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
Food Concepts Plc neutralized the gains recorded by three securities, returning the NASD Over-the-Counter (OTC) Securities Exchange into the negative territory with a 0.27 per cent loss on Thursday, December 4.
Yesterday, the share price of the parent company of Chicken Republic and PieXpress declined by 34 Kobo to sell at N3.15 per unit compared with the previous day’s N3.49 per unit.
This shrank the market capitalisation of the OTC bourse by N5.72 billion to N2.136 billion from N2.142 trillion and weakened the NASD Unlisted Security Index (NSI) by 9.57 points to 3,571.53 points from 3,581.10 points.
Business Post reports that Central Securities Clearing System (CSCS) Plc went down by 50 Kobo to N38.50 per share from N38.00 per share, FrieslandCampina Wamco Nigeria Plc gained 29 Kobo to sell at N55.79 per unit versus N55.50 per unit, and Geo-Fluids Plc added 5 Kobo to close at N4.60 per share compared with Wednesday’s closing price of N4.55 per share.
Trading data indicated that the volume of securities recorded at the session surged by 6,885.3 per cent to 4.3 million units from the 61,570 units posted a day earlier, the value of securities increased by 10,301.7 per cent to N947.2 million from N3.3 million, and the number of deals went up by 146.7 per cent to 37 deals from the 15 deals achieved in the previous trading session.
At the close of business, Infrastructure Credit Guarantee Company (InfraCredit) Plc was the most traded stock by value on a year-to-date basis with the sale of 5.8 billion units for N16.4 billion, trailed by Okitipupa Plc with 170.4 million units worth N8.0 billion, and Air Liquide Plc with 507.5 million units valued at N4.2 billion.
InfraCredit Plc also finished the session as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Dipo Olowookere
The upward trend witnessed at the Nigerian Exchange (NGX) Limited in recent sessions continued on Thursday as it further improved by 0.10 per cent.
This was despite investor sentiment turning bearish after the local equity market ended with 23 price gainers and 28 price gainers, indicating a negative market breadth index.
UAC Nigeria gained 10.00 per cent to finish at N88.00, Morison Industries appreciated by 9.94 per cent to N3.54, Ecobank rose by 8.53 per cent to N36.90, and Coronation Insurance grew by 8.47 per cent to N2.56.
On the flip side, Ellah Lakes depreciated by 10.00 per cent to N13.14, Eunisell Nigeria also shed 10.00 per cent to finish at N72.90, Transcorp Hotels slipped by 9.95 per cent to N157.50, Omatek shrank by 9.23 per cent to N1.18, and Guinea Insurance dipped by 8.46 per cent to N1.19.
Yesterday, the All-Share Index (ASI) went up by 152.28 points to 145,476.15 points from 145,323.87 points and the market capitalisation chalked up N97 billion to finish at N92.726 trillion compared with the previous day’s N92.629 trillion.
Customs Street was bubbling with activities on Thursday, though the trading volume and value slightly went down, according to data.
A total of 1.9 billion stocks worth N19.2 billion exchanged hands in 23,369 deals during the session versus the N2.3 billion valued at N21.0 billion traded in 21,513 deals a day earlier.
This showed that the number of deals increased by 8.63 per cent, the volume of transactions depleted by 17.39 per cent, and the value of trades decreased by 8.57 per cent.
For another trading day, eTranzact led the activity chart with 1.6 billion units sold for N6.4 billion, Fidelity Bank traded 31.0 million units worth N589.3 million, GTCO exchanged 28.3 million units valued at N2.5 billion, Zenith Bank transacted 27.1 million units for N1.6 billion, and Ecobank traded 21.9 million units worth N744.3 million.
By Adedapo Adesanya
The Naira marginally depreciated against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Thursday, December 4 amid renewed forex pressure associated with December.
At the official market yesterday, the Nigerian currency lost 0.01 per cent or 18 Kobo against the Dollar to close at N1,447.83/$1 compared with the previous day’s N1,447.65/$1.
It was not a different scenario with the local currency in the same market segment against the Pound Sterling as it further shed N15.43 to sell for N1,930.97/£1 versus Wednesday’s closing price of N1,925.08/£1 and declined against the Euro by 20 Kobo to finish at N1,688.74/€1 compared with the preceding session’s N1,688.54/€1.
Similarly, the Nigerian Naira lost N5 against the greenback in the black market to quote at N1,465/$1 compared with the previous day’s value of N1,460/$1 but closed flat against the Dollar at the GTBank FX counter at N1,453/$1.
Fluctuations in trading range is expected to continue during the festive season as traders expect the Nigerian currency to be stable, supported by intervention s by to the Central Bank of Nigeria (CBN)in the face of steady dollar demand.
Support is also expected in coming weeks as seasonal activities, particularly the stylised “Detty December” festivities, will see inflows that will give the Naira a boost after it depreciated mildly last month, according to a new report.
“As the festive Detty December season intensifies, inbound travel, tourism spending, and diaspora inflows are expected to provide moderate support for FX liquidity,” analysts at the research unit of FMDA said in its latest monthly report for November.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450 next week, buoyed by improved FX interventions by the apex bank.
Meanwhile, the crypto market was down as the US Federal Reserve’s preferred inflation gauge, core PCE, likely rose in September—moving in the wrong direction. However, volatility indices show no signs of major turbulence.
If the actual figure matches estimates, it would mark 55 straight months of inflation above the US central bank’s 2 per cent target. The sticky inflation would strengthen the hawkish policymakers, who are in favour of slower rate cuts.
Ripple (XRP) depreciated by 4.5 per cent to $2.08, Solana (SOL) went down by 3.8 per cent to $138.11, Litecoin (LTC) shrank by 3.1 per cent to $83.23, Dogecoin (DOGE) slid by 2.5 per cent to $0.1463, Cardano (ADA) declined by 2.1 per cent to $0.4368, Bitcoin (BTC) fell by 0.9 per cent to $91,975.45, Binance Coin (BNB) crumbled by 0.9 per cent to $899.41, and Ethereum (ETH) dropped by 0.7 per cent to $3,156.44, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 apiece.
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