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Banking Sector

Nigerian Banks Borrow N5.38tn from CBN in First Week of July

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Global Banking - Investors King

Nigerian Deposit Money Banks borrowed N5.38 trillion from the Central Bank of Nigeria (CBN) in the first five days of July 2024.

This was a 245 percent increase from the N1.56 trillion borrowed in the same period in June 2024 and a 202 percent rise from the N1.78 trillion borrowed in the first week of July 2023, according to data released by the CBN.

The surge in borrowing was facilitated through the Standing Lending Facility (SLF), a mechanism that allows the central bank to provide liquidity to commercial banks.

Analysts suggest that this spike indicates short-term liquidity shortages within the banking sector, necessitating borrowing to meet immediate obligations, such as covering withdrawals or funding loans.

“We are currently experiencing an illusion of money. In absolute terms, the amount appears lower,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.

Olubunmi explained that while the figures seem substantial, converting them to dollars and comparing their value to three years ago reveals a significant decline.

The dramatic increase in borrowing coincides with the CBN’s recent monetary policy adjustments.

In May 2024, the CBN raised its benchmark interest rate, the Monetary Policy Rate (MPR), by 750 basis points to 26.25 percent from 18.75 percent in July 2023.

This move was aimed at controlling inflation, which stood at 33.95 percent as of May 2024.

Also, the CBN has issued over N1.5 trillion in Open Market Operation (OMO) bills since Olayemi Cardoso assumed office as governor, in an effort to manage inflation and support the naira.

The liquidity tightening by the CBN has driven banks to the SLF window. Alatise Yusuf, chief investment officer at Cowry Asset Management, noted that banks see the CBN as their lender of last resort, especially in a high-interest-rate environment.

“On Thursday, we saw the Overnight NIBOR at 32.4 percent, indicating that system liquidity is thinning while lending rates are trending upward,” he said.

Yusuf added that the CBN’s actions aim to mop up excess liquidity, leading to a reduction in the total banknotes in circulation.

“Banks’ treasuries are drying up due to investors reclassifying their assets because of high rates. So, banks need to shore up with CBN as the lender of last resort.”

In February 2024, the CBN raised the Cash Reserve Ratio (CRR) of banks from 32.5 percent to 45 percent.

In March 2024, it adjusted the CRR for merchant banks from 10 percent to 14 percent, further tightening liquidity.

Ayodele Akinwunmi, senior relationship manager at Corporate Banking Group, FSDH Merchant Bank, explained that borrowing from the CBN is a standard practice globally.

“When banks need to cover short positions, they can turn to the interbank market or borrow from the central bank. This lending is always secured and typically short-term to cover immediate needs.”

In contrast to the surge in borrowing, commercial banks’ deposits with the CBN under the Standing Deposit Facility (SDF) dropped to N172.17 billion in the first week of July 2024, compared to N232.18 billion in the same period in 2023.

This decrease follows the CBN’s decision last year to lift the N2 billion daily limit on funds placed at the SDF window, resulting in increased net deposits from banks over the past year.

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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Banking Sector

Jaiz Bank Boosts Chairman’s Income to N24m Amidst Strategic Expansion

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Jaiz Bank

Jaiz Bank has announced a 20% increase in its chairman’s annual income to N24 million.

This decision was unveiled in a recent statement filed with the Nigeria Exchange Limited, highlighting the bank’s commitment to rewarding leadership amidst its expansion plans.

The bank, renowned for its pioneering role in non-interest banking in Nigeria since 2012, also approved a remuneration package of N20 million for each non-executive director.

The announcement was made by the bank’s secretary, Mohammed Shehu, highlighting the importance of competitive compensation for board members who provide crucial oversight and strategic guidance.

Shareholders at the Annual General Meeting (AGM) expressed confidence in the board’s leadership by approving the resolution on directors’ fees.

This move aligns with Jaiz Bank’s ongoing efforts to enhance its capital base to N70 billion by the end of 2024.

The bank also announced a dividend of 4 kobo per share, which will be distributed to shareholders on July 16, 2024.

This dividend declaration was welcomed as a testament to the bank’s operational success in a challenging economic climate.

Also, the AGM saw the re-election of Muhammadu Indimi and Muhammad Abdulmutallab as non-executive directors, reaffirming shareholder trust in their leadership capabilities.

Jaiz Bank’s financial performance has been impressive, with a 67% increase in profit before tax, reaching N11.1 billion in 2023.

Gross earnings also rose by 42% to N47.2 billion from the previous year, showcasing the bank’s successful growth strategy.

As Jaiz Bank continues to expand its services, the enhanced remuneration package signals a commitment to maintaining strong governance and leadership, paving the way for future achievements in ethical banking.

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Banking Sector

Nigeria Plans 50% Windfall Tax on Banks’ Currency Profits

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Central Bank of Nigeria (CBN)

Nigerian President Bola Tinubu has announced a one-time 50% tax on windfall profits that banks reaped from currency gains following last year’s naira devaluation.

This decision was part of the government’s strategy to navigate the ongoing cost-of-living crisis.

The naira, which has depreciated by about 70% against the dollar since foreign exchange rules were relaxed in June 2023, allowed banks holding dollar assets to significantly boost their income.

However, the Central Bank of Nigeria had advised lenders to retain these profits as a buffer against potential future losses.

The proposed tax will apply to the 2023 financial year, with non-compliance resulting in hefty fines.

The move has already impacted the NGX Banking Index, which fell by 1.3% as of midday trading in Lagos. Notable declines were seen in FBN Holdings Plc and Zenith Bank Plc, dropping 3.2% and 2.5% respectively.

This initiative mirrors similar actions in Europe, where countries like Italy and Hungary have imposed taxes on banks to address what they view as excessive profits during periods of high inflation and interest rates.

European banks have criticized these measures, warning of potential impacts on economic growth due to constrained lending capabilities.

President Tinubu’s administration believes this tax will help manage Nigeria’s fiscal challenges while addressing social needs.

Lawmakers are expected to support the measure, alongside a proposal to increase government spending by 6.2 trillion naira ($3.8 billion).

While banks have benefited from currency revaluations, many customers, particularly manufacturers with dollar-denominated loans, faced significant losses as they struggled with the weaker naira.

The new tax policy highlights the government’s broader efforts to stabilize the economy and attract foreign investment, aiming to ensure a more equitable distribution of financial gains.

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Banking Sector

Unity Bank Customers Win Over N4 Million in Cashtoken Rewards Promo

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Unity Bank customers have claimed over N4 million in cash rewards in its ongoing loyalty programme recently rolled out with Cashtoken, a Cash Reward-as-a-Service company.

The winners included no fewer than 40 customers who adopted and transacted on the Bank’s digital banking platforms, including the UniFi mobile banking application, the *7799# USSD platform or activated their Unity Bank Verve Card to transact on e-payment terminals across Nigeria.

Beginning from onboarding in our customer lifecycle journey, the Unity Bank Cashtoken Partnership commenced as a loyalty and reward scheme to reinforce the benefits of e-banking platforms. To begin, Customer transactions earn cash tokens, which are then redeemed to qualify for the monthly Cashtoken Rewards draw. Consequently, winners emerge from the draws to claim the cash prizes.

Recall that the retail lender announced the ongoing Cashtoken Rewards loyalty programme in December 2023 in partnership with Cashtoken Rewards Africa to empower customers and improve customer satisfaction. The partnership with Cashtoken Rewards also provided an opportunity for the Bank to migrate customers—old and new—to a platform that will continually create exciting rewards and appreciation for loyalty.

Eghomware Iyamu, Unity Bank’s Head of E-Business, commenting on the success of the Cashtoken Rewards loyalty program, stated: “We are excited to see our customers win over N4 million in cash rewards through our partnership with Cashtoken. This initiative demonstrates our commitment to recognizing and rewarding the loyalty of our customers”.

“By leveraging our digital banking platforms, including the Unifi mobile banking application and the *7799# USSD platform, we are not only enhancing customer experience but also providing life-changing opportunities. The Cashtoken Rewards program is a testament to our dedication to improving customer satisfaction and creating meaningful rewards along our customer lifecycle journey. We look forward to seeing more of our customers benefit from this exciting program as we continue to innovate and deliver exceptional value to them.”

Unity Bank has robust electronic banking products which include mobile and digital banking channels, including ATM, PoS, or any digital payment channels which support retail product transactions across the country. New-to-Bank customers are invited to open a Unity Bank account, onboard onto the digital platforms and begin transacting on the various platforms to earn cash token rewards and cash prizes while existing customers are encouraged to onboard and transact to win even more rewards and cash prizes.

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