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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.

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

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Banking Sector

Ecobank Reports $401 Million Before Tax in Nine Months to September 2022

Revenue grew by 7% from $1.26 billion in recorded the same period of 2021 to $1.35 billion in the period under review.

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Ecobank - Investors King

Ecobank Group on Thursday reported a 7% increase in revenue for the nine months ended September 2022, the leading financial institution announced in its audited financial statement.

Revenue grew by 7% from $1.26 billion in recorded the same period of 2021 to $1.35 billion in the period under review.

The bank’s operating profit expanded by 12% to $593 million, up from $528 million filed in the corresponding period of 2021, Investors King reports.

Profit before tax rose to $401 million, a 14% increase from $352 million achieved in 2021. Profit paid to shareholders grew by 7% from $182 million to $196 million.

Gross loans and advances to customers increased 5% from $9.469 billion to $9.917 billion. Similarly, deposits from customers increased by declined by 2% to

Commenting on the bank’s performance, Ade Ayeyemi, CEO, Ecobank Group, said: “We continued to deliver on our strategic priorities and are on track to meet full-year targets despite the complex operating environment. Group-wide return on tangible equity reached a record 21%, and profit before tax increased by 14%, or 48% at constant currency (i.e., excluding currency movements).

“These results reflect the resilience, strong brand and diversification of our pan-African franchise. We saw decent client activity in consumer and wholesale payments, trade finance and foreign currency markets. Additionally,
despite inflationary pressures, we maintained a tight lid on costs, thereby improving our cost-to-income ratio to 56.3% from 58.3% in the previous year.

“The dampened economic outlook necessitated maintaining a sound balance sheet with adequate levels of liquidity and capital. As a result, our total capital adequacy ratio at 14.4% is well above our internal and minimum regulatory limits. Also, we hold sufficient gross impairment reserves that fully cover our non-performing loans. Moreover, we have fully repaid the five-year $400 million convertible debt we issued in September and October of 2017.

“Ecobankers have worked extremely hard to serve our customers’ financial needs, and I am proud of them. As always, we will passionately work towards realising our vision and remaining the bank that Africa and friends of Africa trust.”

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Finance

POS Operators Kicked Against CBN Withdrawal Policy

Nigeria does not have the infrastructure to run a cashless society given the size of cash transactions done daily.

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POS Business in Nigeria

Point of Sale (POS) operators in Nigeria under the umbrella of the Association of Mobile Money and Bank Agents in Nigeria (AMMBAN) have kicked against the new CBN policy which pegs withdrawal on POS to N20,000 daily. 

Investors King earlier reported that the Central Bank of Nigeria (CBN) plans to limit daily withdrawals for both POS and ATMs to N20,000 daily and N100,000 per week.

The policy which was announced in a circular sent to commercial banks yesterday also restricted cash withdrawals from over-the-counter, Automated Teller Machines (ATMs) to N100,000 and N500,000 per week for individuals and corporate organisations, respectively.

Similarly, the memo directed commercial banks to load only N200 and lower denominations into their ATMs

While commenting on the new policy, AMMBAN President, Olojo Victor stated that the new policy is capable of sending members of the association out of business. 

“They want to send us out of business. We are against this. It is counter-productive. It does not represent what the CBN initially stood for in terms of financial inclusion. This is not driving us forward” Olojo lamented. 

He wondered how an average Nigerian will be able to cope with the new policy, stating that not many Nigerians can transact without the use of cash. 

“We don’t have the technological infrastructure to support this policy. Nigerians have not been sensitised.

“There is no alternative and you are taking out cash. You are running a cash-dominant economy as we speak.

“Cash still remains king whether we like it or not. Go to the average market we still have more cash transactions than PoS and suddenly you want to seal cash without bringing alternatives and education and sensitising Nigerians on how the alternatives work.

“This will not fly. It is not suitable. It is a good idea but not at the right time,” he concluded. 

Meanwhile, the president of the Bank Customers Association of Nigeria, BCAN, Dr. Uju Ogubunka, commended the CBN on the policy.

He, however, noted that the policy would be difficult to implement owing to some issues such as broadband connection and sensitisation among others. 

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Finance

Nigeria’s External Debt Rose From $18.3bn in 2010 to $103bn in 2022; Says World Bank

Nigeria spent $9.6 billion on debt servicing in 12 years

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debt

The World Bank stated yesterday that Nigeria’s external debt increased from $18.3 billion in 2010 to $103 billion in 2022. The bank added that the country spent $9.6 billion on debt servicing in 12 years. 

According to the “International Debt Report” released by the bank, Nigeria’s foreign debts rose astronomically by 305 per cent during the 12 years.

The report added that external debt stood at $76.21 billion in 2021 but rose quickly to $103 billion by the first half of 2022 (H2 2022).

Furthermore, cumulative annual interest payments on external debts rose sharply by 2,819 per cent to $1.73 billion in 2021 from $59.3 million in 2010.  

Investors King understands that the implementation of Nigeria’s budget heavily relies on external borrowings.  

An example is the construction of railway tracks which are heavily funded by the Chinese loan while the country’s 2023 budget proposal also has a deficit of about N10 billion which will be significantly sourced from international creditors.

Experts have warned that Nigeria’s rising debt could hamper the nation’s overall development, especially if the debts are not tied to projects with economic value.

Meanwhile, the report added further that principal repayment on the external debt gulped $30.66 billion during the 12 years period with annual principal repayment rising by 469 percent to $6.77 million in 2021 from $1.189 million in 2010. 

In the executive summary, the report noted that Nigeria and other developing countries are at risk of serious debt-related issues. The report cautioned that rising interest rates coupled with the recent sluggish economic movement may force a number of developing countries into a debt crisis. 

Speaking on the report, World Bank Country Director for Nigeria, Shubham Chaudhuri stated that Nigeria’s economy does not reflect the huge level of debt stock, adding that multilateral institution is worried that the cost of servicing debt could exceed the nation’s revenue.  

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