Economy
Economic Recession Outcome of Monetary, Fiscal Policy Failure—Report
By Mike Uzor
The latest edition of Nigeria Banking & Economy 2016, a publication of Datatrust Consulting Ltd, a firm of financial analysts, has been released.
The research report, which is an x-ray of the Nigerian economy and the banking industry, found a major link between the ravaging economic recession and delayed fiscal action on the part of government.
Inability to move decisively on the path of stimulatory intervention, rather than lack of funds, is the main factor that let the slowing economy plunge into a recession in 2016.
With the long delay in approving the 2016 budget, the fiscal authorities failed to provide the critical fiscal stimulus at the same time that monetary policy remained stringent.
Datatrust economists also affirm that the policy of treasury single account hindered the ability of monetary policy to sustain the flow of goods and services within the economy.
Nigeria’s economy in 2016 experienced a macroeconomic policy lull during which neither fiscal nor monetary policy was effectively deployed to sustain the momentum of the nation’s economic activities.
Efforts to prevent economic decline requires swiftness in order to keep production and consumption functions streaming at normal speed. Nigeria missed the critical point of stimulatory intervention to avert economic recession.
Banks were hindered from helping businesses, the capital market windows remained shut and government held back the much needed stimulatory spending force.
The outcome was a financially arid economy in which both producers and consumers lacked adequate liquidity to operate optimally.
The broken capacity of the capital market as a source of new money is a major factor in the cash flow problems facing companies.
The painstaking analysis, running to over 140-pages, identified a combination of monetary and fiscal stimulus as the effective therapy to end economic recession.
The annual publication offers government and regulators policy options based on research findings for addressing critical issues in the economy and the banking sector.
The report takes a special focus on the effects of macroeconomic developments and regulatory policies on the banking sector that constitutes the nerve centre of the economy.
Datatrust study finds that the banking sector has come under much regulatory strain once again even as it was yet to recover fully from the effects of the last global financial crisis.
A sudden enforcement of government’s treasury single account policy has put banks under an unplanned liquidity pressure, which has forced them to liquidate earning assets.
The results are a major slowdown in revenue growth and decline in the size of the balance sheet. It is evidently a wrong time to run a policy that stems the growth in bank lending to an economy in decline.
The general decline in economic activity has again exposed banks to a major operating pressure – loan recovery difficulties.
Rising loan loss expenses at a time of inability to grow revenue is the explanation for declining profit margin, falling profits and losses.
These developments have warranted a cost cutting bandwagon among banks, including layoffs, which are rather reinforcing the economic recession from the angle of domestic consumption.
Assurances that Nigeria will be out of recession in 2017 need to be supported by convincing new policy actions and the authorities need to show the policy transmission mechanism that would lead to reversing these adverse economic trends in the production and consumption functions of the economy.
Money and capital market windows need to be expanded to complement the highly devalued government spending in stimulating economic activity.
Many banks have been trying to achieve full recovery and to resume growth since the downturn induced by the global financial crisis.
Those efforts have been scuttled by the present policy environment so that they are struggling for survival breathes once again.
Policymakers have, as usual, continued to give assurances of good health for the banks; they need to back up their words with policies that empower both banks and their customers.
The banking sector provides the largest meeting point of savers and investors and therefore serves as the nerve centre of the nation’s financial intermediation. It therefore needs to be saved from the type of violent regulatory policy changes to which it is continually exposed.
The report shows details of how each bank is responding to the operating and regulatory challenges and performance prospects going forward. It used a five-year track record of income statements and balance sheets of banks to establish the major operating trends.
With average industry ratio benchmarks, the report makes it clear to see how each bank’s figures compare or contrast from the general industry picture.
The general industry trends as well as individual banks conditions are provided to guide regulatory policies towards ensuring stability and healthy growth in the banking sector. They also provide a reliable guide to strategic decisions and actions on the part of the banks themselves.
The study also shows the various competitive leagues in the banking industry such as leadership by the size of the balance sheet, gross income and profit, etc. The performance charts show the ability to convert assets into revenue and revenue into profit. The analysis brings out clearly each bank’s cost to income relationship and shows how it is either helping or hitting the bottom line.
A major worrisome trend defined by the report is the rapidly growing proportion of revenue devoted to loan loss expenses. This is an unhealthy trend that needs to be checked in order to encourage new lending.
The bearish trend the stock market has taken on banking stocks is a reflection of the uncertain earnings outlook of the sector and regulators cannot afford to ignore this signal. A situation where the banking industry giants have virtually become penny stocks cannot be safely ignored.
Mike Uzor is the Chief Financial Analyst at Datatrust Consulting Ltd
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange extended its stay in the south territory with a decline of 0.56 per cent on Wednesday, April 2.
This brought down the market capitalisation by N13 billion to N2.417 trillion from N2.430 trillion, and downed the NASD Unlisted Security Index (NSI) by 22.57 points to 4,062.87 points from the previous session’s 4,062.87 points.
It was observed that the NASD exchange ended with three price gainers and three price losers during the trading day.
MRS Oil Plc depreciated by N19.00 to close at N171.00 per unit compared with the previous price of N190.00 per unit, NASD Plc lost N4.14 to trade at N37.36 per share compared with Wednesday’s N41.50 per share, and Central Securities Clearing System (CSCS) Plc gave up N2.00 to sell at N78.00 per unit versus N80.00 per unit.
On the flip side, FrieslandCampina Wamco Nigeria Plc appreciated by 19 Kobo to N93.00 per share from N92.81 per share, Food Concepts Plc expanded by 15 Kobo to N2.87 per unit from N2.72 per unit, and Great Nigeria Insurance (GNI) Plc improved by 2 Kobo to 52 Kobo per share from 50 Kobo per share.
Yesterday, the volume of securities dipped by 91.8 per cent to 260.2 million units from 3.2 billion units, the value of securities went down by 98.1 per cent to N154.2 million from N8.3 billion, while the number of deals soared by 53.3 per cent to 46 deals from 30 deals.
GNI Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 56.9 million units valued at N3.9 billion, and Okitipupa Plc with 27.5 million units traded for N1.8 billion.
The most traded stock by volume on a year-to-date basis was also GNI Plc with 3.4 billion units sold for N8.2 billion, trailed by Resourcery Plc with 1.1 billion units exchanged for N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units transacted for N1.2 billion.
By Adedapo Adesanya
The Naira dropped N2.09 or 0.15 per cent against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Thursday, April 2, to trade at N1,380.79/$1 compared with Wednesday’s rate of N1,378.70/$1.
However, it appreciated against the Pound Sterling in the official market by N2.77 to quote at N1,824.86/£1 versus the N1,836.57/£1 it was traded at midweek, and improved its value against the Euro by N10.54 to N1,591.92/€1 from N1,602.46/€1.
Yesterday was the last trading session of the week for the local currency in the spot market, as the market will be closed on Friday and Monday for the Easter Holiday.
At the black market, the Nigerian Naira maintained stability against the greenback yesterday at N1,405/$1, but gained N8 at the GTBank FX counter to settle at N1,388/$1, in contrast to the previous session’s N1,396/$1.
Pressure eased on the domestic currency as strong policy indicators have helped calm the majority of worries within the financial systems. Particularly in the remittance segment, the apex bank has directed all International Money Transfer Operators (IMTOs) to route remittance transactions through designated Naira settlement accounts in banks, a move aimed at boosting transparency and channelling more foreign exchange into the formal market.
This helps take off pressure from the foreign reserves, which have fallen below the $50 billion mark as they are gradually decreasing rather than falling sharply.
Meanwhile, the cryptocurrency market was bullish on Thursday, as macro sentiment shifted against recent optimism after reports that Iran is drafting a protocol with Oman to manage traffic through the Strait of Hormuz, easing concerns about disruptions to a key global oil route.
The remarks came after U.S. President Trump on Wednesday night vowed to hit Iran “extremely hard” in the coming weeks and that the Strait of Hormuz would “open naturally” once the war ends.
Cardano (ADA) chalked up 1.9 per cent to trade at $0.2435, Dogecoin (DOGE) grew by 1.2 per cent to $0.0912, Ethereum (ETH) appreciated by 0.8 per cent to $2,066.37, Bitcoin (BTC) added 0.5 per cent to sell at $67,080.53, Solana (SOL) increased by 0.5 per cent to $79.91, and Ripple (XRP) jumped 0.2 per cent to $1.31.
Conversely, Binance Coin (BNB) dipped 0.7 per cent to $586.90, and TRON (TRX) depreciated by 0.3 per cent to $0.3147, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 each.
By Dipo Olowookere
The local stock market was relatively flat on Friday, as the bears and the bulls shared the spoils of war, though investor sentiment turned bullish compared with the preceding session’s bearish posture.
Data from the Nigerian Exchange (NGX) Limited showed that the All-Share Index (ASI) was marginally down by 4.66 points as it ended at 201,698.89 points versus Wednesday’s 201,703.55 points, and the market capitalisation slightly contracted by N3 billion to N129.806 trillion from N129.809 trillion.
Customs Street was shut on Friday because of the public holidays declared by the federal government today and next Monday.
Business Post reports that John Holt declined by 9.91 per cent to N15.45, Abbey Mortgage Bank shed 9.60 per cent to trade at N8.95, International Energy Insurance slipped by 6.48 per cent to N3.32, Chams shrank by 5.30 per cent to N3.75, and Tantalizers depreciated by 5.18 per cent to N4.03.
On the flip side, Unilever Nigeria improved by 10.00 per cent to N103.40, Fortis Global Insurance gained 9.82 per cent to trade at N1.23, Multiverse appreciated 9.81 per cent to N20.15, Legend Internet advanced by 9.38 per cent to N6.30, and Zichis grew by 9.02 per cent to N14.14.
The market breadth index was positive during the trading session, as there were 35 appreciating stocks and 24 depreciating stocks.
Yesterday, investors traded 560.0 million equities valued at N19.3 billion in 49,676 deals, in contrast to the 815.5 million equities worth N33.3 billion transacted in 52,641 deals in the preceding day, representing a drop in the trading volume, value, and number of deals by 31.33 per cent, 42.04 per cent, and 5.63 per cent, respectively.
Secure Electronic Technology dominated the activity log with 59.7 million shares valued at N61.1 million, Wema Bank exchanged 52.0 million equities worth N1.4 billion, VFD Group transacted 36.0 million stocks for N410.5 million, Access Holdings sold 35.3 million shares valued at N914.8 million, and Chams traded 31.0 million equities worth N115.0 million.
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