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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.

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.

Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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Crude Oil

Oil Prices Extend Gains to $64.32 Ahead of OPEC+ Meeting

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Oil Prices Rise to $64.32 Amid Expected Output Extension

Oil prices extended gains during the early hours of Thursday trading session amid the possibility that OPEC+ producers might not increase output at a key meeting scheduled for later in the day and the drop in U.S refining.

Brent crude oil, against which Nigeria oil is priced, gained 0.4 percent or 27 cents to $64.32 per barrel as at 7:32 am Nigerian time on Thursday. While the U.S West Texas Intermediate gained 19 cents or 0.3 percent to $61.47 a barrel.

“Prices hinge on Russia’s and Saudi Arabia’s preference to add more crude oil production,” said Stephen Innes, global market strategist at Axi. “Perhaps more interesting is the lack of U.S. shale response to the higher crude oil prices, which is favourable for higher prices.”

The Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, are looking to extend production cuts into April against expected output increase due to the fragile state of the global oil market.

Oil traders and businesses had been expecting the oil cartel to ease production by around 500,000 barrels per day since January 2021 but because of the coronavirus risk and rising global uncertainties, OPEC+ was forced to role-over production cuts until March. Experts now expect that this could be extended to April given the global situation.

“OPEC+ is currently meeting to discuss its current supply agreement. This raised the spectre of a rollover in supply cuts, which also buoyed the market,” ANZ said in a report.

Meanwhile, U.S crude oil inventories rose by more than a record 21 million barrels last week as refining plunged to a record-low amid Texas weather that knocked out power from homes.

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