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Moody’s: Nigerian Banks May Resume Expansion in Africa

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  • Moody’s: Nigerian Banks May Resume Expansion in Africa

Following an improvement in their asset quality as well as the increased foreign currency liquidity in the banking sector, Nigerian banks may soon resume their strategic expansion into some African countries to diversify their operations and tap into opportunities in those countries.

The Vice President, Banking, Sub-Saharan Africa at Moody’s Investors Service, Mr. Akintunde Majekodunmi, predicted this while speaking in an interview in Lagos at the weekend.

The United Bank for Africa Plc (UBA), which is present in 19 African countries, saw the subsidiaries contributing 40 per cent to the growth recorded across key performance indicators by the bank in its audited 2018 half year results released recently.

For Zenith Bank, which has presence in four African countries, its entire subsidiaries’ contribution to revenue also improved year-on-year from 8.5 per cent in the first half of 2017, to 12.9 per cent as at June, reducing its risk concentration by geography.

Similarly, Guaranty Trust Bank Plc’s contribution from its subsidiaries improved to eight per cent as of June 2018.

To this end, Majekodunmi noted that with the improvement in revenue from African subsidiaries, other banks that had halted their expansion plan in the continent might begin to review their expansion strategy.

“I know from talking to the banks over the past two to three years, that many of them stopped, or should I say halted the growth in their pan-African expansion because they wanted to focus on the problems they had at home, as in Nigeria.

“Those were the asset quality issues, their foreign currency liquidity challenge and the issues they had in the oil and gas sector. Now that those challenges have been sorted out, we might see a return of these banks growing their franchises outside Nigeria.”

This, he however stressed, would not be in the short-term, saying “but we would see Nigerian banks continue to expand their businesses across the continent.”

Mohammed Garuba, one of the founding Partners/Directors of CardinalStone Partners Limited, an investment banking firm, recently told THISDAY that banks that were bold enough to set up subsidiaries in the continent, are presently reaping from those economies.

According to him, Africa presents a huge opportunity to providers of financial services.

“Ghana is doing 18 per cent, their foreign exchange is stable and worst case it hovered around three per cent because theirs is manage float system. So, I would invest in Ghana and I’ll still walk away with about 15 per cent return. Congo’s treasury bills rate is up 30 per cent. In fact, banks such as GTBank, Access Bank, UBA, FirstBank are all in Congo because of this guaranteed interest rate. All their respective audited accounts for 2017, their most successful subsidiary was Congo because they are all making crazy money from the country,” he said.

Also, while commenting on the recently released half year results by Nigerian banks, Banking Analyst, Sub-Saharan Africa, Moody’s, Peter Mushangwe, said generally, the trend reflected signs of improvement in the economy.

“Non-performing loans (NPLs) in some banks have been written off, which also shows that they have the capacity to write-off loans without dipping into their capital,” he said.

Continuing, Majekodunmi noted that half year results showed pressure on interest income from falling yields on government securities and that the banks have since made up for this through their non-income interest line.

“Specifically, their revenues are generated through transactional banking. So, a lot of banks, like we expected, have been exploiting their digital platform and as a result they have made substantial revenues on transactional banking.

“In terms of things like asset risks and foreign currency liquidity, we haven’t seen too much of upward pressure in terms of NPLs. In fact, for some banks, NPLs have come down as a result of some of their troubled assets.

“And from a foreign currency liquidity perspective, things are more stable than they were previously. Again, in some banks, we have seen an accretion of foreign currency deposits and not the downward pressure we saw in 2016,” he added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Nigeria Pumps 236.2 Million Barrels in First Half of 2024

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Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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Crude Oil

Oil Prices Steady Amid Mixed Signals on Crude Demand

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Oil prices remained stable on Thursday as investors navigated conflicting signals regarding crude demand.

Brent crude oil, against which Nigerian oil is priced, settled at $85.11 a barrel, edging up by 3 cents, while U.S. West Texas Intermediate (WTI) crude dipped by 3 cents to $82.82 a barrel.

The stability comes as the U.S. economy shows signs of slowing, with unemployment benefit applications rising more than expected.

Initial claims increased by 20,000 to a seasonally adjusted 243,000 for the week ending July 1, prompting speculation that the Federal Reserve might cut interest rates sooner than anticipated. Lower rates could boost spending on oil, creating a bullish outlook for demand.

Fed officials suggested that improved inflation and a balanced labor market might lead to rate cuts, possibly by September.

“Healthy expectations of a Fed rate cut in the not-so-distant future will limit downside,” noted Tamas Varga of oil broker PVM.

However, rising jobless claims signal potential economic easing, which could dampen crude demand.

John Kilduff of Again Capital highlighted the impact of a slowing economy on oil consumption despite a significant drop in U.S. crude inventories last week.

Global factors also weighed on the market. China’s economic policies remain steady, though details are sparse, affecting investor sentiment in the world’s largest crude importer.

Meanwhile, the European Central Bank maintained interest rates, citing persistent inflation.

An upcoming OPEC+ meeting in August is expected to assess market conditions without altering output policy, according to sources. This meeting will serve as a “pulse check” for market health.

Overall, oil prices are caught between economic concerns and hopes of a rate cut, maintaining a delicate balance.

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Crude Oil

Oil Prices Slide on China Demand Concerns, Brent Falls to $83.73

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Oil prices declined on Tuesday for the third consecutive day on growing concerns over a slowing Chinese economy and its impact on global oil demand.

Brent crude oil, against which Nigerian oil is priced, dipped by $1.12, or 1.3% at $83.73 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.15, or 1.4%, to close at $80.76.

The dip in oil prices is largely attributed to disappointing economic data from China, the world’s second-largest economy.

Official figures revealed a 4.7% growth in China’s GDP for the April-June period, the slowest since the first quarter of 2023, and below the forecasted 5.1% growth expected in a Reuters poll.

This slowdown was compounded by a protracted property downturn and widespread job insecurity, which have dampened fuel demand and led many Chinese refineries to cut back on production.

“Weaker economic data continues to flow from China as continued government support programs have been disappointing,” said Dennis Kissler, Senior Vice President of Trading at BOK Financial. “Many of China’s refineries are cutting back on weaker fuel demand.”

Despite the bearish sentiment from China, there is a growing consensus among market participants that the U.S. Federal Reserve could begin cutting its key interest rates as soon as September.

This speculation has helped stem the decline in oil prices, as lower interest rates reduce the cost of borrowing, potentially boosting economic activity and oil demand.

Federal Reserve Chair Jerome Powell noted on Monday that the three U.S. inflation readings over the second quarter “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion.

This has led market participants to believe that a turn to interest rate cuts may be imminent.

Also, U.S. crude oil inventories provided a silver lining for the oil market. According to market sources citing American Petroleum Institute figures, U.S. crude oil inventories fell by 4.4 million barrels last week.

This was a much steeper drop than the 33,000 barrels decline that was anticipated, indicating strong domestic demand.

The International Monetary Fund (IMF) also weighed in, suggesting that while the global economy is set for modest growth over the next two years, risks remain.

The IMF noted cooling activity in the U.S., a bottoming-out in Europe, and stronger consumption and exports for China as key factors in the global economic landscape.

In summary, while oil prices are currently pressured by concerns over China’s economic slowdown, the potential for U.S. interest rate cuts and stronger domestic demand for crude are providing some support.

Market watchers will continue to monitor economic indicators and inventory levels closely as they gauge the future direction of oil prices.

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