Inflation MPC

Inflation widens negative real return on investment

Nigeria’s March inflation widens negative real return on investment

Fixed-income investors seeking high-yielding securities in the light of the prevailing developments in the markets were not disappointed in the last auction on Wednesday, as rates on the 364-day Federal Government short-term Treasury bills (T-bills) rose to 9 percent from 1.5 percent at the beginning of the year.

READ ALSO: Inflation rate hits 18.17%

But with Nigeria’s 18.17 percent inflation rate in March, the highest in four years, the real return on the Federal Government less risky short-term debt instrument depreciated further when compared with March 2020, when the inflation rate stood at 12.26 percent.

While inflation-adjusted return on the shorter 91-day and 182-day bills were -9.77 percent and -8.48 percent, respectively, in April last year, the real return on the bills dropped further to -16.17 percent and -14.67 percent in the comparable month of 2021, thanks to Nigeria record-high 18.17 percent inflation rate.

The trend was the same for the longer 364-day bill. From a -6.96 percent real return on investment last year, the bill gave investors -9.17 percent in the same period of this year.

As the interest rate is trying to play catch up, inflation is moving upward too, Yinka Ademuwagun, research analyst, FMCGs, United Capital plc, said.

“The real return is still clearly negative because inflation is rising faster. If inflation was still at, say, the 11 percent that reported before the border closure last year, then we would have been fine,” Ademuwagun said.

However, the recent uptick in the yields on the short-term government instrument is helping to comfort investors against the rate at which the high inflation rate is impacting their returns.

“While the rising inflation has broadened negative real return, it is comforting to know that yield on fixed income instruments is also on the rise, which will bridge this gap,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said.

After hitting a four-year low of near-zero percent in 2020, yields on the Federal Government risk-free treasury bills climbed to more than 16 month-high, as compiled from Nigerian Treasury bills primary market auction Results for April 14, 2021.

While investors bid at a rate as high as 8 percent for the 91-day bill, 9 percent and 13 percent for the 182-day and 364-day bills, respectively, the Central Bank of Nigeria (CBN) settled at 2 percent, 3.5 percent and 9 percent, respectively. The stop rates for the 91-day and 182-day bills remained sticky for the fourth consecutive auction, but the 364-day bill increased by 100 basis points compared to the 8 percent reported in the previous auction.

Market analysts link the increase in the stop rates to the hike in CBN’s Open Market Operation (OMO) rates some weeks ago. Investors are bidding at higher rates and the Debt Management Office (DMO) also needs to raise the cut-off rate to fill some of the orders, an analyst noted.

Weeks after the CBN shocked the market with a 10.10 percent stop rate for the 362-day OMO bill, the highest levels seen in almost a year, fixed-income investors demanded higher rates for T-bills.

Analysis of the T-bills auction result for April 14, 2021, shows that the CBN raised a total of N153.38 billion from the 91-day, 184-day and 384-day bills, N83.82 billion more than the initial N69.56 billion the apex bank offered to raise in this week’s auction.

Investors were less interested in the shorter 91-day and 182-day bills as they attracted a lower interest rate but were willing to subscribe to the longer 364-day bill, which rose by 100bps to 9 percent interest rate.

While the 364-day with a much higher interest rate was oversubscribed by N168.45 billion, the shorter 182-day was oversubscribed by N9.44 billion but the 92-day bill was undersubscribed by N50 million.

The CBN planned to raise N15.92 billion for the shorter 91-day bill, investors were willing to subscribe with N15.87 million. The apex bank was eventually able to allot N12.46 billion, N3.46 billion more than its initial offer.

Investors were willing to bid with N13.94 billion for the CBN N4.50 billion offered for the 182-day bill. The apex bank was able to raise N8.80 billion, N4.3 billion more than its initial offer.

While the CBN offered to raise N49.14 billion through the longer 364-day Treasury bill, investors said they were willing to invest N217.59 billion. The apex bank later raised N132.12 billion, N83 billion more than its initial offer.

Though the recent uptick in T-bills rate to more than one year-high is good news for fixed income investors whose real return appreciated to -9.17 percent in April from -9.33 percent in March, the expected high inflation rate remains a challenge.

READ MORE

Food inflation

Inflation rate hits 18.17%

Nigeria’s consumer price index, which measures the rate of increase in the price of goods and services, increased to 18.17 percent in March from 17.33 in February, according to an inflation report released by the National Bureau of Statistics on Thursday.

Food prices are surging on the back of lingering security challenges, festive induced demand and an acute dollar squeeze

READ ALSO: FG begins full commercialization of Federal Mortgage Bank

This implies that Nigerians spent more on purchasing goods and services in the month of March, compared to February.

The March figure is the highest since January 2017 when it climbed 18.72 percent.

“Nineteen straight months of rising inflation rate and momentum is not even slowing. Looks like we are going to break the 2017 record in Q2,” Omotola Abimbola, assistant vice president at Chapel Hill Nigeria tweeted on Thursday.

The NBS data also showed Nigeria’s food inflation is now at the highest in over 12 years. Food inflation increased by 1.16 percent, year on year, from 21.79 percent in February to 22.95 percent in March.

The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, vegetable, fish, oils and fats and fruits.

The “All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce rose to 12.67percent in March 2021, up by 0.29percent when compared with 12.38percent recorded in February 2021.

SOURCE

Obaseki

End current monetary rascality, Obaseki replies FG

What is fast becoming a forth and back between Edo State Governor Godwin Obaseki and the Federal Government continued on Thursday as the governor urged the FG to stop the act of deliberately ignoring the prevailing economic challenges in the country and take urgent steps to end the current financial rascality.

READ ALSO: LCCI Seeks National Asset Register For Debts

Obaseki, in a tweet via his official Twitter handle @GovernorObaseki titled “Our advice is that we stop playing the ostrich”, noted that he is not joining issues with the Federal Ministry of Finance but was only offering useful advice for the benefit of Nigeria.

The governor had recently expressed worry over the country’s penchant for borrowing, noting that the debt profile could rise to N16 trillion by the end of 2021.

He also claimed that the Federal Government printed additional N50 billion-N60 billion to top up the Federal Accounts Allocation Committee (FAAC) for states to share.

Zainab Ahmed, minister of finance, budget and national planning, on Wednesday, however, said it was untrue that the FG printed N60 billion in March to support federal allocations to states.

But responding via a tweet on Thursday, Obaseki, who stood by his claim, urged the minister of finance, budget and national planning to rally Nigerians to stem the obvious fiscal decline confronting the nation.

“We believe it is our duty to offer useful advice for the benefit of our country. Rather than play the ostrich, we urge the government to take urgent steps to end the current monetary rascality, so as to prevent the prevailing economic challenge from degenerating further,” Obaseki said.

READ MORE

LCCI

LCCI Seeks National Asset Register For Debts

The Lagos Chamber of Commerce and Industry (LCCI) has sought a national asset register to document the specific projects that the debts are incurred for so as to ease the pressure of debt service on the budget.

READ ALSO: FDC Analysts Predict March Inflation To Hit 17.8%

“We note that the majority of Nigeria’s debts are not linked to assets or specific projects. As such, it is critical to create a national asset register, and have a coordinated mechanism in place for valuing and managing Nigerian assets”, noted LCCI President Toki Mabogunje

She faulted government’s penchant for issuing new debt to redeem maturing ones as not being an optimal debt management strategy.

“It is critically important to replace existing debts with asset-linked securities to reduce debt cost. This will ease the pressure of debt service on the budget,” Mabogunje said.

she said further that LCCI acknowledged the introduction of the electronic call-up system at Apapa and Tin Can ports, which is aimed at resolving the systemic gridlock crisis around the Apapa corridor caused by port congestion.
“This measure is a work-in-progress and may not alone provide a sustainable solution to numerous issues faced by economic agents at the ports.

“It is important for the Federal Government, Lagos State government, Nigerian Ports Authority (NPA), and other relevant stakeholders to address the internal issues within the ports including the terminal operators, custom processes and procedures, quality of cargo handling equipment, lack of credible framework for dispute resolution on import valuation and classification, presence of several government agencies with overlapping roles, serial extortions and racketeering; and other structural bottlenecks stifling the ease of doing business at the ports.

“The solution to this problem must be holistic and inclusive. It demands strong political will to bring discipline to the entire cargo clearing and export evacuation processes.

Despite the laudable initiative of the Electronic Call Up system and the initial successes recorded on its introduction, there seems to be a reversion to the old ways. Many importers and exporters are expressing severe frustrations,” she said.

The LCCI president asserted that to achieve an enabling investment environment for the advancement of the Nigerian economy and the good of all investors and economic players, right policy and regulatory framework are imperative,” Mabogunje concluded.

SOURCE

Inflation MPC

FDC Analysts Predict March Inflation To Hit 17.8%

The upward surge in inflation may not decline anytime soon as indications show that Nigeria’s economy may witness a 0.47 percent jump in headline inflation to bring it to 17.8 per cent, analysts have projected.

READ ALSO: Organization commends SMEDAN DG over rural healthcare intervention

The February data from the National Bureau of Statistics (NBS) put the inflation rate at 17.33 per cent and with the static economic condition, the rate is expected to inch up.

The analysts’ projection comes on the heel of higher prices of goods and services that has left the citizens impoverished in addition to higher food prices that have left many malnourished. The high price of food items since the beginning has not dropped and worsened by the insecurity situation that has kept farmers away from their farms.

Following this projection, the Financial Derivatives Company (FDC) in its Economic Monthly Publication for April 13, said the increase in inflation will be the 19th consecutive monthly increase and a 48-month high.

With the increase in food and core sub-indices in March, food inflation is projected to go up to 22.3 per cent while the core sub-index could climb to 12.6 per cent. a development which the FDC said could make life unbearable for the average consumers.

The current situation, they said could push the Central Bank of Nigeria (CBN) to reconsider its tightening cycle to curb the inflationary cycle

Analysts supported the views with the fact that monetary conditions and monetary policy move in opposite directions to keep the price level under control and when monetary conditions are loose, the CBN adopts a tight monetary policy stance to ensure price stability and vice versa.

“With inflation spiralling and currently double, the upper band of the CBN’s inflation target (9%), a likely increase in interest rates is not only imminent but almost inevitable”, the report noted.

They noted that the exchange rate pressures, government’s growing propensity for borrowings, among others, have proven to be major inflation drivers and all indications show that the end is not in sight.
https://insidebusiness.ng/163171/harder-times-as-fdc-analysts-predict-march-inflation-to-hit-17-8/

READ MORE

Federal-Ministry-of-Finance-Budget-and-National-Planning-the-Minister-of-Finance-Zainab-Ahmed-min

Federal Government Denies Printing N60bn To Share In March

The Federal Government has debunkfed claims that it printed N60 billion to support federal allocations to states in March, describing the comment made by the Edo State Governor, Godwin Obaseki as untrue and saddening.

READ ALSO: Sell-offs in microfinance banks over recapitalisation

The Minister of Finance, Budget and National Planning, Zainab Ahmed explained that despite Obaseki’s worry that Nigeria is in ‘huge financial trouble’, the country’s debt profile is still within sustainable limits.

Recall that Edo State Governor was quoted as saying at the Edo transition committee stakeholders engagement last Saturday that, “When we got Federation Account Allocation Committee (FAAC) for March, the federal government printed additional N50 billion- N60 billion to top-up for us to share.

“This April, we will go to Abuja and share. By the end of this year, our total borrowings are going to be within N15 trillion-N16 trillion.”

But the Minister of Finance in a statement by Yunusa Tanko Abdullahi
Special Adviser, Media & Communications, maintains that what is distributed at the monthly FAA meetings were generated revenue from government institutions available to the public at the ministry’s website.

Ahmed said: “The issue that was raised by the Edo State Governor for me is very, very sad because it is not a fact.

“What we distribute at FAAC is a revenue that is generated and in fact, distribution of revenue is a public information. We publish revenue generated by Federal Inland Revenue Service (FIRS), the Nigerian Customs Service (NCS) and the Nigerian National Petroleum Corporation (NNPC), and we distribute at FAAC.

“So, it is not true to say we printed money to distribute at FAAC; it is not true. On the issue of borrowing, the Nigerian debt is still within a sustainable limit.

What we need to do, as I have said several times, is to improve our revenue to enhance our capacity to service not only our debt, but to also service the needs of running government on day-to-day basis. So our debt currently at about 23 percent to GDP is at a very sustainable level if you look at all the reports that you see from multilateral institutions,” Ahmed concluded.

SOURCE

Microfinance Bank

Sell-offs in microfinance banks over recapitalisation

Ahead of April’s deadline for the first threshold of recapitalisation exercise in the Microfinance Bank (MFB) sub-sector, some operators that do not have the capacity to meet up have decided to sell off their ventures.

READ ALSO: Edo plans to train 15,000 software engineers, programmers

Some of the micro lenders that have sold off their businesses include Cardinal Rock MFB, Cowries MFB, Aguda Titun MFB, First Ideal MFB, High Street MFB, Money Wise MFB, Owotutu MFB, Irolu MFB, and Royal Blue MFB, among others.

“Most buyers are ex-bankers. Some of them acquired the micro banks when they were about to leave the bank or after they had left,” top official of a microfinance bank told BusinessDay.

The Central Bank of Nigeria (CBN) had in October 22, 2018, reviewed upward the minimum capital requirement of the three categories of MFBs as follows – Unit microfinance banks from N20 million to N200 million, State MFBs from N100 million to N1 billion, and the National MFB from N2 billion to N5 billion.

In consideration of the impact of the COVID-19 pandemic on economic activities in the country, the regulator in 2020 revised and extended the deadline for compliance with the minimum capital requirement for microfinance banks by one year.

Consequently, MFBs operating in rural, unbanked and under banked areas (Tier 2) are expected meet the N35 million capital threshold by April 2021 and N50 million by April 2022.

MFBs operating in urban and high density banked areas (Tier 1) are expected to meet the N100 million capital threshold by April 2021 and N200 million by April 2022; State licensed MFBs are to increase their capital to N500 million by April 2021 and N1 billion by April 2022, and National MFBs are expected to meet minimum capital of N3.5 billion capital by April 2021 and N65 billion by April 2022.

However, more than two-thirds of licensed MFBs in Nigeria may close shop if they fail to meet the recapitalisation deadline, the first threshold of which should be due by the end of this April.

Of the 874 licensed MFBs, about 612 may be affected, although the final deadline will be in 2022. These banks were established to meet the financial needs of Nigeria’s low-income earners.

“I am having a feeling that most MFBs with National licence will survive,” a MBF CEO told BusinessDay on phone.

The National licensed MFBs include LAPO MFB, AB MFB, NPF MFB, and Paralex MFB, which have migrated into regional commercial bank.

Some of these big micro banks stand ready to acquire the ones that are not able to meet their capital requirements as a way of saving the sector from collapsing.

“We have not bought anyone but if they approach us we will buy, of course, we will do due diligence. We have done due diligence for one and it did not work. So, we are looking at one in Kano but they are not following up. I think many eventually would want to sell,” a source from LAPO Microfinance Bank Limited, said.

A bank from Kano State has approached LAPO but it is yet to conduct due diligent on the bank. The problem with some of these microfinance banks is that their books are too bad that when you buy them you buy “wahala.”

However, if their financials are bad, there might be some aspect of them that are good, that is, other values, such as good staff.

“The approach is simple, they approach us or we approach them, give them form to fill to complete their profile, we appoint a company to do financial analysis for us and once that is done we take our decision.

“We take them case by case. If for instance 20 approach us and we discover that all the 20 are good, then why not. On the other hand, if three approach us and we discovered that they are not good, we will not buy. The bottom line is that we are open to acquisition but the financial decision would be based on how good they are. The second thing is, one of the reasons is that it is a way of saving the sector,” the source said.

The Unit MFBs are likely going to be the ones that would be swept away at the end of the recapitalisation exercise.

The CBN on March 31, 2021, issued a letter to Suisse MFB to shore up its capital but the owners of the bank, Christ Embassy, is not making effort to comply with the directive, a source close to the bank told BusinessDay.

On November 12, 2020, the CBN revoked the operating licences of 42 failed MFBs.

According to Yusuf Gyallesu, national president, National Association of Microfinance Banks (NAMB), affirms that sell-off is one of the options presented to the MFBs in push for recapitalisation.

“It is the last option after you try all means and it does not work, instead of losing the licence, you sell it and someone will continue from there,” he says.

Some strong MFBs and their models

LAPO MFB provides a wide array of direct-lending solutions, both to group and individual, plus specialised lending products such as asset-based lending.

Renmoney, leveraging technology to make financial inclusion, states, “Everyday, we strive to understand our customers and leverage technology, data and innovation to deliver outstanding service experiences.”

Baobab MFB has gained recognition for its ability to combine financial sustainability with positive social and environmental impacts. As an industry leader, Baobab Group rigorously applies internationally recognised best practices of good governance and institutional ethics.

EdFin MBF birthed out of the need for quality education in Nigeria. The bank, dedicated solely to funding the education eco-space in Nigeria, aims to positively disrupt the standard and quality of education in Nigeria by providing the much-needed financial resources and services to the education sector.

EdFin is focused on facilitating a more enabling environment for private schools in order for them to be able to offer quality education that would ensure improved learning outcomes in such schools and ultimately in Nigeria.

The Nigerian Microfinance sector is strategically designed and positioned to provide formal financial services to the grassroots, with a focus on delivering micro-savings and microloans services towards improving financial inclusion in Nigeria.

A recent evaluation of this industry has shown gaps concerning Digital Financial Services and a significant opportunity to strengthen players in this regard, according to EFInA.

READ MORE

Bitcoin

Bitcoin Market Cap Hit $1trn, Above Apple, Amazon

Bitcoin market capitalisation has notched the $1 trillion mark putting it ahead of Apple and Amazon.

READ ALSO: Counting on in-store transactions, Burger King berths in Nigeria

Data from cryptocurrency trading simulator, Crypto Parrot indicates that it took bitcoin just 12 years to hit the current capitalisation, the least time frame than four leading traditional assets.

Among the overviewed assets, Microsoft (MSFT) took almost half a century at 44 years to hit the $1 trillion valuations, representing 3.6 times more time than bitcoin. Apple (AAPL) required 42 years to hit the milestone, meaning bitcoin hit the mark 3.5 times faster than the electronics giant.

Elsewhere, it took Amazon (AMZN) 24 years to hit the $1 trillion in market capitalization representing double the period than bitcoin. Lastly, bitcoin took at least 1.75 times faster to hit the $1 trillion market cap when compared to Google’s (GOOG) 21 years.

The report explores the nature of growth between bitcoin and the highlighted mainstream assets over the past year.

“Based on bitcoin’s recent market cap rate growth, the asset will potentially surpass the highlighted traditional assets’ value at some point in the future. Although the technology stocks have soared from last year, none has been able to outperform bitcoin”, noted Crypto Parrot

Furthermore, as bitcoin adoption becomes more mainstream, it can amass a higher market cap than the traditional assets, according to the report “

“If bitcoin sustains the growth coupled with increased institutional adoption that will lower volatility, the market cap might surpass some mainstream assets. The achievement is possible considering the bitcoin market cap has exceeded other formidable players like Tesla.”

The adoption of bitcoin by institutions spells good fortunes for the asset in the future.

SOURCE

Senate

Senate Summons NICON, AIICO, Others

Alleged Non-Remittance Of N17.4bn: Senate Summons NICON, AIICO, Others

The Senate Public Accounts Committee has summoned the management of the NICON Insurance Plc, AIICO Insurance and other insurance companies over their alleged failure to remit N17.4bn pension fund to t he Pension Transitional Arrangement Directorate.

READ ALSO: CBN Mandates Banks To Enrol For Credit Risk Management In System

The Senate hinged the summon on the 2016 report of the Auditor-General for the Federation which unraveled the alleged non-remittance of N17.4bn pension fund to PTAD.

Appearing before the panel on Monday, the Executive Secretary of PTAD, Dr Chioma Ejikeme, informed the lawmakers that PTAD took over the assets and liabilities of the defunct pension offices without a formal handing over.

She said, “On taking over, the directorate wrote all underwriters to make returns and remit whatever amount that was in their custody into a CBN dedicated account.

“Some of the underwriters responded to the request while some did not.

“The bank certificate of balances, accounting statements, three years financial statements and policy files requested by the federal auditor were not handed over to PTAD at the time of consolidation.

“These figures represent the claims by the underwriters with regards to their indebtedness.

“In order to ascertain the true position of legacy funds in custody of underwriters, the directorate appointed a consultant in 2018 who carried out forensic audit of nine out the 12 insurance underwriters and produced a final report on the recovery of the legacy funds and assets for PTAD.”

READ MORE

CBN

CBN Mandates Banks To Enrol For Credit Risk Management In System

In pursuit of a, sound financial system in Nigeria, the Central Bank of Nigeria, CBN, has asked all Development Financial Institutions (DFMs), Micro Finance Banks MFBs, Primary Mortgage Banks (PMBs and other Financial companies to enrol for the Credit Risk Management (CRMS).

READ ALSO: Naira appreciates at NAFEX as Nigeria’s external reserve is set to get a boost

The apex bank said the redesign CRMS would help improve the Credit Risk Management of the financial sector, thereby promoting safe and sound financial system in the country.

In a circular, FPRD/DIR/PUB/CIR/01/002, dated April 8th and released on Monday by Kelvin N. Amugo, Director Financial Policy and Regulation Department, the CBN Mandated all DFIs, MFBs, PMBs, FCs are required to report all credit facilities (principals and interest) to the CRMS and to update same on monthly basis.

“As part of its effort to promote a safe and sound financial system in Nigeria, the Central Bank of Nigeria (CBN) introduced the CRMS to improve Credit Risk Management in commercial, merchant, non- Interest banks as well as to prevent predatory borrowers from undermining the banking system.

With the successful implementation of the CRMS in deposit money banks, it has become expedient to commence the enrolment of other financial institutions (OFIS) on the CRMS platform.”

The regulator also stated that Bank verification Number (BVN) and TAX identification Number (TIN) would be needed to undertake the CRMS process.

“Accordingly, all DFIs, MFBs, PMBs, FCs are required to report all credit facilities (principals and interest) to the CRMS and to update same on monthly basis. OFIs shall note that Bank verification Number (BVN) and TAX identification Number (TIN) are the only basis for regulatory renditions.

“To ensure full compliance,  OFIs are reminded to conclude the tagging of all live credit files for all individual and non individual borrowers with BVN and TIN respectively by May 14, 2021.

According to CBN, Other financial institutions should avail themselves with regulatory guidelines, adding that stiff penalties await those who fail to comply with the directives

“Furthermore, the concern  OFIs are advised to acquaint themselves with the regulatory guidelines for the operation of the redesigned CRMS for commercial, merchant and non- interest Banks in Nigeria(February 2017) and the additional regulatory guidelines of separation 2017.

READ MORE