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Naira Faces Pressure on Rising Dollar Demand, Outflows

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External Reserves
  • Naira Faces Pressure on Rising Dollar Demand, Outflows

The combination of tightening global financing conditions, which has resulted to capital outflows in the country, the elevated global risk aversion, 2019 election uncertainties and high services payments are likely to put pressure on the naira going into next year.

Analysts at CSL Stockbrokers Limited and the Financial Derivatives Company Limited (FDC), who stated this in two separate reports, argued that capital repatriation by foreign investors was also expected to heighten dollar demand.

While on the parallel market, the naira trades relatively stable at N361 per dollar – N362 per dollar, currency pressures are building at the Investors’ and Exporters’ foreign exchange (I&E) window, where transactions are now being executed at an average rate of N364 per dollar, compared to N362 per dollar-N363 per dollar in previous months.

But the Central Bank of Nigeria (CBN) had insisted that it has enough war chest to meet forex demand in the country.

To the CSL, Nigeria’s periodic currency crises are mainly due to policy makers’ inability to deal with the macroeconomic phenomena called the “impossible Trinity.”

It said, “The impossible trinity (also known as the trilemma) postulates that it is impossible to have all three of the following at the same time: a fixed foreign exchange rate, free movement of capital (absence of capital controls) and an independent monetary policy.

“We think pressure will appear in the foreign exchange market and a parallel market premium in the range of 10-20 per cent will return. Given this view, we recommend that local fixed income investors shorten duration and remain focused on the short-end of the curve.”

While the report noted that the introduction of the I&E FX Window in April 2017, showed the CBN’s effort in liberalising the foreign exchange market, it pointed out that a free floating exchange rate was yet to be accepted in the country.

It added, “Meanwhile, the CBN still has considerable level of control over interest rates. These policy inconsistencies have been in place since independence with its attendant impact evident in the nation’s periodic currency crisis. Nigeria runs a substantial deficit of $5-6 billion on the services balance, however this is usually offset by surplus from the trade account meaning that Nigeria runs a current account surplus.

“We believe CBN will seek to avoid changes to the official exchange rate and will be prepared to see the parallel market premium widen. Looser fiscal policy in the run-up to the election is likely to increase demand for foreign exchange as demand for imports increases, and some of the funds inevitably will be misappropriated.

“We expect demand for foreign exchange to rise significantly beyond the CBN’s willingness to provide it. This will lead to a widening of the parallel market premium as private sector entities with service payments (mostly, interest and dividends) to make have to scramble for foreign exchange.”

On its part, the FDC, a research and financial advisory company anticipated, “increased forex demand in the next couple of months as manufacturers commence inventory build-up for festive sales. This, in addition to increased election spending, could result in exchange rate depreciation. However, the CBN has iterated its preference for exchange rate stability over buoyant external reserves. Hence, we expect the currency to remain relatively stable in 2018.”

The report pointed out that the depletion of Nigeria’s external reserves was expected to be sustained in subsequent months,” owing to forex demand pressures arising from election and festive spending.”

In addition, the firm predicted one more hike in the US Federal Reserves’ (the Fed) interest rate in 2018. This it stated would further intensify capital outflows, heightening pressures on the exchange rate.

However, higher oil proceeds could slow down the pace of depletion, it noted.

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

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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