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Economy

Fitch Fears Another Naira Devaluation, Downgrades 3 Banks

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Fitch Ratings

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.

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

Economy

Three Securities Shore Up NASD Market Capitalisation by N14.99bn

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NASD Unlisted Securities Index

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange closed the final trading session of the week in positive territory as it gained 1.49 per cent at the close of business on Friday, June 2.

This growth was spurred by the upward price movement in the share prices of three companies admitted on the trading platform of the unlisted securities exchange.

FrieslandCampina Wamco Nigeria Plc rose by N4.80 to close at N75.00 per share compared with the preceding day’s N70.20 per share, Central Securities Clearing System (CSCS) Plc gained N1.12 to move up to N15.20 per unit from N14.08 per unit, while Acorn Petroleum Plc added 1 Kobo to close at 15 Kobo versus Thursday’s closing price of 14 Kobo.

The improvement in the prices of the above stocks pushed the market capitalisation of NASD higher by N14.99 billion to N1.023 trillion from N1.007 trillion, as the NASD Unlisted Securities Index (NSI) recorded a 10.84 points gain to wrap the session at 739.21 points compared with 728.37 points in the previous session.

The market witnessed a 15.6 per cent rise in the volume of securities traded by investors yesterday to 1.2 million units from the 1.0 million units transacted a day earlier.

However, the value of shares traded by the market participants decreased by 69.9 per cent to N56.9 million from N189.5 million, as the number of deals declined by 46.7 per cent to eight deals from the 15 deals carried out in the preceding day.

Geo-Fluids Plc closed the day as the most traded stock by volume (year-to-date) with 832.1 million units worth N1.3 billion, Industrial and General Insurance (IGI) Plc has traded 627.7 units valued at N49.4 million, and UBN Property Plc has exchanged 395.9 million units worth N336.6 million.

The most traded stock by value (year-to-date) was VFD Group Plc with 11.0 million units worth N2.5 billion, Geo-Fluids Plc has exchanged 832.1 million units valued at N1.3 billion, and FrieslandCampina Wamco Nigeria Plc has transacted 17.1 million units worth N1.2 billion.

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Economy

Naira Falls at P2P, Gains at Black Market, Stable at Official Market

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Black Market

By Adedapo Adesanya

The Naira moved in different directions in the various segments of the foreign exchange (FX) market on Friday as traders await the merger of the exchange rates by the Central Bank of Nigeria (CBN) as directed by President Bola Tinubu.

Business Post reports that the Naira depreciated against the Dollar at the Peer-2-Peer (P2P) segment, appreciated in the black market, and remained unchanged in the Investors and Exporters (I&E) window.

In the P2P, the value of the local currency to the greenback fell by N9 to sell at N764/$1 compared with Thursday’s value of N755/$1.

At the parallel market, the domestic currency gained N3 against the greenback to sell at N747/$1, in contrast to the preceding session’s N750/$1.

However, in the official market, the Nigerian Naira maintained stability against the US Dollar to remain unchanged at N464.67/$1, as the forex turnover went down by 60.6 per cent or $152.08 million to $98.90 million from $250.98 million.

In the interbank segment, the Naira depreciated against the British Pound Sterling by 91 Kobo to close at N575.28/£1 versus the previous day’s N574.37/£1 and slumped by 12 Kobo against the Euro to sell at N493.70/€1 compared with Thursday’s N493.58/€1.

As for the digital currency, Bitcoin (BTC) jumped by 0.2 per cent to sell at $27,203.27, Ethereum (ETH) appreciated by 0.7 per cent to quote at $1,904.59, Cardano (ADA) added 1.4 per cent to its value to finish at $0.3774, Ripple (XRP) recorded a 1.3 per cent gain to quote at $0.5254, Dogecoin (DOGE) improved its value by 0.6 per cent to close at $0.0726, and Solana (SOL) made a 0.3 per cent rise to sell at $21.13.

On the flip side, Binance Coin (BNB) fell by 0.6 per cent to sell at $306.43, and Litecoin (LTC) followed with a 0.5 per cent loss to trade at $94.72, as the US Dollar Tether (USDT) and Binance USD (BUSD) remained unchanged at $1.00 each.

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Economy

Oil Closes 2% Higher Ahead Crucial OPEC+ Meeting

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seven offshore oil blocks

By Adedapo Adesanya

Oil rose over 2 per cent on Friday after the United States Congress passed a debt ceiling deal that averted a government default in the world’s biggest oil consumer and jobs data fueled hopes for a possible pause in Federal Reserve interest rate hikes.

The focus is now on a meeting of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, this weekend.

Brent futures rose $1.85 or 2.5 per cent yesterday to $76.13 a barrel, while the US West Texas Intermediate (WTI) futures appreciated by $1.64 or 2.3 per cent to $71.74 a barrel, the highest since May 26 for WTI and May 29 for Brent, but for the week, both contracts were down about 1 per cent, their first in three weeks.

The US Senate approved a bipartisan deal to suspend the limit on the government debt ceiling, following approval in the House of Representatives, staving off a default that would have affected the markets.

Also, employment in the world’s largest economy increased more than expected in May, but a moderation in wages could allow the US Federal Reserve to skip a rate hike this month for the first time in more than a year, which could support oil demand.

However, a jump in the unemployment rate to 3.7 per cent from 3.4 per cent in the prior month, a slowing in the pace of hourly wage growth, and a decline in hours worked indicate that the US central bank may go ahead with expected moves.

Oil traders will watch the June 4 meeting of OPEC+. The group in April announced a surprise production cut of 1.16 million barrels per day, but resulting price gains have been erased, and crude is trading below pre-cut levels.

Reports showed that OPEC+ could also be debating an additional oil production cut among possible options.

According to Reuters, three OPEC+ sources said cuts were being discussed among options for Sunday. The sources said cuts could amount to 1 million barrels per day on top of existing cuts of 2 million barrels per day and voluntary cuts of 1.6 million barrels per day that were announced in a surprise move in April.

The oil ministers of the 23-nation alliance will gather at 2 p.m. in Vienna (1 p.m. Nigerian time). Before then, OPEC ministers will meet at 11 a.m. (10 a.m.) on Saturday.

On the demand side, manufacturing data out of China, the world’s second-biggest oil consumer, painted a mixed picture.

In the US, energy firms this week slashed the number of oil rigs operating by the most since September 2021, reducing the overall count for a fifth week in a row, energy services firm Baker Hughes Co. said.

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