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CBN Debits 14 Banks N356.1bn For Defaulting Cash Reserve Requirement

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CBN

N170 billion loss hit Zenith Bank Plc on Friday as the Central Bank of Nigeria, CBN debited 14 banks of N356.1billion for failure to meet its 27.5 percent Cash Reserve Requirement (CRR).

The cash reserve ratio was increased from 22.5 percent to 27.5 percent in January 2020 by the apex bank with an intention to address monetary-induced inflation and sustain the benefits of its 65 percent Loan Deposit Ratio (LDR) policy.

Investors King reports that Nigeria has the highest reserve requirement in sub-Saharan Africa. Countries like South Africa, Ghana and Kenya have their ratios below 10 percent.

Meanwhile, stakeholders in the banking sector and analysts have frowned at the CBN’s Cash Reserve Requirement policy, describing it as huge and its impact greatly felt in the industry.

According to the CBN data on the latest deduction, Zenith Bank Plc was the most debited of the commercial banks and Fidelity Bank the least debited with N2 billion. A merchant bank was as well hit by the penalty.

The data revealed the debit details as: Zenith bank– 170bn, Providus Bank– 40bn, FCMB– N39 billion, First Bank of Nigeria– N27 billion, Guaranty Trust Bank Plc– N20 billion, Citibank– N12 billion, Stanbic IBTC bank– N10 billion, Polaris Bank– N10 billion, Union Bank of Nigeria Plc– N10 billion.

Other Banks debited include: Keystone Bank– N6 billion, Ecobank –N5 billion, Sterling Bank Plc– N3.6 billion, Fidelity Bank– N2 billion and Nova merchant bank– N1.5 billion.

Investors King recalls that in November, 2021, Zenith bank was also the most debited as it lost N90bn to CBN alongside Access Bank Plc and United Bank for Africa Plc (UBA) who were debited N25 billion.

In December 2021, CBN debited 16 banks and two merchant banks N175 billion for defaulting in the Cash Reserve Requirement.

Agusto & Co. in their report titled, ‘Economic outlook for 2022’, explained that cash reserves ratios are usually between 5 percent and 10 percent of local currency deposits.

It hinted that aside from the compulsory cash reserve ratio, banks hold special bills with 0.5 percent interest per annum. “These “special bills” are not easily convertible into cash and are, in substance, interest bearing cash reserves.

“We estimate that cash reserves (including interest bearing cash reserves) were about 50 per cent of LCY deposits at the end of 2021. We do not believe that the CBN will reduce this ratio significantly in 2022, as it continues to see this as a major instrument for maintaining “stable” exchange rates,” the report read.

Sunny Nwosu, the National Coordinator Emeritus, Independent Shareholders Association of Nigeria (ISAN) opined that the 27.5 per cent CRR has not impacted the economy with the desired outcome after the relaxation of the Covid-19 lockdown.

Nwosu pointed that the subsequent debit of banks by CBN is obviously a threat to the banking sector of the country as shareholders are worried about the state of banks and the safety of their investments.

Calling on CBN to rethink, he said, “Banks restricted deposits with CBN are idle funds. We argue that if these funds are with banks, it will certainly enhance their earnings, loans to the real sector and returns for shareholders. 

“If CBN can pay at least three per cent interest on the mandatory CRR deposits, it will go a long way in driving the real sector and the payment of robust dividends to shareholders.”

However, the Vice President, Highcap Securities Limited, David Adnori explained that CRR is a monetary policy for the control of money supply in the banking industry and to reduce inflation. 

Adnori noted that if the CRR policy is not strictly followed, so much money will flow into the market thereby deprecate the naira. 

On the contrary, he pointed that “the policy has not favoured banks because the fund is not yielding any interest and of no benefit to the productive sector. These are funds banks lend to the real sector to drive business activities, finance working capital of the productive sector and boost GDP but the CBN is holding it down. It is not a good development for the nation’s economy in general.

“CBN has its reasons and releasing these funds, it might result in hyperinflation which can damage the nation’s economy. It is like a double edge situation- if you don’t do it, the economy is damaged and if you do it, the economy also struggles,” Adnori concluded.

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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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Banking Sector

Insider Dealing: Hafiz Mohammed Bashir Acquires 37 Million Shares in Unity Bank

Alhaji Bashir carried out the acquisition in 32 different transactions at an average price of N0.51 a unit between November 8th and 11th 2022

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Unity bank - Investors King

The management of Unity Bank Plc has announced that a non-Executive Director, Hafiz Mohammed Bashir scooped 37,681,947 shares of the bank.

The transaction was disclosed in a statement signed by the bank’s secretary, Alaba Williams.

Alhaji Bashir carried out the acquisition in 32 different transactions at an average price of N0.51 a unit between November 8th and 11th 2022, according to the disclosure available on the Nigerian Exchange Limited (NGX).

Insider dealing is the buying or selling of a company’s shares by someone with a piece of insider information not available to the public. Insider dealing is illegal in the U.S. but not in Nigeria as long as it’s disclosed.

The Nigerian Security and Exchange Commission (SEC) mandated all listed companies to disclose insider trading to enforce transparency across the nation’s Exchange market.

Also, insider dealings can help stakeholders and retail investors assess the confidence of top company executives in a listed company. While Alhaji Bashir’s acquisition could demonstrate his trust in the future of the company, it could also mean positioning ahead of a major company’s event given his position.

Hafiz Mohammed Bashir Profile

In 2017, Hafiz Mohammed Bashir was appointed as a Non-executive Director following the Central Bank of Nigeria’s approval.

Hafiz Mohammed Bashir is an accomplished professional with vast experience in the public and private sectors. He retired at the apex of Local Government Administration in Katsina State in 1992 and has chaired the Board of many companies – including Fiztom International Ltd, HafadGlobal Resources limited and Fiziks Nigeria limited.

Alh. Hafiz who is currently in private business holds a Post Graduate Diploma in Management from Abubakar Tafawa BalewaUniversity, Bauchi, and an Advance Diploma in Public Administration from the University of Jos, a higher Diploma in Local Government Administration- AhmaduBello University. Zaria and Diploma in Insurance from ABU, Zaria He is also currently undergoing a Master’s programme in Business   Administration at the Business School of the Netherlands.

See the details of the transactions below.

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Banking Sector

McKinsey Global Banking Annual Review: Banking on a Sustainable Path

African banks have experienced a strong recovery in profitability, with average ROEs up from 12% in 2020 to 15% forecast for 2022

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Global Banking - Investors King

McKinsey has released its yearly state of the industry report providing an in-depth look at banking in today’s volatile environment and its future prospects.

This year marked the biggest shift in global banking for over a decade, providing banks with both the opportunity (from higher margins and the fintech correction) and the need (as a result of macroeconomic volatility and growing sector divergence) to master a dual challenge: maintain resilience in the short term while accelerating the transformation into a future-proof, sustainable value creation model.

The divergence in performance between leading banks and the rest continues to grow. Despite higher margins from rising interest rates and a stronger capital position, more than half of the world’s banks continue to struggle with profitability and have a return on equity that is below their cost of capital. But all banks can focus now on improving their short-term resilience and preparing for longer-term opportunities. The report examines strategies that have allowed some players to rise above the fray and outperform.

Among the opportunities is sustainable finance, which is on the cusp of a “next era” as banks finance not just clean energy but a broad array of transformational low-carbon projects across industry sectors. Debt-focused investment supporting the transition to net zero alone could represent revenue potential for banks of at least $100 billion annually by 2030.

What this means for African Banks

In line with banks globally, African banks have experienced a strong recovery in profitability, with average ROEs up from 12% in 2020 to 15% forecast for 2022. This could mean relatively stable ROEs for African banks over the next 5 years despite global macroeconomic shocks. But there is also significant variance across the continent, with banks in Nigeria and Kenya, in particular, trading at price-to-book ratios well below 1, Morocco trading over 1, and South Africa well over 2 on average (amongst the highest in the world).

“This boost in profitability gives African institutions the breathing room to improve their short-term resilience as we face the global challenges of continued geopolitical shocks. It also gives them the opportunity to continue investing in technology to enable growth,” says Francois Jurd de Girancourt, a partner in McKinsey’s Casablanca office, and leader of the firm’s Financial Institutions Group in Africa.

Africa could be one of the fastest growing regions for banking revenue globally (6-7% in local currency terms) in 2022—led by North Africa (9%) and West Africa (7%) with a revenue pool of ~$100bn. The picture is lower but remains positive if currency depreciation is taken into account. This growth is underpinned by deepening penetration of banking services and rising interest rates adding to opportunities in payments and transactional banking and is aided by the ongoing explosion of fintech activity across the continent.

“In Nigeria, agile and innovative startups are taking advantage of increased technology penetration and high levels of unmet needs in the traditional banking sector to seize market share. A youthful population, increasing smartphone penetration, and a focused regulatory drive to increase financial inclusion and cashless payments are all contributing to this shift,” says Edem Seshie, an associate partner, in McKinsey’s Lagos office.

Much like the rest of Africa and the world, sustainable finance in Nigeria is also entering the ‘next era’—shifting from a focus on renewables to a broader set of deployment across the energy transition. 

Africa’s efforts to navigate the energy transition and adapt to climate change are likely to be supported by investor demand for sustainability-linked bonds, which have grown from 2% of bonds in 2017 to ~8% in 2022 (>$1.7bn of sustainability-linked bonds issued).

To fully take off, climate finance will require clearer definitions and better metrics. There are a number of opportunities across CIB, commercial and small-business banking, retail banking, and wealth and asset management. Examples of business building are emerging across geographies as banks recognize the capital need required to support the transition and the role the industry plays.

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