PRESIDENT Muhammadu Buhari’s currency swap and the whopping sum of $6 billion approved for the Federal Government by the Republic of China for financing of infrastructure and the budget deficit have continued to elicit diverse reactions from Nigerians.
The currency swap, which is a derivative trading arrangement where the principal and interest of a local currency is exchanged for the principal and currency of another currency was practically adopted to reduce exchange rate risk in very volatile currency markets like Nigeria’s.
But while some analysts complained the deal could hurt Nigeria when it comes to competition, the Head, Research, SCM Capital Limited, Sewa Wusu, said the inclusion of yuan in Nigeria’s foreign reserves basket was part of government’s diversification strategy, which might be positive for the country to sustain stability should the dollar weaken.
He noted that while the balance of payment situation may improve, Nigeria’s inability to feed China with other exports, apart from crude oil, would count negatively on its balance of trade in the long run.
Wusu, however, insisted that Nigeria should also boost its export capacity in terms of provision of raw materials and commodities for Chinese import.
He explained that the currency swap arrangement between Nigeria and China coupled with the expected inclusion of Chinese yuan in Nigeria’s reserves will somewhat reduce the increased demand for dollars for trade settlement.
“Don’t forget that the trade between Nigeria and China is about 23 to 25 per cent in terms of import. What this means is that about 25 per cent of our import is from China, which puts significant pressure on our reserves in terms of payments for Chinese imports,” he stated.
According to him, “the arrangement will ensure that Nigerian importers do not continue to demand for dollar to import from China through cross exchange rate means. Rather, the yuan/ naira currency swap arrangement will ease the settlement of trade between the two countries.
“One advantage of this is that it will help ease pressure on our reserves. The sharp demand for dollar for importation will reduce, as importers can then buy from China without dollar backing due to the swap arrangement.”
Meanwhile, Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, said that it was a good deal so long as it is properly implemented, while citing Ethiopia as a very good case study on what the deal with the Chinese can achieve.
“We consider what China has been able to achieve across Africa in terms of aiding African countries to develop infrastructure. It would appear that this deal with the Federal Government of Nigeria is a very good idea. In fact, the question should be why did it take Nigeria this long before consummating such a deal,” he inquired.
He allayed fears of negative consequences since the deal is tied to service provision (infrastructure development) which prevents any possibility of misapplication/misappropriation of the fund. He hinted that the idea of keeping a larger portion of the country’s foreign reserves in Chinese currency was theoretically sound.
According to Ademola, since a significant portion of Nigeria’s imports are from China, it would be most appropriate for Nigerians to conduct these trades in Reminbi rather than the dollar as this will reduce the demand pressure on Nigeria.
9 banks provide N191.47bn for impairment charges
NIGERIA’S challenging macro-economic environment and regulatory headwinds may have forced nine deposit money banks to provide a whopping N191.47 billion high impairment charges for bad loans, leading to a drop in some of the banks’ financial for the year.
From the 2015 year end result of 15 banks quoted on the Nigerian Stock Exchange (NSE), the nine banks’ loan impairment charges for the previous year increased from N106.6 billion to N191.47 billion provision in 2015, an indication of Nigerian banks’ prudent loan portfolio management.
Daily Sun findings on some of the banks showed that Ecobank Group topped the chart in loan impairment charges with a 137 per cent from N44.4 billion ($266.96 million) in 2014 to N105.2 billion ($532 million) in 2015.
Group Chief Executive Officer, Ecobank Group, Ade Ayeyemi, said, “our 2015 results were disappointing. We did a comprehensive review of our processes and portfolio leading to elevated impairment charges in the fourth quarter. Impairment losses were significantly increased by $265 million to $532 million. This was unacceptable to us and we have taken drastic steps to address asset quality and strengthen our processes.”
Union Bank of Nigeria Plc followed with a growth of 106 per cent in loan impairment charges from N4.8 billion to N9.9 billion.
While commenting on the rising loan impairment charges, the Chief Financial Officer, Union Bank of Nigeria, Mr. Oyinkan Adewale, said, “we have taken a prudent approach to our loan impairment provisions due to a worsening operating environment and believe that there is an opportunity for recoveries as the economy improves.”
Following was Guaranty Trust Bank Plc with a growth rate of 74.8 per cent to N12.4 billion from N7.1 billion recorded in 2014 while United Bank for Africa Plc came third when its loans provisioning rose by 58.7 per cent to N5.05 billion from N3.18 billion in the corresponding period of 2014.
First City Moment Bank (FCMB) loan impairment charges rose by 41 per cent from N10.6 billion to N15 billion while Fidelity Bank Plc witnessed an increase of 33.9 per cent in impairment charges from N4.3 billion to N5.76 billion in 2015.
Bank offers SMEs tips on how to access debt, equity financing
STANBIC IBTC Bank said it is presenting a platform on how the SMEs sector can seamlessly access debt and equity financing since bank loans constitute the main source of external funding for businesses.
The Head, SME Banking, Stanbic IBTC Bank, Obinna Ukachukwu, who gave this clarification at the 2016 Global Possibilities Summit of Inspired Woman of Worth (iWOW) network, held in Lagos, where he was a guest speaker and panelist, said without capital it would be difficult for any business to attract finance or investment. Ukachukwu defined capital as the value of and the history behind a business. According to him, if a promoter of a business does not know the value of the business, it is very unlikely that any investor or financier will be comfortable committing their money because the equity or debt investor is bringing in money in exchange for value.
“If you don’t know the value of your business then you do not expect a debt investor to put in his money,” he said.
He, however, assured that Stanbic IBTC Bank would continue to work with operators in the SME sector, particularly through capacity building and information sharing, to ensure they build capital. He explained that the value of a business can be determined if the proper structures, such as proper book keeping, annual reports, tax returns, auditor’s report and record of banking transactions, which form the history of the business, have been put in place.
He enjoined business owners and entrepreneurs to engage the services of professionals to ensure the right structures are in place. “When you have generated capital, you have determined your business’ worth, you then need someone to attest to that in form of documentations, whether it is your banker, your auditor or your tax man. Having these in place will make it easier for you to attract debt or equity financing,” Ukachukwu stated.
Access Bank launches N1bn ‘AccessNolly’ Fund
AS part of its bid to improve and provide solutions for markets and the communities where it operates, Access Bank said it has launched a N1 billion ‘AccessNolly’ Fund, which is primarily targeted at movie producers and distributors for the production and distribution of films of international quality and standard.
The fund was launched on April 7, 2016 during a power breakfast session with the theme, “Transforming the Entertainment Industry”, held at the bank’s head office on Victoria Island.
The Nigerian film industry is the third largest film industry in the world with an annual revenue of $200 million and currently employs approximately one million people making it the second largest employer of labour.
Speaking at the event, Executive Director, Business Banking Division, Titi Osuntoki, said, “the N1 billion fund is primarily targeted at players within the industry that have the capacity to produce and distribute movies as well as meet other set eligibility criteria some of which are number of movies produced, number of years in the industry and annual business turnover.
Based on the key market segments identified in the sector, research has shown that the industry has the potential to contribute up to 1.5 per cent to the national GDP but has been hampered due to an existing funding gap.
The bank has set aside these funds to facilitate the production and distribution of quality Nigerian movies, purchase of new film production equipment and the expansion and enhancement of production centres and film making hubs.
According to Osuntoki, only commercially viable scripts and well thought out storylines will benefit from the scheme.
“We have identified the potential of this sector of the economy and we have chosen to revolutionise and transform the entertainment industry with a major focus on Nollywood as well as be the lead banking partner to this industry hence the birth of AccessNolly Fund,” she stated.
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