Economy
Why Interest Rate on Savings Deposit Was Cut to 1.25%—CBN
By Dipo Olowookere
On September 1, 2020, the Central Bank of Nigeria (CBN) in a circular signed by its Director of Banking Supervision, Mr Bello Hassan, said the interest rate on savings deposit in banks will be 1.25 per cent.
The rate was chopped to the level from the previous 3.9 per cent and this was greeted with criticisms from various sections, including the Nigerian Economic Summit Group (NESG), which questioned the rationale behind this policy.
The issue generated such reactions because it was at the same time the federal government approved the raising of electricity tariff in the country and a few days later, the pump price of fuel jumped to N160 per litre from N145 per litre.
One of the major reasons for the grumbling was that these policies were coming when residents of the country were just reopening their businesses. They have not been economically active for months because of the closure of their means of survival by the government due to the COVID-19 pandemic.
But the CBN, while reacting to the comments made by NESG, questioned the group’s credibility, especially under its current leadership, saying it “has fallen short of its own standards and become a shadow of its old self.”
The apex bank explained that it reduced the interest rate on savings deposit in the country for the good of the economy, noting that it noticed that some big companies, instead of expanding their operations so as to hire more workers, were putting the funds in the banks to generate more money.
Recently, the National Bureau of Statistics (NBS) said that over 27 million Nigerians were jobless in the country.
The apex bank said in order to address this unemployment issue, it had to discourage the dumping of funds in the banks to yield interest rather than pumping them into the economy to improve economic activities, which will then make the nation’s Gross Domestic Product (GDP) grow positively.
Business Post reports that at the second quarter of 2020, Nigeria recorded a negative GDP growth of 6.1 per cent and this was attributed to the global health crisis, which brought the economy almost to a standstill.
In the CBN’s response to NESG’s allegation of “price fixing” for savings deposit in the country, the banking industry watchdog said in an “ideal economic textbook/theory, saving should be equal to investment, we expected total deposits should closely mirror total loans.”
The central bank, in the response signed by its spokesman, Mr Isaac Okorafor, said it observed “an increasingly large gap between total deposits in the banking system and total credit to the economy” which necessitated the 1.25 per cent interest rate benchmark.
According to the bank, while total deposits stood at about N25 trillion in January 2020, total loans stood at N17 trillion and as of August 2020, the total deposits jumped to N29.7 trillion, while the total loans were only N19 trillion.
“Many rich cooperates have simply been content with saving their cash balances and collecting huge interest payments, rather than expanding their investment, which should lead to hiring more people and producing more goods.
“In other to forestall a continuation of this trend, the CBN had to act to discourage these practices for the good of the economy.
“In other words, the rationale for moving to reduce the saving rates by banks is actually to encourage more lending,” the CBN said in the statement.
By Aduragbemi Omiyale
The deadline for the recapitalisation of the Nigerian pension industry has been extended by six months to June 2027 from December 2026.
This extension was approved by the National Pension Commission (PenCom), the agency, which regulates the sector in the country.
Addressing newsmen on Thursday in Lagos, the Director-General of PenCom, Ms Omolola Oloworaran, explained that the shift in deadline was to give operators more time to boost the capital base, dismissing speculations that the exercise had been suspended.
“The recapitalisation has not been suspended. We have communicated the requirements to the Pension Fund Administrators (PFAs), and we expect every operator to be compliant by June 2027. Anyone who is not compliant by then will lose their licence,” Ms Oloworaran told journalists.
She added that, “From a regulatory standpoint, our major challenge is ensuring compliance. We are working with ICPC, labour and the TUC to ensure employers remit pension contributions for their employees.”
The DG noted that engagements with industry operators indicated broad acceptance of the policy, with many PFAs already taking steps to raise additional capital or explore mergers and acquisitions.
“You may see some mergers and acquisitions in the industry, but what is clear is that the recapitalisation exercise is on track and the industry agrees with us,” she stated.
PenCom wants the PFAs to increase their capital base and has created three categories, with the first consists operators with Assets Under Management of N500 billion and above. They are expected to have a minimum capital of N20 billion and one per cent of AUM above N500 billion.
The second category has PFAs with AUM below N500 billion, which must have at least N20 billion as capital base.
The last segment comprises special-purpose PFAs such as NPF Pensions Limited, whose minimum capital was pegged at N30 billion, and the Nigerian University Pension Management Company Limited, whose minimum capital was fixed at N20 billion.
By Adedapo Adesanya
Three securities weakened the NASD Over-the-Counter (OTC) Securities Exchange by 0.68 per cent on Thursday, December 18.
According to data, Central Securities Clearing System (CSCS) Plc led the losers’ group after it slipped by N2.87 to N36.78 per share from N39.65 per share, Golden Capital Plc depreciated by 77 Kobo to end at N6.98 per unit versus the previous day’s N7.77 per unit, and FrieslandCampina Wamco Nigeria Plc dropped 19 Kobo to sell at N60.00 per share versus Wednesday’s closing price of N60.19 per share.
At the close of business, the market capitalisation lost N16.81 billion to finish at N2.147 billion compared with the preceding session’s N2.164 trillion, and the NASD Unlisted Security Index (NSI) declined by 24.76 points to 3,589.88 points from 3,614.64 points.
Yesterday, the volume of securities bought and sold increased by 49.3 per cent to 30.5 million units from 20.4 million units, the value of securities surged by 211.8 per cent to N225.1 million from N72.2 million, and the number of deals jumped by 33.3 per cent to 28 deals from 21 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc remained the most traded stock by value with a year-to-date sale of 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
Similarly, InfraCredit Plc ended as the most traded stock by volume on a year-to-date basis with 5.8 billion units traded for N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units exchanged for N524.9 million.
By Dipo Olowookere
The All-Share Index (ASI) of the Nigerian Exchange (NGX) Limited has again crossed the 150,000-point threshold on Thursday as the demand of for local intensifies.
The market was up by 0.35 per cent during the session, with the NGX index inching higher by 520.23 points to 150,363.05 points from the previous day’s 149,842.82 points and the market capitalisation climbed by N332 billion to N95.857 trillion from N95.525 trillion.
During the session, the consumer goods index grew by 1.23 per cent, the banking counter expanded by 0.56 per cent, and the energy sector appreciated by 0.05 per cent.
However, the insurance industry went down by 0.23 per cent, while the commodity and the industrial goods sectors closed flat.
Nestle Nigeria gained 10.00 per cent to trade at N1,958.00, Guinness Nigeria improved by 9.98 per cent to N289.70, Aluminium Extrusion Industries rose by 9.76 per cent to N11.25, DAAR Communications soared by 9.20 per cent to 95 Kobo, and Mecure Industries surged by 9.13 per cent to N55.00.
On the flip side, Stanbic IBTC lost 9.33 per cent to settle at N95.20, Lasaco Assurance went down by 9.09 per cent to N2.50, Africa Prudential slipped by 8.82 per cent, Austin Laz depreciated by 8.82 per cent to N12.40, and Sterling Holdings crashed by 6.12 per cent to N6.90.
There were 35 price gainers and 26 price losers yesterday, implying a positive market breadth index and bullish investor sentiment.
During the session, a total of 839.8 million equities valued at N32.8 billion exchanged hands in 23,211 deals compared with the 5.9 billion equities worth N216.2 billion traded in 25,205 deals a day earlier, indicating a decline in the trading volume, value, and number of deals by 85.77 per cent, 84.83 per cent, and 7.91 per cent apiece.
The day’s busiest stock was First Holdco with a turnover of 385.6 million units sold for N15.6 billion, FCMB traded 76.0 million units worth N805.3 million, Lasaco Assurance exchanged 43.6 million units valued at N111.8 million, Access Holdings transacted 29.6 million units worth N616.8 million, and Chams sold 24.8 million units valued at N75.4 million.
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