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Banks’ Capital Adequacy Ratio Rises to 15.60%

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global banking
  • Banks’ Capital Adequacy Ratio Rises to 15.60%

The Capital Adequacy Ratio (CAR) of commercial banks improved from the 15.14 per cent it was as of February 2019, to 15.60 per cent in April 2019, according to data from the Central Bank of Nigeria (CBN).

This is coming as one of the global rating agencies, Moody’s Investors Service, has predicted that Non-performing Loans (NPLs) in Nigeria’s banking sector would decline to between seven and eight per cent this year, from 11.7 per cent at end of 2018.

Deputy Governor, Corporate Services, CBN, Mr. Edward Lametek Adamu, gave the update on CAR in his personal comment at last month’s Monetary Policy Committee (MPC) meeting’s communiqué, a copy of which was posted on the apex bank’s website at the weekend.

CAR is a measurement of a bank’s available capital expressed as a percentage of its risk-weighted credit exposures.

The CBN requires that banks with international subsidiaries maintain CAR of 15 per cent, while banks without international subsidiaries maintain CAR of 10 per cent.

But the minimum requirement for the systemically important banks is 16 per cent.

In addition, Adamu, said banking sector non-performing loans (NPLs) decreased to 10.95 per cent in April, from the 11.28 per cent it was as of February.

“However, the NPLs ratio is still higher than the prudential limit of five per cent.

“In the banking system, major financial soundness indicators (FSIs) further improved in April 2019 due mainly to recoveries, loan disposals and write-offs. Other vulnerabilities in the industry include high concentration and contagion risks as well as significant forex exposure,” he added.

According to him, these conditions have increased averseness to risk in the industry, leading to some form of asset substitution.

“It is especially concerning that credit to the private sector is declining and this needs to be halted and possibly reversed to strengthen economic activity and job creation,” he stated.

On her part, the Deputy Governor, Financial System Stability, CBN, Mrs. Aishah Ahmad, said while foreign exchange inflows dipped noticeably in April 2019, net flows remained positive at $4.7 billion.

This, according to her, is a reflection of strong investor confidence.

“These factors, combined with crude oil price levels, which have remained above $60 per barrel over the last six months, have supported stability and fuelled further accretion to reserves.

“Although there is some volatility in crude oil prices, along with uncertainty in global growth prospects, the naira exchange rate is expected to remain relatively stable in the medium-term even in the face of slight easing in domestic monetary conditions,” she added.

According to her, the sluggish domestic output growth environment underscored an urgency to dramatically enhance investment and expansion in the real sector via new credit.

Positive financial soundness indicators, she stressed, suggested that the banking industry is well-positioned to play a bigger role in this respect.

“Industry capital adequacy, liquidity and profitability continue to improve whilst non-performing loans (NPLs) reduced between February and April 2019. This picture of financial resilience is at odds with the current low levels of real sector lending, especially in the light of burgeoning lending to government observed in banks’ outsized subscriptions to risk-free treasury securities.

“For instance, information from bank staff reveals contraction in credit to the private sector between February and March 2019, even as income from trading activities increased vis-a-vis a reduction in non-interest income from credit activities.

“While factors such as residual low risk appetite in the light of recent high levels of NPLs and significant asset portfolio write-offs are duly noted, the industry must dramatically increase lending to the real sector to strengthen the economic recovery, bolster domestic productivity and create jobs,” the Deputy CBN governor said.

On his part, the Deputy Governor, Economic Policy, CBN, Dr. Okwu Nnanna, pointed out that economic growth in the country remains muted amidst sub-optimal credit to the private sector and commercial banks’ preference for public sector lending.

In his contribution, the Deputy Governor, Operations, CBN, Mr. Folashodun Shonubi, said sustained stability in the banking industry was reflected in improvement of banks’ prudential measures, “though conditions highlighted the need for the Bank to intensify current regulatory and supervisory measures to ensure further progress.”

Meanwhile, one of the global rating agencies, Moody’s Investors Service, has predicted that NPLs in Nigeria’s banking sector would decline to around seven and eight per cent this year, from 11.7 per cent at end of 2018.

“Higher oil prices will constrain new NPL formation while high loan-loss reserves will allow banks to write off some of their bad debts. These credit positives will be moderated by lingering risks from high loan concentrations and high delinquency levels.

“System-wide tangible common equity will be stable at 16 per cent of risk-weighted assets at year-end 2018, which will be sufficient to absorb losses under our baseline scenario. We expect subdued loan growth and prudent dividend pay-outs to support banks’ capitalisation metrics,” it added.

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

Flour Mills Posts Strong Half Year Results Despite Headwinds

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flour mills posts 184% increase in PAT

Flour Mills of Nigeria Plc recorded strong performance in the Half Year (H1) ended September 30, 2020.

In the 2020/21 half-year results released on Tuesday through the Nigerian Stock Exchange, the leading integrated food business and agro-allied Group, grew revenue by 31 percent year-on-year from N270.8 billion posted in the half-year of 2019/20 to N355.1 billion in the period under review with second-quarter growth of 47 percent when compared to last year second quarter.

Similarly, the Group’s profit before tax grew by 60 percent year-on-year from N8.6 billion in H1 2019/20 to N14.6 billion in H1 2020/21 with an impressive 160 percent growth from the second quarter.

The strong performance continues across the board as profit before tax was driven by the agro-allied segment, which realised a profit of N6.3 billion when compared to the loss posted in 2019/20 period. The company said it recorded strong improvement in edible oils and fats, protein and fertiliser businesses after its investments over the years started yielding results.

Profit after tax grew by 68 percent from N5.9 billion achieved in H1 2019/20 to N9.9 billion in the period under review.

According to the company, despite economic uncertainties and headwinds, the Group has continued to show sustained growth in key areas with the agro-allied unit leading with a strong result in edible oils and proteins.

Speaking on the performance, Paul Gbededo, the Managing Director and Chief Executive Officer (CEO) of the company, said “with this result, our business has once again shown its resilience, by following the path of sustainable growth despite the prevailing challenges in both the local and global economy.”

He further stated that “in line with our vision to continue to grow value for our investors, Management will for the remaining part of the financial year continue to concentrate on improving operational effectiveness through accelerated strategies for Group-wide cost optimisation, which will ensure sustainability in the current market climate, while we will continue to invest in growing the business further.”

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US Banks Led the Most Fined Financial Institutions in 2020

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US Banks Are The Most Penalised Financial Institutions in 2020 Financial Year

Banks in the United States were the most fined financial institutions in 2020, according to the latest report from Finbold.

Finbold, a company that specialises in financial data, said three countries accounted for 97.32 percent of the total fines levied on banks in 2020.

The data revealed that United States banks are the most fined at €9.15 billion. This was followed by Australian banks with a combined €770 million, while banks in Israel came third with €762.97 million.

Also, while the fines are likely to increase before the end of the year, the total fines levied against financial institutions globally stood at €11.61 billion as of October 22nd.

Further breakdown showed Swedish banks came fourth with €456.18 million fines while German banks that incurred a combined €169.01 million fines came fifth.

The report showed Goldman Sachs led the most fined bank with €5.26 billion for various violations of regulatory rules.

Wells Fargo came second with €2.53 billion while Westpac Bank in Australia and Hapoalim emerged third and fourth with €770 million and €762.97 million, respectively.

Other heavily fined lenders include Swedbank from Sweden fined €360 million and Germany’s Deutsche with €126.52 million fine in 2020 so far.

Speaking on banks’ fines, Oliver Scott, Chief Editor, Finbold, said “Notably, the tally of bank fines is likely to increase in the coming years as European and Asian regulators catch up with U.S peers who are considered more aggressive. However, banks are looking for means of minimizing fines. Analysts have been of the opinion that the fines could have been avoided if banks leverage technology through the deployment of perfect software.”

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Guinness Nigeria Explains Reason for N12.6 Billion Loss in 2020

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Guinness

Guinness Nigeria Speaks on 2020 Poor Performance

Guinness Nigeria Plc has blamed the challenging business environment amid COVID-19 restrictions that led to the closure of bars, clubs, lounges and restaurants for its 2020 losses.

Mr. Baker Magunda, Managing Director/CEO, Guinness Nigeria, who spoke on the company’s performance in 2020, said the aforementioned represents a major part of the company’s consumption, adding that restriction imposed on gathering impacted the usual demands for celebratory occasions.

He explained that demand was weighed upon by a decline in consumer income, rising unemployment rate due to the shutdown of large corporations, surged in VAT and excise throughout 2020.

According to him, distribution was affected by the ban imposed on inter-state travel despite collaborating with regulatory authorities to minimize the negative impact on the company.

Here is a breakdown of the Guinness Nigeria performance in 2020 Financial Year

Guinness profit plunged by a massive 129.1 percent to -N12.6 billion in the 2020 Financial Year (FY), down from the N5.5 billion profit achieved in 2019 (FY). While the company’s gross profit nosedive by 16.9 percent from N40.13 billion posted in 2019 to N33.33 billion in 2020.

The company decline was broad-based as revenue also declined from N131.5 billion filed in 2019 to N104.4 billion in the 2020 financial year.

Accordingly, administrative cost rose from N9.9 billion in the 2019 financial year to N14.3 billion in 2020. However, the cost of sales moderated by 22 percent from N91.4 billion posted in 2019 to N71.1 billion in 2020.

Finance cost expanded from N2.6 billion in 2019 to N4.5billion in 2020 while finance income declined to N301 million in the year under review, down from N750.9 million in 2019.

Mr. Baker Magunda, said “The last quarter performance of fiscal 2020 was significantly impacted by restrictions due to COVID-19, exacerbating the already challenging economic environment. Closures of on-trade premises (bars, lounges, clubs, and dine-in restaurants), which represents the major part of the consumption occasion for our products and bans on celebratory occasions, impacted sales.

“Demand was also impacted by reduced consumer income, unemployment concerns due to the shutdown of a large number of businesses, and increases of VAT and excise throughout the year.”

Speaking further Magunda said, “Distribution was impacted by the ban of inter-state, and in some cases intra-state travel. Although, Management worked diligently with regulatory authorities to minimize the impact, this hampered our distributors’ ability to restock and have our brands available for purchase.”

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