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CBN Must Contain Rising Banking Sector Risks, Says IMF

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  • CBN Must Contain Rising Banking Sector Risks, Says IMF

The International Monetary Fund on Wednesday called on the Central Bank of Nigeria to contain rising banking risks in the country, while also commending the regulator for its recent decision to stop weak banks from paying dividends to shareholders.

Against the backdrop of huge non-performing loans, which have weakened the capital base and asset quality of the country’s Deposit Money Banks, it also called on the apex bank to carry out an asset quality review in order to identify any potential capital need among the lenders.

The call came in the IMF’s Article IV Consultation, an annual appraisal of a country’s economy, which was released in Washington DC, United States.

The report came a few days after an IMF team completed its Article IV Consultation visit to Nigeria for 2018.

The IMF executive board assessment report read in part, “Directors stressed that rising banking sector risks should be contained. They welcomed the central bank’s commitment to help increase capital buffers by stopping dividend payments by weak banks.

“They called for an asset quality review to identify any potential capital need. They noted that an enhanced risk‑based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.”

The proposed asset quality review by the IMF will help the CBN to determine if banks have made adequate provision for NPLs and that whether the loans are properly classified, according to experts.

It will also help the regulator to know if some banks have adequate capital.

The level of the NPLs in the industry is currently at 14 per cent, far above the five per cent recommended by the CBN.

Some local experts said the CBN might ask the banks, which have their NPLs above the industry average, to recapitalise so as to avoid insolvency.

The Washington-based lender, however, commended the CBN for maintaining a tight monetary policy stance, just as it lauded it for its foreign exchange policy, which has attracted forex inflow to enhance exchange rate stability.

The report further stated, “Directors commended the central bank’s tightening bias in 2017, which should continue until inflation is within the single digit target range. They recommended continued strengthening of the monetary policy framework and its transparency, with a number of directors urging consideration of a higher monetary policy rate, a symmetric application of reserve requirements, and no direct central bank financing of the economy. A few directors urged confirmation of the appointments of the central bank’s board of directors and members of the monetary policy committee.

“Directors commended the recent foreign exchange measures and recent efforts to strengthen external buffers to mitigate risks from capital flow reversals. They welcomed the authorities’ commitment to unify the exchange rate and urged additional actions to remove remaining restrictions and multiple exchange rate practices.”

The IMF also said the Nigerian economy was slowly exiting recession but remained vulnerable because its growth was tied to oil prices and improved revenues were restricted to the energy and agriculture sectors.

The Nigerian economy had emerged from its first recession in 25 years in the second quarter of 2017.

The recession was largely linked to low crude prices and militant attacks on oil facilities.

Higher oil prices and an end to the attacks mostly accounted for the end of the recession.

“The Nigerian economy is slowly exiting recession but remains vulnerable,” the IMF said in the report.

It added that the economy had been helped by higher oil prices, improved access to foreign exchange and foreign reserves rising to a four-year high.

The Washington-based lender, however, noted that the improvements had not yet boosted non-oil and non-agricultural activities.

“Lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses are the main downside risks,” it added.

To address these vulnerabilities, the IMF team stressed that comprehensive and coherent policy actions remained urgent.

In addition to ongoing efforts to improve tax administration, the IMF directors underlined the need for more ambitious tax policy measures, including through reforming the Value Added Tax, increasing excise, and rationalising tax incentives.

They said the implementation of an automatic fuel price‑setting mechanism, sound cash and debt management, improved transparency in the oil sector, increased monitoring of the fiscal position of states and local governments, and substantially scaled-up social safety nets should support the adjustment.

The report further stated, “Directors emphasised that structural reform implementation should continue to lay the foundation for a diversified private‑sector‑led economy. They noted that, building on recent improvements in the business environment, implementing the power sector recovery plan, investing in infrastructure, accelerating efforts to strengthen anti‑corruption and transparency initiatives, and updating and implementing the financial inclusion and gender strategies remain essential.

“Directors welcomed the continued improvement in the quality and availability of economic statistics and encouraged further efforts to address remaining gaps.”

The IMF also commended the progress in implementing the Economic Recovery and Growth Plan, including the start of a convergence in foreign exchange windows, tight monetary policy, improvements in tax administration, and significant strides in improving the business environment.

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

Airtel Grows Customer Base by 12 Percent to 116.4m in H1

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Airtel Africa Increased Customer Base by 12 Percent to 116.4m in the First Quarter of 2021

Airtel Africa Plc, one of the leading telecommunications companies in Africa, grew customer base by 12 percent to 116.4 million in the first half of the year that ended September 30, 2020.

In the financial results signed by Simon O’Hara, Group Company Secretary, and released through the Nigerian Stock Exchange on Friday, the telecommunication giant reported a 10.7 percent increase in revenue to $1,815 million with second-quarter growth of 14.3 percent.

Similarly, revenue growth in constant currency was 16.4 percent in the first half of the year but 19.6 percent in the second quarter during the peak of COVID-19 locked down.

The report also showed growth was recorded across all regions with Nigeria rising by 20.2 percent. East Africa followed with 21.9 percent growth while Francophone Africa expanded by 4.4 percent.

Services with voice revenue grew by 7 percent with data and mobile money appreciating by 33.4 percent and 30.4 percent, respectively.

Airtel operating profit increased by 19.5 percent to $472 million, representing an increase of 28.3 percent in constant currency. The company’s free cash flow stood at $319 million, up from $210 million filed in the same period of last year.

Raghunath Mandava, chief executive officer, on the trading update: “The first half of our fiscal year included the peak impact of the COVID-19 pandemic in the countries where we operate, as lockdown measures were swiftly implemented to stem the initial spread of contagion. In these unprecedented times, the telecoms industry has emerged as a key and essential service for these economies, allowing customers to work remotely, reduce their travels, keep them connected and allow access to affordable entertainment. In these exceptional circumstances, in the first half, we delivered a strong set of results and as lockdown restrictions eased during Q2 our performance continued to improve with constant currency revenue growth of 19.6%, up 6.6% from the prior quarter.

“Importantly, the fundamentals of our business remain strong and revenue growth further benefitted from the execution of our strategy with a specific focus on expanding distribution in the rural areas, investing in our network and increasing 4G coverage, as well as benefitting from the fact we provide an essential service to consumers. In Q2, performance in our mobile money business also significantly improved with constant currency revenue growth of 33.9%, up 8% from prior quarter, as lockdown restrictions were eased and fees on certain transactions, which had been previously waived, were largely reintroduced. We also continued to enter new partnerships with leading institutions such as WorldRemit, MoneyGram, Standard Chartered Bank, and Mukuru to increase use cases and improve customers’ access to digital
payments and financial services.

We remain alert to the potential for further disruptionsfrom a second wave of COVID-19 across Africa, and the associated actions of governments to minimise contagion. Nevertheless, we are in a strong financial position to capture the opportunities in a fast-growing region that is vastly underpenetrated in terms of mobile and banking services. We remain confident of delivering long term sustained growth for our shareholders.”

Airtel’s full financial year starts from April of the current year and ends in March of the following year.

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Total Currency in Circulation Increased by N56.44bn in September

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Currency in Circulation Rose by N56.44bn in the Month of September to N2.426 trillion

The total currency in circulation increased to N2.426 trillion in the month of September, the Central Bank of Nigeria (CBN) report has shown.

In the report released on Wednesday, the apex bank said the total currency in circulation stood at N2.369 trillion as of the end of August.

The amount then rose by N56.44 billion in September to N2.426 trillion.

A further breakdown of the report revealed that currency in circulation declined by 6 percent in the first quarter of the year to N2.29 trillion, about 7.5 percent below the same quarter of 2019.

The figure stood at N2.35 trillion in May, then rose to N2.39 trillion by the end of July.

While reserve money expanded by 5.9 percent to N12.96 trillion when compared to a 20.7 percent growth recorded in April 2020.

The report also noted that at N10.61 trillion, liabilities to other depository corporations grew 70.5 percent above the previous month’s growth rate of 59.7 percent.

The report said, “The heightened uncertain outlook due to the lockdown encouraged more cash to be held by the public.

“This was evident from the increase in currency in circulation, compared with the level in the preceding month.

“Currency in circulation rose by two per cent to N2.35tn at the end of May 2020, compared with the increase of 0.5 per cent at the end of April 2020.”

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CBN Directs Banks to go After COVID-19 Financial Criminals

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Godwin Emefile

Central Bank Asks Banks to Stay Abreast Frauds and Rising COVID-19 Financial Crimes

The Central Bank of Nigeria has directed all financial institutions in Nigeria to update alert protocols in their Anti-Money Laundering/Combating the Financing of Terrorism monitoring tools, in accordance with emerging trends of rising COVID-19 related financial crimes.

In a circular titled, ‘Administrative letters to all banks and other financial institutions’ issued on Monday and signed by J.M. Gana, the Director, Financial Policy and Regulation Department, the apex bank said changes in business activities and financial transactions due to the shift caused by COVID-19 pandemic have led to the surge in financial crimes globally.

Therefore, it said financial institutions must now adapt quickly and keep abreast of the new emerging financial risks and other developments to arrest this new and emerging ML/TF.

According to the circular, this includes strategic investment in data mining and artificial intelligence software to monitor financial transactions effectively and report as quickly as possible.

The central bank said the Nigerian Financial Intelligence Unit, the central repository of suspicious transactions and other financial information, had released a comprehensive report on STRs and others.

It stated that the NFIU had identified cybercrimes, frauds, counterfeiting and substandard goods, diversion of public funds and misuse of non-government organisations funds as some of the ongoing crimes that banks across the nation need to stay abreast and report.

Other suspicious transactions and red flags identified in the report were some e-commerce companies with little or zero history or internet presence suddenly receiving multiple payments from unrelated third parties.

Similarly, it said individuals with zero or little history of financial transactions receiving multiple payments from unrelated third parties. It also noted that customers who suddenly start delaying in the supply or purchases of medical supplies and payment of goods linked to known brands, yet the beneficiary is an individual, not a corporate company should be flagged.

The measures, the apex bank said were necessary due to the rising numbers of unusual transactions from banks’ customers and unscrupulous individuals.

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