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Banks Worry as Power Firms’ Debts Worsen

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  • Banks Worry as Power Firms’ Debts Worsen

Many of the Nigerian banks that gave loans to core investors during the privatisation of the power sector in 2013 may have incurred losses, our correspondent has learnt.

It was gathered that the banks had, in the past four years, been struggling to ensure the repayment of the acquisition loans they granted to the power investors.

The privatisation of the power assets fetched about $3.2bn for the Federal Government, with the generation and distribution companies sold for $1.7bn and $1.5bn, respectively.

The assets were purchased with significant leverage, estimated to be 70 per cent debt and 30 per cent equity, with most of the debt provided by the local banks.

Loans to the power and energy sector stood at N768.27bn as of June 2017, accounting for 4.83 per cent of the gross loan portfolio of the nation’s banking system, up from 4.5 per cent (N726.29bn) as of December 2016, according to the latest Financial Stability Report of the Central Bank of Nigeria.

An energy analyst at Ecobank, Mr Kareem Jubril, told our correspondent that the power firms had become a major problem to the banking sector in terms of their outstanding loans, adding that banks had begun to write down some of the loans as losses.

He said, “Most of these power companies are highly indebted to Nigerian banks to the extent that most of the banks are writing down those debts. So, the chances are that even if they (power companies) want to make capital investment, they are not going to be able to secure the funding.

“They (banks) are beginning to take the heat as most of them are basically booking them as non-recoverable loans because if you look at the power sector and the loans that were extended to most of these power companies, the chances that the power companies will be able to meet their debt obligations are quite slim.”

An energy analyst and Partner at Bloomfield Law Practice, Mr Ayodele Oni, said many of the core investors in the power firms had restructured their loans.

“They have changed the tenor and the terms and conditions. The interest rate has changed; even some of them whose payment was in dollar now have it in naira. They might have reduced some of the interest, so it means that the amount due is reduced.”

According to the CBN Financial Stability Report, total non-performing loans in the banking sector grew by 14.59 per cent from N2.08tn at the end of December 2016 to N2.39bn at end-June 2017.

It said, “Consequently, credit risk increased as the industry-wide NPLs ratio rose from 12.8 per cent to 15.02 per cent at end-June 2017, reflecting a 2.22 percentage points increase compared with 1.1 percentage points in the preceding period.

“The increase was occasioned by the continued low level of oil prices and government revenue. It is expected that the NPL growth would moderate as aggressive debt recovery strategies are employed by banks.”

The report said composite credit risk remained elevated in the first half of last year with several obligors unable to service outstanding obligations.

“To address these concerns, in addition to engaging the banks, the CBN is in the process of developing a framework that will permit private asset management companies to participate in the resolution of non-performing facilities,” it added.

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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