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CBN May Increase Interest Rate Soon

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  • CBN May Increase Interest Rate Soon

The Central Bank of Nigeria has hinted about plans to increase the interest rate as it hopes to tighten the monetary policy in response to higher inflation ahead of the general elections in February.

A Bloomberg report on Tuesday quoted a CBN Deputy Governor, Dr Joseph Nnanna, as giving the indication on Monday on the sidelines of a conference in the resort city of Sharm El-Sheikh in Egypt.

Already, he said virtually all members of the Monetary Policy Committee had supported the idea, that “the Monetary Policy Rate should increase if inflationary pressures build up.”

But finance and economic experts have expressed divergent views on the issue with those opposed to the idea saying increasing the MPR would make it difficult for businesses to raise funds.

According to the report, the MPC has held its key rate at a record 14 per cent since 2016 in a bid to prop up the naira and tame inflation after it spiked to double digits in the same year. While price growth has since slowed to below the monetary policy rate, the panel has shifted from some members voting for rate cuts in January to three of 10 members favouring higher rates at the July meeting.

The CBN Governor, Godwin Emefiele, flagged the delayed passage of the 2018 budget of N9.12tn ($25bn) and pre-election spending as possible price risks in the second half of the year. Nigerians will go to the polls in February next year for a vote in which President Muhammadu Buhari will seek another term.

Nnanna said, “These factors would warrant a rate increase to send the right signal to the public, that the central bank will tighten policy to respond to higher inflation. There’s a scope to raise rates before the elections in February.”

He reportedly voted for a 50 basis-point increase in May. While the individual member statements from the July MPC meeting have not been released, one person voted for 25 basis-point hike and two wanted to raise the rate by 50 basis points.

“The central bank is still in the mood for tightening. How fast are we going to tighten is what members haven’t agreed upon,” he said.

Nnanna said while policy tightening by the United States Federal Reserve was a concern, investors still saw Nigeria as an attractive market, thanks to the stable naira and the yield curve on fixed-income instruments higher than in the US or Europe.

“I am not worried about reversal of capital flows. If any investor wants to exit the market, we shall meet them at the door and write a cheque and give them their money,” he said

Reacting to the issue, in a telephone interview with one of our correspondents, a former Director General, Abuja Chamber of Commerce and Industry, Dr Chijioke Ekechukwu, said while tightening would help curtail the threat of inflation, the burden that would arise as a result of high cost of funds would be transferred to consumers.

He said, “An increase in the interest rate is to achieve a specific goal. It’s either to reduce inflation or to protect the foreign exchange market by reducing importation. Once interest rate increases, it wants to curb importation and protect the local currency because people will not have enough money from banks at cheaper rate.

“When businessmen and women have cheaper funds from banks, there will be so much request for foreign currency. On the other hand, Nigerians would have expected that they would reduce interest rate because when interest rates are increased, the impact will still be on the consumers. It will affect the inflating rate as a matter of fact but the businesses will pass the ultimate costs on consumers and they are the ones that will suffer everything when the rates are increased.”

Also speaking, a professor of finance at the Nasarawa State University, Uche Uwaleke, said the threat of election spending, which might impact negatively on inflation, could force the apex bank to increase the interest rate.

He said, “Single-digit inflation would justify easing monetary policy. This is not yet the case. The impact of largely unproductive expected election spending on inflation has to be factored in. Reducing the MPR may not necessarily translate to lower lending rates by the banks to the real sectors due to poor transmission mechanism from structural rigidities.

“On the other hand, increasing the policy rate will increase cost of funds for businesses, lower productivity and most likely increase non-performing loans for banks since they are likely to re-price their assets.”

The President/Chairman of Council, Chartered Institute of Bankers of Nigeria, Dr Uche Olowu, said the MPC would be taking a right step by increasing the interest rates.

Olowu, who described it as a wise decision, said an increase in interest rate was necessary to compensate for loss of value.

He said the next necessary thing to do when inflation rates start rising would be to raise the interest rates so that money would not lose value.

According to him, there is currently too much money in the economy because of electioneering activities, which will bring about liquidity and eventually raise inflation.

Olowu said, “So, to counter that, interest rates have to be raised. However, the rates should be increased after the elections, and not before. If they increase now, this current government would be of the view that they want them to lose the election, or that they are working for opposition parties. After the election, there is nothing to lose.”

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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