Business News
Investors Express Mix Reactions on Nigeria’s Banks
From Joy Okeke, Abuja
Foreign investors are skeptical about investing in Nigerian banks, with some expressing concerns that strong results the six biggest banks are reeling out, mask the true state of finances in spite of oil hedges
Returns at Nigeria’s top banks are running at levels that their European counterparts can only dream of, and the country’s biggest lenders are eyeing up an opportunity from the 60 million citizens without bank accounts.
But according to Ronak Gadhia, an analyst for investment bank EFG-Hermes, the pool of investors who want to own Nigerian lenders is shrinking.
“There used to be quite a few supporters,” he told the Financial Times. “Now, it’s very hard to get a client to pick up when you are calling to discuss Nigerian banks.”Some investors are averse because of wider conditions in Nigeria. The country’s currency value is volatile, with a central bank that props up the naira, before sudden devaluations, as happened in March and July. Nigeria has currency controls, adding to investors’ concerns about unpredictability and getting their cash out.
When it comes to banks, the main source of investors’ caution, says Mr Gahia, is a belief that the average 19.5 per cent return on equity enjoyed by the big-six Nigerian banks in the first half of the year masks the true state of their finances and outlook.
The “cost of risk” for the six, which measures their credit charges flowing through banks’ income statements as a percentage of their total loans, was just 1.6 per cent for the first half of 2020, far lower than the 5.3 per cent EFG analysts predicted for the full year. The low charges were at odds with the Covid-19 pandemic, which locked down Nigeria’s biggest states at the end of March and ended international and domestic flights, driving the country into its worst recession in more than a decade.
Nigeria, where the oil sector accounts for about nine per cent of economic output, but about three-quarters of export revenues and nearly all foreign exchange, also had to deal with record low oil prices, caused by both the pandemic and an oil price war between Saudi Arabia and Russia.
There is an opportunity for banks to grow their business by tapping the population of adults in Nigeria without bank accounts
“2020 has been a very challenging and I guess I should say unprecedented year as we continue to deal with the health, financial and economic impacts of the Covid-19 pandemic,” UK Eke, then group managing director at First Bank of Nigeria, told investors on an analyst call on August 3, describing the “monumental contraction” in economies across the world.
Still, the bank, which is the country’s third-largest lender by assets, grew pre-tax profits by 56 per cent in the first half of the year, as a modest increase in loan losses was more than outstripped by a surge in interest revenues, largely from treasury activities, which benefited from volatile markets.
Other Nigerian banks reported a similar trend. Rating agency Fitch warned in April that Nigerian banks were at “severe risk” from the oil price slump and the pandemic. Mr Ghadia says banks’ “significant exposure” to the oil and gas sector was so far proving “more resilient than most other parts of the (loan) book”.
After that crash, he says banks insisted upstream borrowers, a category that includes the companies who search and drill for oil, had hedges in place to protect them from falling oil prices.
The hedges, which take the form of derivatives contracts and allow the companies to lock in a guaranteed oil price by paying a fee, now reduce the chance of banks having to take provisions for losses on those loans.
Still, Taiye Ayandibu, head of investor relations at Nigeria’s largest lender Zenith Bank, said his institution was “concerned” about oil and gas loans even though 90 per cent of their upstream borrowers have hedges in place.
“Most of the hedges will mature towards the end of this year into early next year and if prices remain depressed, it will become more expensive to buy new hedges,” he said.
Mr Ayandibu is more optimistic about his bank’s overall loan book, particularly the loans which have been restructured through the pandemic. In March, the central bank gave lenders permission to offer temporary easings to borrowers affected, without forcing them to take provisions or classifying the loans as non-performing.
“Most of the restructurings were done due temporary cash flow issues while the assets are still good and producing,” Mr Ayandibu says, adding that he did not expect them to become non-performing. Data from Nigeria’s central bank show 41 per cent of loans were classed as restructured by June 20.
This month, rating agencies turned more positive on the sector. Fitch has recently taken a clutch of Nigerian banks, including Guaranty Trust Bank, Zenith and United Bank of Nigeria, off its watch list for a possible downgrade. In its note on Guaranty, Fitch said pressures on the bank’s loan books had “significantly eased” since March when it was put on ratings watch negative. The improvement stemmed from developments around restructured loans and because of the banks “own debt relief measures”, Fitch says.
In the long term, Mr Ayandibu says there is a “massive” opportunity for his bank and others to grow their business by tapping the population of adults in Nigeria without bank accounts.
“In the last few years, we have grown our customer base astronomically through our retail drive; from 7.8m in December 2018 to 11m in June 2020,” he says.
A graduate of the University of Maiduguri, Shianya Ebwaseh, said the Nigerian Education Loan Fund (NELFUND) helped improve her Grade Point Average (GPA) to 3.50 through financial support that enabled her to concentrate on her studies.
Ebwaseh, who graduated from the Department of Zoology, Faculty of Life Sciences, said this in an interview on Monday in Maiduguri.
She said financial difficulties had previously affected her academic performance, as she struggled to meet her daily needs while pursuing her degree.
The graduate said she resorted to selling fried chips and groundnuts on campus to support herself, sometimes missing lectures because of the time and energy required to run the business.
According to her, the introduction of NELFUND’s student loan scheme relieved her financial burden through tuition support and a monthly N20,000 upkeep allowance.
“Before NELFUND, I struggled with my GPA because of financial challenges. I sometimes missed lectures after spending hours frying and packaging chips for sale.
“But when NELFUND came, I stopped the business and concentrated on my studies. My GPA improved to 3.50, which is Second Class Upper,” she said.
Ebwaseh said the financial support also enabled her to attend lectures regularly, purchase learning materials and prepare adequately for tests and examinations without constant worries about money.
She added that her examination scores improved significantly after she began receiving the support, attributing the change to increased concentration and financial stability.
The graduate, who said she accessed the scheme in her third year, described the application process as simple and encouraged other eligible students to apply.
She also said the programme had helped financially disadvantaged students remain in school, particularly those whose parents could not afford tuition fees and upkeep.
Ebwaseh appealed to the Federal Government to sustain the initiative, emphasising that withdrawing the support could expose many students to financial difficulties and possible dropout.
She said the scheme had given beneficiaries an opportunity to pursue their academic ambitions with fewer financial distractions.(NAN)
The Minister of Housing and Urban Development, Dr Muttaqha Darma, has called for synergy among government agencies in the housing sector to improve coordination and accelerate housing delivery.
Darma made the call in Abuja on Monday at the stakeholders’ conference on the proposed National Real Estate Regulatory Authority (NRERA).
The conference, themed “One vision, One Ecosystem, One National Housing and Real Estate Plan”, was organised by the Office of the Speaker, House of Representatives, and the House Committee on Housing and Habitat.
The minister said the lack of coordination among government agencies had affected the effective delivery of houses to Nigerians, noting that institutions in the sector operated independently.
“The players within the industry, all of us, operate in silos.
“Federal Housing Authority (FHA) does not even know what the Federal Mortgage Bank of Nigeria (FMBN) is doing. FMBN does not know what the Ministry of Finance Incorporated (MOFI) is doing,” he said.
According to him, the various institutions must work together towards a common goal rather than operate independently.
“Our target is to build houses for Nigerians. We are wasting our time because if we fail, it is us who fail, not the President,” he said.
The minister expressed support for the establishment of NRERA, saying the proposed authority would address the regulatory gaps in the real estate sector.
He said the ministry had reviewed the proposed legislation and recognised its potential to improve the sector.
Darma also disclosed that abandoned housing projects funded by the Federal Mortgage Bank of Nigeria (FMBN) across the country were worth about N38 billion.
He said a survey conducted by the ministry revealed abandoned FMBN-funded housing developments in every state of the federation, including the Federal Capital Territory.
“We realised about N38 billion of contributors’ money, your own money, all the Nigerian workers’ money. N38 billion is wasted,” he said.
He said that the poor management of workers’ contributions could discourage Nigerians from contributing to the National Housing Fund.
The minister urged the committee handling the proposed legislation to ensure that state governments were included in the regulatory framework.
He also called for safeguards to protect homebuyers, tenants, developers and mortgage lenders, including mandatory escrow accounts for buyers and standardised tenancy agreements.
The Managing Director and Chief Executive Officer of the Ministry of Finance Incorporated (MOFI), Dr Armstrong Takang, said effective regulation was necessary to restore investor confidence in Nigeria’s real estate sector.
Takang said the sector contributed 12.71 per cent to Nigeria’s Gross Domestic Product (GDP) as of June 2026, but remained largely unregulated.
He said the absence of a national licensing system had allowed unqualified individuals to operate as estate agents and developers without adequate accountability.
“Anyone can sell land, anyone can collect off-plan payments, run into tens of billions and get away with it. There are very few countries in the world where these are allowed,” he said.
He called for mandatory licensing of real estate operators and the protection of buyers’ funds through designated project accounts.
“An operator must be licensed with the authorities. No one should be operating in the real estate sector without a licence, no matter which part of the value chain they are involved in,” he said.
He added that buyers’ funds should be kept in protected project accounts and released to developers based on evidence of progress on construction.
Takang said effective regulation would attract domestic and foreign investment, protect citizens and support the Federal Government’s one-trillion-dollar economy target.
He urged the National Assembly to ensure the passage of the proposed legislation, describing it as critical to bringing order and transparency to the real estate sector.
From Tony Nwachukwu, Lagos
Fintech company OPay has announced the postponement of its planned public offering on the New York Stock Exchange (NYSE), following careful consideration of an ongoing inquiry by a regulatory authority.
The company said the decision to postpone the offering was taken in the best interests of the business and its customers.
In a statement shared with DAILY ASSET, OPay explained that the ongoing inquiry does not affect the services it provides to customers or how it operates in Nigeria and its other business markets.
The company also reassured customers, merchants, agents and other business partners that its operations would continue as usual, with all services remaining fully available.
“Customers can continue sending and receiving money, making payments and saving without interruption,” the statement noted.
OPay expressed appreciation to its customers, merchants, agents, business partners, employees and other stakeholders for their continued trust and support.
The company also reiterated its commitment to making financial services more inclusive through technology
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