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CBN Policy, Macroeconomic Challenges to Pressure Banks in 2021

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Global Banking - Investors King

Macroeconomic Challenges and Central Bank Policy to Pressure Financial Institutions in 2021

Measures put in place by the Central Bank of Nigeria (CBN) to curtail the negative impact of COVID-19 on the masses and the economy will hurt banks’ profitability in 2021, according to the latest report from McKinsey & Company.

In the report titled “Nigeria’s banking Sector: Thriving in the face of crisis“, the leading consulting firm posited that while the CBN stimulus package and other steps to mitigate the negative impact of COVID-19 on critical sectors have been reasonably effective, the banking sector faces a challenging road ahead.

The management consulting firm noted that banks’ profitability is also weighed upon by a high Cash Reserve Requirement (CRR) of 27.5 percent, one of the highest in the world.

The CRR requires banks to park an increasing amount of local-currency deposits with the central bank, and restricts their ability to lend as these reserves are only available for intervention funds,” the report stated.

McKinsey & Company, a global management consulting firm, explained that “the CRR requires banks to park an increasing amount of local-currency deposits with the central bank, and restricts their ability to lend as these reserves are only available for intervention funds. Amidst all this, the CBN’s aspiration to achieve a financial inclusion rate of 80 percent by 2020 has led to increasing competition in payments from nonbank challengers.

This explains why the actual growth of the sector in the last ten years has remained significantly lower at 12 percent while earnings stood at approximately 23.5 percent during the same period. Again, most of the earnings declared by these banks come from non-core banking activities like fixed income and derivative income (swaps, futures, and forwards).

“Derivative income in particular has become increasingly significant; the average Tier 1 bank carries around $1 billion worth of derivatives on its balance sheet and reports around $30 million as profit from trading in derivatives—approximately 12 percent of profitability.

Therefore, salary cuts, layoffs and uncertainty surrounding business viability amid the worse economic recession in almost 40 years will further slow down revenues and increase loan loss provisions in 2021.

Also, margins of banks will drop due to the decline in interest rates on deposit margins while the risk costs will expand because of provisions for bad loans/write-downs from lending.

Loan volume growth is expected to remain modest in the new year, largely driven by lending to households to supplement reduced income and targeted credit facilities to corporates and some sectors such as manufacturing.

Client-driven banking revenues could fall by as much as 18 percent by 2021, before regaining a slow recovery path,” the report noted.

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

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Insurance

Heirs Insurance Group Unveils Revolutionary Website for Seamless Insurance Experience

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Heirs Life Assurance- Investors King

Heirs Insurance Group has launched a website designed to revolutionize the insurance experience for its customers.

With a focus on simplicity, accessibility, and personalized service, the new website aims to streamline the process of obtaining insurance coverage and empower customers to make informed decisions about their insurance needs.

The website boasts a range of innovative features that make navigating insurance options easier than ever before.

From simple and intuitive navigation menus to personalized insurance recommendations, the website is designed to guide customers through every step of the insurance process quickly and efficiently.

According to Ifesinachi Okpagu, the Chief Marketing Officer of Heirs Insurance Group, the new website embodies the company’s commitment to delivering exceptional customer service.

“Today’s customers want simplicity, and this new website delivers on that request,” Okpagu said. “We are empowering customers to take control of their lives, their businesses, assets, and their most cherished people.”

One of the key features of the website is its personalized insurance experience, which takes customers through a short journey to help them identify the best insurance plan for their needs.

Whether customers are looking for coverage for their home, car, business, or loved ones, the website provides tailored recommendations to ensure they find the right insurance solution quickly and easily.

With its user-friendly interface and innovative features, the new website from Heirs Insurance Group sets a new standard for the insurance industry, making it easier than ever for customers to protect what matters most to them.

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Banking Sector

Safaricom, Access Holdings Forge Partnership to Revolutionize Remittance Corridor in Africa

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Access bank

Safaricom, the leading telecommunications company in Kenya, has entered into a strategic partnership with Access Holdings, spearheaded by Aigboje Aig-Imoukhuede.

The collaboration aims to revolutionize the remittance corridor between East and West Africa, marking a significant step towards enhancing financial inclusion and empowering millions of individuals across the continent.

The partnership comes on the heels of Access Holdings’ recent acquisition of the National Bank of Kenya Limited, signaling the company’s ambitious expansion into the East African market.

Leveraging Safaricom’s extensive network and expertise in mobile money through M-Pesa, which currently dominates the mobile money market in Kenya, the alliance seeks to create seamless and efficient channels for remittance transactions.

Aigboje Aig-Imoukhuede, the driving force behind Access Holdings, expressed enthusiasm about the collaboration, highlighting its potential to transcend traditional boundaries and foster greater economic connectivity between East and West Africa.

He highlighted the fusion of collective expertise and resources between the two entities, underlining their shared commitment to driving financial inclusion and empowerment across the continent.

The partnership holds promise for addressing the challenges faced by millions of Africans in accessing affordable and reliable remittance services.

By connecting more than 60 million customers and 5 million businesses across eight countries, the collaboration aims to facilitate over $1 billion in daily transaction value, significantly boosting the flow of remittances within and outside Africa.

With the first phase of the collaboration focusing on key markets such as Nigeria, Kenya, Ghana, and Tanzania, stakeholders anticipate a transformative impact on the remittance landscape, paving the way for greater intracontinental trade and economic integration in line with the objectives of initiatives like the African Continental Free Trade Area (AfCFTA).

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Banking Sector

EFCC Urged to Repatriate Recoveries to NDIC for Depositors’ Relief

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The Nigeria Deposit Insurance Corporation (NDIC) has made a fervent plea to the Economic and Financial Crimes Commission (EFCC) to expedite the repatriation of recovered funds to its coffers to facilitate the timely reimbursement of depositors affected by bank failures.

During a recent meeting between the Managing Director of NDIC, Bello Hassan, and the Executive Chairman of the EFCC, Ola Olukoyede, at the NDIC headquarters in Abuja, Hassan stressed the importance of enhanced collaboration between the two agencies in recovering depositors’ funds lost due to bank failures.

Hassan emphasized that the return of recoveries made by the EFCC on behalf of the NDIC would significantly contribute to the prompt reimbursement of affected depositors.

He commended the EFCC for its unwavering efforts in combating corruption and financial crimes, highlighting its crucial role as a key member of the Taskforce on Implementation of the Failed Banks Act chaired by the NDIC.

The NDIC boss also highlighted the existing partnership between the two organizations, which led to the establishment of the NDIC Help Desk at the EFCC in 2022.

He disclosed that several high-profile cases referred to the EFCC were currently under investigation.

In response, Olukoyede reiterated the EFCC’s commitment to collaborating closely with the NDIC to combat financial crimes and safeguard the integrity of the Nigerian banking sector.

He pledged to intensify efforts to repatriate recovered funds promptly, acknowledging the interconnectedness between criminal activities and bank failures.

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