Finance

CBN New LDR Policy to Hurt Treasury Market

Published

4 years ago

July 8, 2019

CBN New LDR Policy to Hurt Treasury Market

The recent directive of the Central Bank of Nigeria mandating all Deposit Money Banks (DMBs) to maintain 60 percent Loan-to-Deposit ratio is expected to erase over N1 trillion off treasury markets, Obinna Uzoma, a Lagos based economist has stated.

Last week, the central bank had directed all banks in the country to beef up lending to the real sector in order to enhance economic productivity and deepen growth.

All Deposit Money Banks (DMBs) are to maintain 60 percent Loan-to-Deposit ratio by September.

According to the apex bank, DMBs that failed to comply with this regulatory requirement will be ‘fined to the tune of a Cash Reserve Requirement equivalent to half of the shortfall of the new LDR target.’

Experts, however, are saying the new directive could increase non-performing loan in the banking sector as lenders would have to abandon less risky financial instruments that generate income for the highly uncertain real sector.

“In order to meet the 60 percent target, banks will have to assume more risk in form of borrowing. This will mean diverting money typically channelled into less risky financial instruments that generate income. The capacity of banks to participate in open market operations will reduce to the tune of the current shortfall which has been estimated to about N1.3 trillion to N1.6 trillion,” Uzoma stated.

This could see bank like Zenith, the most profitable Nigerian bank, extending up to N6007.13 billion in loans to businesses by the third quarter.

While the United Bank of Africa will have to disburse about N423.71 billion in loans if it is to meet up with the new LDR target. Guaranty Trust Bank and Access Bank would have to grow their loan book to N200 billion each.

“The risks associated with the new loans that will be created in order to meet up with the target will have to be properly managed so as to not increase the already high banking industry Non-Performing Loan ratio.”

Currently, Nigerian banks have a loan portfolio of N15.45 trillion, with oil and gas accounting for 30 percent or N4.86 trillion of the total loan. Followed by the manufacturing sector (N2.2 trillion). The government (N1.37 trillion), while other key sectors struggle with the remaining.

The low credit facility to sectors that contribute the most to the economy, especially knowing that the oil and gas sector that is receiving most of the credit contribute less than 10 percent to the total economy, prompted the central bank to compel lenders to increase loan facility to the non-oil sector.

“Albeit the fear of excessive regulation, this might be the right move for the government as the already buoyant treasury market will fail to miss N1 trillion and the appetite of the foreign investors is well enough to fill the void that would be created by this regulation” Uzoma added.

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Samed Olukoya

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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Finance

Nigeria’s Tax Revolution: Shifting Burden to the Wealthy and Streamlining the System

Published

3 days ago

September 29, 2023

Samed Olukoya

President Bola Tinubu’s administration is set to revolutionize the nation’s tax system.

The ambitious plan seeks to redistribute the tax burden, making the wealthy pay their fair share while stimulating business growth through corporate tax cuts.

The cornerstone of this tax reform initiative is a push to increase Nigeria’s tax revenue from 11% to 18% of Gross Domestic Product (GDP) within three years.

Spearheading this transformation is Taiwo Oyedele, who leads a panel appointed by President Tinubu.

Oyedele articulated the primary objectives of the reform, saying “We aim to make the rich pay what is fair and protect those in poverty.”

This move is crucial in a country where extreme wealth disparities persist, with only a small fraction of the population enjoying immense riches.

Notably, the plan also includes a reduction in the corporate income tax rate, which currently stands at an effective rate of over 40%.

The aim is to benchmark this rate against Nigeria’s international peers, fostering a more business-friendly environment.

Nigeria’s tax system has long been plagued by complexity, with nearly 70 different taxes and overlapping jurisdictions.

The reform initiative seeks to simplify this by streamlining tax structures and drastically reducing the number of taxes to single digits.

Also, a tax amnesty is under consideration, aimed at encouraging tax compliance and offering relief for past debts. The hope is that by fostering transparency and accountability, more Nigerians will willingly contribute to the country’s fiscal health.

In a nation where government debt has surged dramatically in recent years, this tax revolution is seen as a pivotal step towards reducing the deficit and ensuring sustainable economic growth.

Finance

Federal Government’s $3 Billion Rescue Plan to Bolster Naira Stability

Published

3 days ago

September 29, 2023

Samed Olukoya

The National Economic Council (NEC) has confirmed the deployment of the $3 billion emergency loan-for-crude oil, secured by the Federal Government in August, for the stabilization of the national currency.

The naira’s value has been under siege, with fluctuations in the Investors & Exporters’ window and a parallel market rate that briefly hit N1000/$ this month.

Addressing reporters following the 136th NEC meeting at the Aso Rock Presidential Villa, Nasarawa State Governor Abdullahi Sule expressed confidence in the plan.

He stated, “With the plan that will come out and with all these items that have been listed on the improvement of revenue, the $3 billion shall be useful to us down the line.”

The emergency loan, secured from Afrexim Bank, was initially intended to relieve pressure on the naira, facilitate the settlement of taxes and royalties in advance, and provide the Federal Government with vital dollar liquidity for naira stabilization.

The recent nomination of Olayemi Cardoso as the new Central Bank of Nigeria (CBN) governor by President Bola Tinubu has already shown promise.

The naira experienced a boost in the black market, strengthening by N10 against the dollar, closing at N990/$1.

Governor Sule indicated that the implementation of the intervention would require careful planning and time.

He emphasized the need for the new CBN team to devise effective strategies. In response to inquiries about a supplementary budget, Sule stated that there is no immediate need for one, as the situation does not warrant it.

As Nigeria’s economic landscape faces evolving challenges, the NEC’s decision to harness the $3 billion loan offers a glimmer of hope for a more stable naira in the near future.

Finance

Former FIRS Chairman Muhammad Nami Accused of Controversial N6 Billion Payments After Sudden Exit

Documents reveal questionable approvals and alleged backdating, raising concerns over financial misconduct

Published

4 days ago

September 28, 2023

Samed Olukoya

Muhammad Nami, the former chairman of the Federal Inland Revenue Service (FIRS), is under scrutiny for approving payments totaling N6 billion to contractors and consultants just days after his abrupt removal from office.

Documents obtained by TheCable shed light on these controversial transactions.

Nami, who was succeeded by Zacchaeus Adedeji, greenlit the payments on September 16, two days after his removal on September 14.

Sources privy to the situation, although not authorized to speak publicly, claim that Nami directed staff to work over the weekend to finalize these transactions.

Additionally, files were allegedly moved from the FIRS headquarters to his residence, where they were purportedly “backdated and signed.”

Perhaps the most eyebrow-raising revelation is that Nami transferred approximately N5 billion from the FIRS account to the Joint Tax Board (JTB) without apparent justification.

It is reported that the FIRS director of finance and accounts reluctantly approved these payments after warning Nami about potential repercussions.

Nami allegedly reassured his subordinates that the incoming FIRS chairman would remain oblivious to these approvals.

Also, documents indicate that Nami approved significant payments, including N1.4 billion for a ‘Business Case for Strategic Leadership’ retreat, N250 million for FIRS Data Mining Management and Analytics in Taxation Course, and N221 million for a ‘Skill Development and Management Improvement Workshop Training.’

Curiously, Nami also appropriated over N81 million for a study visit to the Inland Revenue of Malaysia.

The FIRS, when contacted for comment, remained tight-lipped about the situation. Spokesperson Abdullahi Ismaila stated that he had no knowledge of the payments, while Tobi Johannes, Nami’s former media aide, distanced himself from the matter, emphasizing that his role ceased when Nami’s tenure ended.

These revelations have ignited concerns about financial misconduct within the FIRS and have raised questions about the oversight and accountability of government agencies. The full extent of these allegations is yet to be determined as investigations into the payments and their legitimacy continue.