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Banks’ Profits to Drop Over Weak Loan Demand

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  • Banks’ Profits to Drop Over Weak Loan Demand

Banks are unlikely to post large profits this year due to weak loan demand and poor economic growth, Head, Research at Coronation Merchant Bank, Guy Czatoryski has said.

Speaking yesterday during the unveiling of the 2019 economic outlook by the bank in Lagos, he said the weak demand for loans is affecting banks’ profitability and ability to grow.

According to him, the high yields on treasury bills will also drop after the 2019 general elections planned for next month.

He said: “They are unlikely to experience much loan growth, given the weak economy and the fact that they can benefit from high T-bill yields. On the other hand, bank stocks are cheap in historical terms. So, if interest rates come down later in the year and the market conditions improve, then there could be a sharp rally in bank stocks later in the year”.

He said that the challenge with loan advancement in Nigeria is that only few people come forward to borrow given the slow growth in Nigeria Gross Domestic Product (GDP). He said that the weak loan demand is the biggest challenge facing banks and will cut their profitability.

He explained that regular bank customers that were borrowing excessively before hardly come back for loans given the poor state of the economy.

Czatoryski said that weak borrowing now witnessed among bank customers has nothing to do with high interest rate.

“If you tell me that loans are expensive today, they have been expensive in the last 10 years but that did not stop people from taking loans. It is not a question of pricing for the loans but weak demands for products. The industry is weak. It is very important not to confuse that,” he said.

Speaking on the impact of the oil sector on the economy, Czatoryski said “A lot depends on oil this year. We forecast an average $58 per barrel for 2019. An average much below this means the Central Bank of Nigeria (CBN) will have to keep rates very high and could even challenge naira/ dollar argument. An average much about $60 per barrel means the CBN will feel confident about the currency and will be able to cut rates later in the year, in court quarter, less likely in third quarter.”

On exchange rate, he said the current rate of N365.48/$1 is likely to prevail this year. “The CBN’s policy is to defend the rate and with reserves at $43 billion, it is in a strong position to do so. We think the CBN will supply US dollars to the forex markets at an average rate of $500 million per month during 2019. This is compatible with maintaining a strong reserve level,” he said.

“On interest rate, he said If, as we think, the oil prices will average $58.00/bbl this year, then we think the CBN will want to keep interest rates high. It will do this through its open market operations (OMO). We think OMO will be issued in a range of 17 per cent to 19 per cent and that T-bill rates will be very close to this level during 2019. We look at Nigeria in the international context of interest rates. Nigerian T-bill rates look competitive in the context of other emerging market rates – which is why the CBN is having success in attracting inflows of Foreign Portfolio Investment. However, if oil trades at substantially above $60/barrel during 2019 then foreign investors in T-bills will be encouraged and the CBN might well be in a position to cut rates in fourth quarter 2019, or even in third quarter 2019,” he said.

This could be helped by a downtrend in inflation. “Inflation has proved stubborn and has trended at around 11 per cent over the past few months. But if inflation trends, in 2019, towards the CBN’s target band of six to nine per cent, then it will help the CBN cut rates in order to stimulate the economy. We are agnostic on politics. However, there is some evidence that in the period after general elections (2011 and 2015) yields in the T-bill market tend to fall. This might help persuade the CBN to cut Open Market Operation rates later in the year. We expect growth to be 2.25 per cent in 2019. Consumer demand is very weak and we do not expect an uptick in the immediate future. Government expenditure does not vary much from year to year, with the 2019 budget currently considered at N8.83 trillion versus N9.12 trillion for 2018 (three per cent lower),” he said.

Speaking more on the weak lending in the economy, Czatoryski said: “How big is the banking sector and how big is the economy? You are talking as if lending is about 100 per cent to Gross Domestic Product (GDP). Lending is only about 10 per cent of the GDP. So, the link between the banking sector and the economy is not strong because most people do not have loans,” he said. “The outstanding loan from banks is not more than 10 to 15 per cent of the GDP and that is very poor. You are talking of a very small banking sector servicing a large economy. That is the problem, and it will take years for the banking sector to match growth in the economy”.

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

Vietnamese Prime Minister Moves on CBDC Amid Questions on Regional Nature of e-Yuan

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Vietnamese Prime Minister Pham Minh Chinh

This month, it was reported that Vietnamese Prime Minister Pham Minh Chinh asked, in Prime Minister’s Decision No 942/QD-TTg, the State Bank of Vietnam to study and execute a pilot implementation of a central bank digital currency before the end of 2023. Currently, cryptocurrencies are not legally recognized as an asset in the country, nor do any crypto exchanges hold licenses from the central bank. Last year, the country set up a group to study digital assets, with a purview that extended to potentially proposing regulatory mechanisms.

“Vietnam is a country that has had its eye on blockchain, even though they haven’t made many steps towards mainstreaming cryptocurrencies. It is a country that is interested in technology and riding a potential economic wave brought upon by new innovation, from blockchain to AI and VR. But, what’s notable here is that this decision was pushed forward very near the time that many pundits began to ask whether the Chinese e-Yuan would become a digital currency which transcended China and became something of a regional powerhouse as an asset,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.

“I think that’s important. Many countries are looking at what’s happening in China, then taking a look at their own place in the CBDC rat race, and they’re making decisions, I think, which moves up their timetable. This isn’t an innovation where you want to be last to the party. Doing so, in fact, could have ripple effects across a country’s monetary policy,” noted Gardner.

“Digital money is an inevitable trend,” said Huynh Phuoc Nghia, Deputy Director of the Institute of Innovation under the University of Economics Ho Chi Minh City. Some believe that moving quickly to develop a CBDC could give countries like Vietnam greater influence in the global financial system.

“I think it’s too soon to say what kind of ripple effects this development will have. It’s worth noting that Vietnam is in the very early stages. This isn’t a case where they’re ready to begin a pilot test in the short-term. Vietnam isn’t Ghana. But, forging ahead now can only be a positive. It’s better to move forward than continue to wait. Those countries that continue to take a wait-and-see approach are going to find themselves in last place. This is a race you don’t want to finish last. It very well could be the 21st century equivalent to the Race to Space,” opined Gardner.

Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Over the past twenty years, the company has built technology for the world’s most notable exchanges, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.

“Vietnam is so close in proximity to China, and China is so far ahead in the development of their own CBDC, it was likely the push that they needed to move on this. Earlier this year, some pundits wondered if the e-Yuan would replace the dollar. That’s a premature discussion to have. But, if successfully rolled out, could it have a real regional impact? Absolutely,” Gardner offered.

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Banking Sector

Fidelity Bank Promotes 745 Staff Members

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Nneka Onyeali Ikpe, Fidelity Bank CEO - Investors King

Seeking to increase staff morale while empowering them to work more efficiently, Fidelity Bank has announced the promotion of 745 employees following the performance review of two financial years – 2019 and 2020.

A total of 461 staff members benefited from the FY 2019 promotion exercise, while 284 staff members benefited from the FY 2020 exercise. The beneficiaries cut across the senior, middle, and junior management cadre of the bank, and the promotion was based on merit, using a transparent and robust performance management system in line with global best practices.

Speaking about this, Nneka Onyeali-Ikpe, MD/CEO, Fidelity Bank Plc said “I am very delighted to announce the promotions for 2019 and 2020 financial years. Releasing the list for 2 financial years’ promotion at the same time is something we are very proud of. We strongly believe that the continuous growth of our bank over the years has been largely attributed to the commendable efforts and unrelenting sacrifices of our employees. Promotion is one of the many ways we express our gratitude. We are thankful to be home to many amazing talents that continue to drive our value and most importantly, serve our stakeholders to the highest standards.”

Speaking further, she said. “Since I was appointed the MD/CEO of our great bank in January 2021, I have been committed to a 7-point agenda to move our bank further, out of which workforce transformation is a key category. Staff performance and reward are critical to us, and as an organisation, we will continue to make available adequate resources to deepen the skills and entrench a culture of high performance amongst employees. I wish to appreciate all members of the Fidelity Bank family for their commitment and drive and unrelenting sacrifices towards delivering our objectives. As we move forward in our quest to becoming a leading tier-one bank, I encourage all elevated staff to see their promotion as a call to rededicate themselves to excellence.”

Fidelity Bank has continued to empower its employees with invaluable resources capable of putting them at the forefront of innovative transformation. In March 2021, the bank announced two capacity-building projects – One Culture Project and Project Alpha – that were targeted at transforming the workplace for its staff. In particular, Project Alpha was created to help Fidelity Bank develop a robust and holistic learning and development framework for all staff while One Culture Project was formed to reinforce the behaviour and value systems that will help the bank, as well as staff, achieve set goals.

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Finance

Nigeria’s Central Bank To Launch Digital Currency On Oct 1

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The Central Bank of Nigeria (CBN) has said that it will launch its much-awaited digital currency on October 1, to mark Nigeria’s independent anniversary.

CBN Director of IT Department, Rakiya Mohammed, revealed this at a private webinar, explaining that the banking sector regulator had been conducting research towards the launch of digital currencies since 2017.

She added that the central bank may conduct a proof of concept before the end of the year. The move to adopt the digital currency was first mulled by the CBN Governor, Godwin Emefiele, during the Monetary Policy Committee (MPC) in May.

He had said a digital currency will soon become a reality in the country, adding that the central bank had already set up its committee which was working on the concept.

The CBN governor had further restated the determination of the apex bank to drive the e-Naira project during the recent 306th Banker’s Committee meeting, pointing out that the process was ongoing.

Mohammed was quoted by Nairametrics to have highlighted the benefits of the digital currency, saying it would enhance macroeconomic management, boost economic growth, facilitate cross-border trade, boost financial inclusion and monetary policy effectiveness.

Mohammed said the digital payment instrument would further improve payment efficiency, revenue tax collection, remittance improvement, and targeted social intervention.

She added that the innovation would also benefit the fintech ecosystem by enhancing operational efficiency, opportunities for fintech start-ups in building services and products as well as financial inclusion that will contribute to economic growth, and the creation of a new system complimenting the traditional payment system.

Mohammed had last month said the proposed digital would be launched before December. According to her, every Nigerian would have access to digital currency.

She had while briefing journalists at the end of a Bankers’ Committee meeting said: “Let me state categorically that cryptocurrency such as Bitcoin and the rest of them are not under the control of the central bank; they are purely private decisions that individuals make and are not part of this arrangement.

“We have spent over two years studying this concept of central bank’s digital currency and we have identified the risks. And it is one of the reasons why I said we are setting up a central governance structure that would involve all industry stakeholders to access all the risks as we continue on this journey.

“Very soon we would make an announcement on the date for the launch and by the end of the year, we should have the digital currency.”

According to her, about 80 percent of central banks across the world are presently exploring the possibility of issuing the central bank’s digital currency, saying that Nigeria cannot be left behind.

Mohammed had added: “You are aware that we have two forms of fiat money: The notes and the coins. So, the central bank’s digital currency is the third form of fiat money. So, this digital money is going to complement the cash and note that we have.

“The central bank digital currency will just be as good as you having cash in your pocket. So, if you are having the currency in your pocket, you are as good as having cash on your phone.

“Now, why did we need to go into this? There are different cases that the central bank is looking at.

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