Economy

Fitch Fears Another Naira Devaluation, Downgrades 3 Banks

Published

5 years ago

04/04/2020

By Dipo Olowookere

The ratings of three banks in Nigeria have been downgraded Fitch Ratings amid fears that their operations would be negatively impacted by a further devaluation of the Naira.

A statement issued by the agency said the banks and others in the country will face material pressures from a weaker operating environment over the next few months given the price of crude oil and the impact of the COVID-19 pandemic on individuals and businesses.

The downgraded lenders are Zenith Bank, Guaranty Trust Bank (GTBank) and United Bank for Africa (UBA). Their ratings were lowered to Long-Term Issuer Default Rating (IDR) ‘B’ and Viability Rating (VR) ‘b’.

In the statement, Fitch said it has also placed the Long-Term IDRs, VRs and National Ratings of all 10 rated Nigerian banks (excluding Stanbic IBTC Holdings and Stanbic IBTC Bank, which are not assigned VRs and IDRs) on Rating Watch Negative (RWN).

According to the rating firm, before the current crisis, its outlook for the Nigerian banking sector was negative, which reflected tough operating conditions, including slow GDP growth, rising regulatory risks and potential performance pressures.

Fitch said it expects banks’ credit profiles to suffer from weaker asset quality and reduced profitability in the more severe downside scenario.

“Based on experiences from 2015/2016, we expect the current oil price shock to adversely impact the oil and gas sector.

“This sector accounts for around 30 percent of the banking sector’ gross loans, of which a large proportion was restructured during the previous crisis (some are still classified as Stage 2 under IFRS 9).

“Our stress tests show that asset-quality risks arising from deterioration of the banks’ oil and gas exposures are the biggest threat to their ratings.

“Additionally, we expect the non-oil segment to be impacted by the slower economy, but also due to the COVID-19 crisis, which could severely affect communities and industries. It would particularly test the quality of consumer and SME loans,” it said.

Fitch noted that lower oil revenues also raise the prospect of a material Naira devaluation, which would put pressure on the banks’ regulatory capital ratios.

However, it stated that given the banks’ net long foreign-currency positions, its stress tests show that in most cases the impact on Fitch Core Capital (FCC) ratios is tolerable under several scenarios.

“Nigerian banks have reasonable loss absorption buffers, underpinned by strengthened capitalisation since the last crisis.

“In the near-term, healthy earnings will continue to absorb larger credit losses but future profits will be under pressure from slowing loan growth, reduced client activity and higher levels of provisioning for expected credit losses under the IFRS 9 accounting framework,” it noted.

Fitch added that, “On balance, the near-term impact from the oil price shock and COVID-19 on funding and liquidity is likely to be tolerable.

“The primary risk is that lower oil revenues (and Nigeria’s falling FX reserves) could limit banks’ access to foreign currency (FC) liquidity.

“Furthermore, adverse global conditions could impede some banks in raising external financing. Local-currency liquidity remains strong with banks funded mainly by low-cost customer deposits.”

Fitch said it will resolve the RWN once it has assessed how this economic shock impacts the banking system and the credit profiles of each bank, as well as the banks’ ability to adapt.

The Central Bank of Nigeria (CBN) recently announced relief measures, which should alleviate some near-term asset-quality pressures.

Some of these include requesting banks to restructure loan tenors and terms for consumers and business that are most affected, particularly borrowers in the oil and gas, agriculture and manufacturing sectors.

Economy

FG Offers 18% Interest on Savings Bonds

Published

7 hours ago

14/01/2025

Adedapo Adesanya

By Adedapo Adesanya

The federal government is offering two new savings bonds with interest rates between 17 and 18 per cent through the Debt Management Office (DMO).

In a statement by the agency, the country said retail investors can purchase the two-year bond maturing in January 2027 at 17.23 per cent interest, while the three-year paper maturing in January 2028 at a coupon rate of 18.23 per cent.

Bonds are very safe financial instrument that serve as investments because they are backed by the federal government, which promises to pay back the money.

According to the DMO, people can buy these bonds starting January 13, 2025, until January 17, 2025, with allotment expected on January 22, 2025, and the interest to be paid to investors every three months – in April, July, October, and January.

These bonds have some special features. They are tax-free under both company and personal tax laws.

Big investors like pension funds and trustees are allowed to buy them and each bond costs N1,000 each.

However, interested investor can only buy at least N5,000 worth, and can’t buy more than N50 million.

This comes after the Ms Patience Oniha-led debt office said the Nigerian government was offering three bonds worth N150 billion in September 2024.

Economy

Reps Express Readiness to Pass Tax Reform Bills

Published

8 hours ago

14/01/2025

Aduragbemi Omiyale

By Aduragbemi Omiyale

The House of Representatives has said it would make efforts to pass the controversial tax reform bills forwarded to the National Assembly by President Bola Tinubu last year.

Mr Tinubu, in a bid to improve revenue of the government, asked the parliament to pass the bills, but this has been resisted mostly by northern lawmakers and others.

At the resumption of plenary session on Tuesday in Abuja, the Speaker of the House of Representatives, Mr Abbas Tajudeen, assured that the green chamber of the legislative arm of government would prioritise the tax reform bills.

“The legislative agenda of the House for 2025 prioritises the passage of the Appropriation Bill and the Tax Reform Bills, both of which are pivotal to economic recovery and fiscal stability.

“These reforms are essential for broadening the tax base, improving compliance and reducing dependency on external borrowing.

“The House will ensure that these reforms are equitable and considerate of the needs of all Nigerians, particularly the most vulnerable,” Mr Abbas said through the Deputy Speaker, Mr Ben Kalu, who presided over the session.

He also expressed grief over the loss of lives in stampedes in Ibadan, Abuja and Anambra State last month due to hardship in the country.

Several Nigerians died in the stampedes while trying to receive palliatives given to alleviate their sufferings.

“Tragic events, such as the stampedes in Ibadan, Abuja and Okija, during the distribution of palliative aid, underline the urgent need for improved planning and safety protocols in humanitarian efforts. On behalf of the House, I extend our deepest sympathies to the families and communities affected.

“These incidents serve as a stark reminder of the socio-economic hardships facing our citizens and the imperative for policies that tackle hunger and poverty at their roots.

“Turning to the economy, 2024 presented both difficulties and opportunities. While inflation remains a pressing concern, progress in GDP growth and the positive trajectory of economic reforms provide hope for a more stable and prosperous 2025,” the Speaker said.

Economy

NASD Index Appreciates 0.69% to 3,095.00 Points

Published

16 hours ago

14/01/2025

Adedapo Adesanya

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.69 per cent appreciation on Monday, January 13, as investors showed renewed interests in unlisted securities.

During the trading session, the NASD Unlisted Security Index (NSI) increased by 21.07 points to wrap the session at 3,095.00 points compared with the 3,073.93 points recorded in the previous session.

In the same vein, the value of the local alternative stock exchange went up by N7.22 billion to close at N1.061 trillion compared with last Friday’s N1.051 trillion.

Yesterday, FrieslandCampina Wamco Nigeria Plc recorded a growth of N3.78 to close at N42.00 per share versus N38.22 per share, Mixta Real Estate Plc improved by 20 Kobo to end at N2.35 per unit versus the preceding closing rate of N2.15 per unit, and Industrial and General Insurance (IGI) Plc gained 1 Kobo to finish at 25 Kobo per share compared with the previous session’s 24 Kobo per share.

Conversely, Geo-Fluids Plc lost 29 Kobo to quote at N4.56 per unit compared with the preceding day’s N4.85 per unit, and Afriland Properties Plc slid by 75 kobo to end the session at N15.50 per share versus the preceding closing rate of N16.25 per share.

During the session, the volume of securities traded decreased by 27.2 per cent to 3.1 million units from 4.3 million units, the value of securities slumped by 81.5 per cent to N3.2 million from N17.2 million, and the number of deals expanded by 57.9 per cent to 30 deals from 19 deals.

At the close of trades, FrieslandCampina Wamco Nigeria Plc remained the most active stock by value (year-to-date) with 1.9 million units worth N74.2 million, followed by 11 Plc with 12,963 units valued at N3.2 million, and IGI Plc with 10.7 million units sold for N2.1 million.

Also, IGI Plc remained the most traded stock by volume (year-to-date) with 10.6 million units sold for N2.1 million, trailed by FrieslandCampina Wamco Nigeria Plc with 1.9 million units valued at N74.2 million, and Acorn Petroleum Plc with 1.2 million units worth N1.9 million.