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With Rising Income Inequality, 100 Bank Customers Get 47% of Loan

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  • With Rising Income Inequality, 100 Bank Customers Get 47% of Loan

Nigerian banks have high credit concentration risk, with 47 per cent of total industry loans having been extended to 100 large customers in the country, a report by Moody’s Investor Service has revealed.

Moody’s, a credit rating agency, stated this in its latest report on Nigerian banking sector.

This is just as the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, attributed the development to the level of income inequality in the country.

Moody’s stated that the recent directive by the Central Bank of Nigeria (CBN) that banks should maintain a minimum loan-to-deposit ratio (LDR) of 60 per cent by the end of September 2019, would help support loan growth recovery in Nigeria and support banks’ revenue.

“The directive will encourage banks to diversify their exposure to more granular borrowers, reducing their concentration risks.

“Nigerian banks have high concentration risk, with 47 per cent of total system loans having been extended to 100 large customers,” it added.

Nigerian banks’ loans contracted 6.7 per cent in 2018 and was expected to grow by about five per cent this year.

But speaking with the press, Rewane said the 47 per cent industry loan being extended to 100 customers also showed that the consumer lending segment of the market was still low.

“Yes, there is a concentration risk, but it shows that consumer lending in the country has not been developed. For instance, a loan to Dangote Group of let’s say N100 billion will be more viable than a bank giving N5,000 loan to 100 customers each. It shows the level of income inequality in the country.

“But it is not something to worry about because that is how it is in other countries. That is why you see the CBN coming up with various policies to encourage lending to micro, small and medium scale businesses.

“But there are structural issues in the economy that must be addressed to encourage banks to lend,” he added.

Meanwhile, a former Deputy Governor of the CBN and 2019 presidential aspirant, Prof. Kingsley Moghalu, yesterday decried the state of the economy, noting that a country where one state such as Lagos receives more than 70 per cent of credit does not run “a model of sustainable finance.”

Moghalu, said rather than undertake “structural reforms and create an optimal environment for business productivity,” the government appears to “have a misplaced faith in the ability of its special interventions and those by its central bank to solve all the economy’s problems.”

Moghalu, said this in Lagos, at an Impact Investing Conference organised by financial communications firm, Africonomie.

According to the International Finance Corporation (IFC), impact investing involves investments made into companies, organisations, vehicles and funds with the intent to contribute to measurable positive social, economic and environmental impact alongside financial returns”

Although Nigeria is the largest recipient of impact investments in West Africa, most impact investors in Nigeria are overwhelmingly Development Finance Institutions (DFI), are not based in Nigeria and are not Nigerians.

“I suspect the reason for this absence of big Nigerian players in the impact investing space is that most established Nigerian corporate and fund managers are still operating from a traditional business that drives their business models. If you are of this mindset, you would rather invest in “bricks and mortar” businesses or in low-risk treasury bills than in innovative impact business ventures that may yield even better returns,” Moghalu said.

Also at the conference, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Oscar Onyema, said more investment opportunities at the NSE was focusing on climate impact and supporting the United Nations’ Sustainable Development Goals.
“There is more money going into those type of funds,” he said.

Onyema, also stressed that Impact Investing shouldn’t be confused with corporate social responsibility, saying it is about embedding sustainability in the way a company is being run.

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

Top 5 Largest US Banks Hold over $7 Trillion in Deposits as Personal Savings Rate Grows by 17.8%

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US 5 Largest Banks Hold Over $7 Trillion in Deposits as Savings Rate Jumps 17.8%

According to the research data analyzed and published by ComprarAcciones, the personal saving rate in the US as of July 20, 2020 was 17.8%, up from 7% the previous July. The rate increased from 7.6% in January and hit a high of 33.7% in April 2020.

In April 2020 alone, deposits in US banks grew by a massive $865 billion according to the FDIC data. It coincided with a 10.5% increase in personal income according to the Bureau of Economic Analysis (BEA). Overall, FDIC shows an upsurge of deposits exceeding $2 trillion during the pandemic period.

JP Morgan Chase Grows by 18% in Total Deposits, Citigroup 11% and BAC 10%

During Q1 2020, total deposits made into US banks amounted to $15.78 trillion according to YCharts. It marked an 8.54% increase from $14.54 trillion in Q4 2019. There was a 13.29% year-on-year (YoY) growth from $13.93 trillion in Q1 2019. At the end of February, banks held $13.3 trillion in deposit accounts. During the week ending June 2020, this figure had risen to $15.47 trillion.

According to the FDIC, over 66% of the gains went to the top 25 US banks by assets. Of these, the top three banks reported the highest growth. JP Morgan Chase saw an increase of 18% in total deposits from Q4 2019 to Q1 2020. During the same period, Citigroup reported 11% growth while Bank of America saw an increase of 10%. In contrast, the industry as a whole only reported a 4% upsurge.

Due to this explosive growth, the top 5 banks by assets held over $7 trillion in deposits at the end of H1 2020. JP Morgan Chase led the pack with $2.05 trillion while Bank of America was second with $1.82 trillion. Wells Fargo was third with $1.50 trillion, Citigroup fourth with $1.24 trillion and U.S. Bancorp fifth with $425.28 billion.

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P&ID Nigeria Case: Nigeria’s Foreign Reserves Rise by Over $200 Million to $36 Billion

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Godwin Emefile

Foreign Reserves Rose by Over $200 Million to $36 Billion after London Commerce Court Returned P&ID Nigeria Case’s Security Fund

The Central Bank of Nigeria on Tuesday said the nation’s foreign reserves rose by US$200 million to US$35.746 billion following the return of the $200 million security used in the discredited P&ID $10 billion Arbitral claim.

The P&ID had taken Nigeria to London Commerce Court over breach of contractual agreement, previous fine and accumulated interest to the tune of $10 billion over a period of 10 years.

The company had claimed it invested a substantial amount in a contract project signed between itself and the Nigerian government, only for the Federal Government to backout or failed to fulfil its end of the deal.

An accusation the Federal Government denied and described the whole project as a scam orchestrated by some Nigerians and foreign entities looking to profit from the nation’s lack of proper documentation.

The government fought back with evidence proving that the P&ID supposed contract was a sham as the contract was not signed or approved by the then president who was way because of sickness.

The Federal Government was asked to deposit security of $200 million to appeal the case in London commerce court.

After proving beyond a reasonable doubt that the project was a fraud, the London commerce court has now returned the $200 million security plus the £1.5 million previous awarded to Nigeria and another £70,000 for the cost incurred during the trial.

In a tweet on Tuesday, the apex bank said “Nigeria’s Foreign Exchange Reserves was this morning boosted by over $200Million when the London Commercial Court ordered the release of the $200Million guarantee put in place as security in respect of the execution of the much discredited P&ID $10 Billion Arbitral Claim.”

“The court also awarded a £70,000 cost in favour of Nigeria in addition to an earlier award of £1.5m.”

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N75 Billion Nigeria Youth Investment Fund to be Opened for Application Soon -CBN

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CBN to Open N75 Billion Nigeria Youth Investment Fund for Application Soon

The Central Bank of Nigeria has said it will announce the Nigeria Youth Investment Fund soon to support Nigerian youths as unemployment jumped to 27.1 percent in the second quarter.

The apex bank has launched numerous funds to deepen growth and ease the negative impact of COVID-19 on Nigerian youths, Africa’s largest youth population and one of the largest in the world.

As stated on the apex bank website, the Nigeria Youth Investment Fund (NYIF) is a N75 billion investment fund approved by the Federal Executive Council (FEC) in August to address the financial needs of 500,000 youths from 2020 to 2023.

According to the CBN, approval will range from N250,000 to N50 million with a spread across group applications, individual applications and working capital loans with a single-digit interest rate of 5 percent.

The fund was approved in August by the Federal Executive Council, the first of such approval.

Following the FEC meeting presided over by President Muhammadu Buhari in August, the presidency had tweeted that, “We recently established a 75 billion Naira Nigerian Youth Investment Fund (NYIF), as part of our commitment to creating opportunities for the youth of Nigeria. On this occasion of International Youth Day, I urge all our young people to take advantage of these opportunities.”

Nigeria youth investment fund website/portal

There is no dedicated website or portal to Nigeria Youth Investment Fund, applicants would have to go through the 125 micro-credit banks across the country to access the fund.

How to apply for the Nigeria Youth Investment Fund

To apply for the Nigeria Youth Investment Fund, you must have a fundable business idea, be a registered business owner in Nigeria and be a Nigerian citizen.

Also, you must be between the age of 18 and 35 to be qualified for the fund.

The fund would be disbursed to qualified applicants through one of the numerous microcredit institutions in Nigeria under the Central Bank of Nigeria but supported by BOI, Fintech Organisations and Venture Capital Organisations registered with the apex bank.

This is coming after the Federal Government introduced Survival Fund a week ago to stimulate growth in small and medium businesses and cushion the economy from the impact of COVID-19 that is expected by many to plunge it into recession in this third quarter.

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