, with that, while we are sharing the risk, we are also giving some form of interest drawback to banks that have extended SME loans or to small manufacturers so as to drive that.

“I can assure you that latest by January 1, 2018, all these regulations and measures will be put in place so that the banks can go aggressively towards supporting SMEs and small manufacturing businesses.”

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

COVID-19: CBN Extends Loan Repayment by Another One Year

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Central Bank Extends One-Year Moratorium by 12 Months

The Central Bank of Nigeria (CBN) has extended the repayment of its discounted interest rate on intervention facility by another one-year following the expiration of the first 12 months moratorium approved on March 1, 2020.

The apex bank stated in a circular titled ‘Re: Regulatory forbearance for the restructuring of credit facilities of other financial institutions impacted by COVID-19’ and released on Wednesday to all financial institutions.

In the circular signed by Kelvin Amugo, the Director, Financial Policy and Regulation Department, CBN, the apex bank said the role-over of the moratorium on the facilities would be considered on a case by case basis.

The circular read, “The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from nine per cent to five per cent per annum for one year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 pandemic on the Nigerian economy.

“Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.

“Following the expiration of the above timelines, the CBN hereby approves as follows:

“The extension by another 12 months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities.

“The role-over of the moratorium on the above facilities shall be considered on a case by case basis.”

It would be recalled that the apex bank reduced the interest rate on its intervention facility from nine percent to five percent and approved a 12-month moratorium in March 2020 to ease the negative impact of COVID-19 on businesses.

To further deepen economic recovery and stimulate growth, the apex bank has extended the one year-moratorium until February 28, 2022.

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Finance

MTN Nigeria Generates N1.35 Trillion in Revenue in 2020

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MTN Nigeria Grows Revenue by 15.1 Percent from N1.169 Trillion in 2019 to N1.35 Trillion in 2020

Despite the COVID-19 pandemic and challenging business environment, MTN Nigeria realised N1.346 trillion in revenue in the financial year ended December 31, 2020.

The leading telecommunications giant grew revenue by 15.1 percent from N1.169 trillion posted in the same period of 2019.

Operating profit surprisingly jumped by 8.5 percent from N393.225 billion in 2019 to N426.713 billion in 2020.

This, the telecom giant attributed to the surge in finance costs due to increased borrowings from N413 billion in 2019 to N521 billion in 2020.

MTN Nigeria further stated that the increase in finance costs was the reason for the decline in growth of profit before tax to 2.6 percent.

MTN Nigeria grew profit before tax by 2.6 percent to N298.874 billion, up from N291.277 billion filed in the corresponding period of 2019.

The company posted N205.214 billion profit for the year, a 0.9 percent increase from N203.283 billion recorded in the 2019 financial year.

Share capital remained unchanged at N407 million. While Total equity increased by 22.3 percent from N145.857 billion in 2019 to N178.386 billion in 2020.

MTN Nigeria’s market price per share increased by 61.8 percent from N105 to N169.90.

While market capitalisation as at year-end also expanded by 61.8 percent to N3.458 trillion, up from N2.137 trillion.

The number of shares issued and fully paid as at year-end stood at 20.354 million.

MTN Nigeria margins were affected by Naira devaluations and capital expenditure due to the new 4G network coverage roll-out.

Margins were adversely affected by the effect of naira devaluation and expenses associated with new sites’ roll-out to boost 4G network coverage in FY’20.

“On the former, we note that MTNN expanded the scope of its service agreement with IHS Holding Limited and changed the reference rate for converting USD tower expenses to NAFEX (vs CBN’s official rate previously). Thus, over the full-year period, the company’s operating margin contracted by 1.9 ppts YoY to 31.7%,” CardinalStone stated in its latest report.

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Finance

Nestle Nigeria Approves Final Dividend of N35.50k per 50 Kobo Ordinary Share for 2020

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Nestle Nigeria Approves Final Dividend of N35.50k per 50 Kobo Ordinary Share for 2020

Nestle Nigeria, a leading food and beverage company, has declared a final dividend of N35.50k per 50 kobo ordinary share for the year ended December 31, 2020.

The beverage company said N24.50k of the amount declared was from the after-tax profit of 2020 and N5 and N6 were from the after-tax retained earnings of the years ended December 2019 and 2018, respectively.

Nestle Nigeria stated that the amount declared is subject to appropriate withholding tax and approval at the Annual General Meeting of shareholders.

It also noted that payment will be made only to shareholders whose names appear in the Register of Members as at the close of business on 21 May 2021.

Dividends will be paid electronically to shareholders whose names appear on the Register of Members as at 21 May 2021, and who have completed the e-dividend registration and mandated the Registrar to pay their dividends directly into their Bank accounts.

Shareholders who are yet to complete the e-dividend registration are advised to download the Registrar’s E-Dividend Mandate Activation Form, which is also available on their website: www.gtlregistrars.com, complete and submit to the Registrar or their respective Banks.

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