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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.

Finance

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

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Godwin Emefile

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

The Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has pledged to adopt accommodative monetary policy stance in 2021 in order to support economic growth in the country.

Emefiele, said this on Friday, while speaking at a CBN/Bankers’ Committee’s initiative for economic growth, which is a one-day special summit on the economy by bank chief executive officers.

The theme of the summit is: “How to Overcome the Pitfalls of Recession.”

Nigeria’s economy recently came out of recession, according to the Gross Domestic Product report for fourth quarter 2020 released by the National Bureau of Statistics.

Owing to the slump GDP growth of 0.11 per cent that lifted the economy out of recession, Emefiele said it was imperative that, “we do all we can in 2021 and beyond to ensure that we build on the positive momentum and strengthen our efforts at stimulating growth.”

He expressed optimism that with the discovery and deployment of vaccines worldwide, 2021 would be a year of massive global recovery and Nigeria must not be left out.

“The banks CEOs are here, whether by moral suasion or by force, they will have to participate in this journey. In order to drive and sustain this recovery therefore, we need to sustain the accommodative fiscal and monetary policy measures aimed at improving access to finance for households and businesses.

“Secondly, we must prevent a resurgence in Covid-19 related cases. Thirdly, we must ensure that a significant number of our population is significantly vaccinated and also improve foreign exchange inflows into our country,” he added.

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Banking Sector

CIT Microfinance Bank Disburses Over N16bn Loans

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micro-finance-bank

CIT Microfinance Bank Disburses Over N16bn Loans

CIT Microfinance Bank Limited says it has disbursed about N16bn loans since it commenced operations as part of its contributions to the financial sector and empowerment of businesses.

The Managing Director of the microfinance bank, Mr Kingsley Eremionkhale, disclosed this during the company’s 10th anniversary in Lagos recently.

He reiterated that the bank was committed to supporting the growth of small and medium-scale enterprises in the country.

“Since inception, we have disbursed loans worth about N16bn. Our operation is not just about profit-making, but we have impacted many lives, empowered many businesses, and done a lot in terms of our core mandate as a microfinance bank.”

While appreciating its customers who had been loyal to it for years, he said it was concerned about their business success.

The managing director said, “We are part of our customers’ businesses. We provide services beyond lending and savings products and we also give financial advisory services.”

He appreciated the customers who had stayed with the financial institution for many years.

The managing director noted that the MfB is a state-licensed bank operating in Lagos, and a subsidiary of Capitalfield Investment Group.

He also attributed the success of the MfB to the board of directors which it said had been supportive, the management team and its workforce in the past 10 years.

While saying that the bank could lay claims to exponential growth, he said the public should expect more from it.

He also said that it was driving its operations through its digital offerings and our e-channels, to improve its services to our customers.

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Finance

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

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FMDQ

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

FMDQ Securities Exchange Limited has announced the approval of the quotation of the Valency Agro Nigeria Limited N5.12bn Series 1 Commercial Paper under its N20bn CP Programme on its platform.

The Exchange said in fostering the development of the Nigerian debt capital markets, it had continued to avail its credible and efficient platform as well as tailor its listings and quotations services to suit the needs of issuers and registration members through innovative and uninterrupted service delivery.

It said in a statement on Thursday that the Valency Agro Nigeria CP debut issue came at a time when the Nigerian economy was bedeviled with soaring food prices, amidst compounding challenges of insecurity.

It said the agricultural sector and its attendant transformation agenda had never been more important in driving increased and sustainable production of agricultural products as well as the derived foreign earnings through exports.

The Exchange said the proceeds from the issue of the CP would be applied by Valency Agro towards meeting the mid-term working capital requirements of the various agricultural produce under its portfolio such as cashew, sesame, cocoa and in value addition prior to export.

The Executive Director, Valency Agro Nigeria Limited, Mr Sumit Jain, was quoted as saying, “We are thankful to our investors towards showing their faith in our agenda to grow the agriculture-focused business with a clear aim to maximise value addition and create employment opportunities in Nigeria.

“We would also like to commend the efforts made by FBNQuest Merchant Bank Limited’s team to build the reach and FMDQ for their unconditional support for the industry”.

The Head, Capital Markets, FBNQuest Merchant Bank, Mr Oluseun Olatidoye, said, “FBNQuest Merchant Bank Limited is delighted with the successful debut of the N5.12bn Series 1 CP issued by Valency Agro Nigeria Limited. This reiterates our effort to enable underserved sectors access the debt markets, optimise their capital structure and further deepen the domestic capital markets.

“We are proud of the instrumental role FBNQuest Merchant Bank played in this transaction and appreciate the trust the management of Valency Agro placed in us to assist them. Our clients remain our priority, and we strongly believe their success is our success.”

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