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Economic Recession Outcome of Monetary, Fiscal Policy Failure—Report

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Economic Recession Outcome of Monetary, Fiscal Policy Failure—Report

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

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via dipo.olowookere@businesspost.ng

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Economy

Employment Growth Quickens Amid Efforts to Deal With Workloads

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Manufacturing Activities PMI

The Nigerian private sector registered a slight loss of growth momentum in January, with output and new business rising further markedly, though at softer rates than at the end of 2022.

On a more positive note, firms raised employment at the fastest pace since June 2018 as part of efforts to complete work on time.

On the price front, rates of inflation of input costs and output prices softened in January but remained elevated.

Analysis by Stanbic IBTC Bank showed that the headline figure derived from the survey is the Purchasing Managers’ Index (PMI®).

Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration. The headline PMI dipped to 53.5 in January from 54.6 in December. Although still signalling a solid monthly strengthening of the private sector and the thirty-first in consecutive months, the rate of improvement was the softest since August 2022.

Business activity increased at a much slower pace at the start of the year, despite the rate of growth remaining marked. The latest rise was the weakest in five months. Demand continued to improve, but some firms reported a moderation in customer numbers.

Activity increased across each of the four broad sectors covered by the survey. The rate of expansion in new business also softened in January but remained sharp nonetheless, again reflecting higher demand from customers.

A desire to try and complete projects on time led companies to ramp up their hiring activities at the start of the year. Employment increased at a solid pace that was the fastest since June 2018.

Despite expanded staffing levels, backlogs of work increased for the first time in three months. Firms reported having been hindered by issues with machinery and power supply.

Higher workloads and positive expectations regarding the outlook for activity led companies to expand their purchasing activity sharply again, with the rate of growth unchanged from December. In turn, stocks of purchases also rose further. Efforts to secure inputs were helped by improving supplier performance.

Competition among vendors, quiet road conditions and prompt payments all contributed to a shortening of delivery times, one that was the most pronounced in four months. The rate of input cost inflation softened for the second month running in January, and was at a one-year low.

The slowdown in overall cost inflation largely reflected a softer rise in purchase prices, albeit one that was still substantial. Purchase costs increased on the back of rising fuel and raw material costs, exacerbated by currency weakness.

Meanwhile, staff costs rose at the fastest pace in 11 months as companies increased pay in line with higher living costs. Output price inflation also remained elevated as higher cost burdens were passed on to customers.

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Economy

NASD OTC Market Appreciates by 0.95%

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NASD Market capitalisation

By Adedapo Adesanya

The duo of FrieslandCampina WAMCO Nigeria Plc and Central Securities Clearing System (CSCS) Plc buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.95 per cent on Thursday, February 2.

They lifted the market capitalisation of the bourse by N8.80 billion to settle at N940.51 billion compared with the previous day’s N931.71 billion. They also raised the NASD Unlisted Securities Index (NSI) by 6.70 points to wrap the session at 715.76 points compared with 709.06 points recorded in the previous session.

During the session, the price of FrieslandCampina went up by N3.23 to settle at N68.06 per unit, in contrast to the previous day’s N64.83 per unit, while CSCS Plc appreciated by 50 Kobo to sell at N13.50 per share compared with the preceding session’s N13 per share.

The volume of transacted stocks decreased by 4.3 per cent to 261,439 units from the 273,038 units traded in the preceding session. However, the value of shares traded went higher by 38.9 per cent to N15.7 million from N11.3 million, while the number of deals recorded an improvement, as it grew by 300 per cent to 20 deals from five deals on Tuesday.

Business Post reports that there was no price loser at the session.

Geo-Fluids finished the day as the most traded stock by volume on a year-to-date basis with 321.2 million units worth N317.2 million, UBN Property Plc stood in second place with 35.8 million units valued at N25.8 million, while FrieslandCampina Wamco Nigeria Plc was in third place with 2.4 million units valued at N159.4 million.

Geo-Fluids Plc also maintained its summit position as the most active stock by value on a year-to-date basis, with 321.2 million units sold for N317.2 million, FrieslandCampina WAMCO Group Plc was in second place with 2.4 million units valued at N159.4 million, while VFD Group Plc was in third place for trading 561,810 units for N137.0 million.

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Economy

Continuous Bargain Hunting Leaves Local Stock Exchange Higher by 0.93%

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Local Stock Exchange

By Dipo Olowookere

The local stock exchange closed higher by 0.93 per cent on Thursday amid continuous bargain hunting by investors, who are digesting a flurry of full-year corporate earnings.

It was observed that the growth reported during the session was strongly influenced by buying pressure in the energy sector, which rose by 5.17 per cent on the back of gains posted by Seplat, MRS Oil and others.

The banking and insurance counters depreciated on Thursday by 0.44 per cent and 0.39 per cent, respectively, as the consumer goods and the industrial goods sectors closed flat.

At the close of trades, the All-Share Index (ASI) of the Nigerian Exchange (NGX) Limited increased by 498.44 points to 53,998.12 points from 53,499.68 points, and the market capitalisation grew by N271 billion to close at N29.411 trillion compared with the midweek session’s N29.140 trillion.

MRS Oil topped the gainers’ chart after it gained 10.00 per cent to finish at N17.60, Northern Nigerian Flour Mills appreciated by 9.88 per cent to N8.90, International Energy Insurance rose by 9.76 per cent to 90 Kobo, Seplat went up by 9.50 per cent to N1,325.00, and Cornerstone Insurance improved by 9.09 per cent to 60 Kobo.

On the flip side, Sunu Assurances topped the losers’ log after it lost 8.11 per cent to trade at 34 Kobo, Mutual Benefits fell by 7.69 per cent to 36 Kobo, Linkage Assurance dropped by 6.25 per cent to 45 Kobo, Veritas Kapital declined by 4.76 per cent to 20 Kobo, and PZ Cussons depleted by 4.65 per cent to N10.25.

Business Post reports that the market breadth was positive as there were 27 price gainers and 12 price losers, indicating a strong investor sentiment.

Investors transacted 2.9 billion shares worth N8.1 billion in 3,940 deals, in contrast to the 200.4 million shares worth N5.5 billion transacted in 3,716 deals on Wednesday, showing an increase in the trading volume, value and the number of deals by1,331.88 per cent, 47.27 per cent, and 6.03 per cent, respectively.

Universal Insurance traded 2.7 billion shares due to an off-market deal to close as the most active stock and was followed by AIICO Insurance, which sold 14.0 million stocks, GTCO transacted 13.9 million equities, Sterling Bank exchanged 10.3 million stocks, and Fidelity Bank traded 9.9 million equities.

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