BUSINESS
Near Term Inflation Outlook: Bleak Prognosis
By Uche Uwaleke
The public holidays provide an opportunity to reflect on the capital market and economy in general. One macroeconomic indicator that readily comes to mind is Inflation rate which is one of the most closely watched economic metric by investors.
A few days ago, the National Bureau of Statistics reported a slowdown in headline inflation for the 3rd consecutive month with June inflation rate printing at 17.
Although, still elevated and way higher than the CBN’s upper band of 9%, it was a continuation of the slowdown in headline inflation which began in April 2021.
Be that as it may, downside risks to inflation outlook suggest an end to the current disinflation soon. A reversal may kick-in as early as July.
Barring base effects, which apparently played a major role in the downward trend in view of successive high inflation rates of 2020, factors likely to cause a spike in inflation rate for July include increased demand witnessed during the festive period, devastating impact of flooding reported in parts of the country, increased FAAC distribution to tiers of government of circa N733 billion and high exchange rate.
All these, in addition to legacy issues such as insecurity, transportation bottlenecks, high fuel and electricity tariffs, will weigh on commodity prices especially food in July.
Indeed, it is easy to predict the direction of prices (inflation, interest rates and Exchange rates) in the coming months given already known exogenous and endogenous factors.
Last Sunday for example, OPEC+ Ministers agreed to increase oil supply with effect from August in addition to new output quota. Expectedly, basket crude oil prices fell on Monday by circa $2 on average.
Across the globe, there are concerns over demand outlook amidst the spread of COVID’19 delta-variant.
In the US, vaccination progress at nearly 65% of the population is emboldening the Federal Reserve along the path of interest rates normalization.
All these have grave implications for capital flows, exchange rates and by extension inflation in Nigeria.
Back home, the passage of the Petroleum Industry Bill and consent of the National Economic Council for full deregulation of the downstream petroleum sector; fiscal surprises expected from the increase in FAAC distribution on account of naira devaluatiom and strong revenues especially from Petroleum Income Tax will all combine to influence inflation trajectory in the months to come.
Other factors include the approval of supplementary budget of nearly N1 trillion by the National Assembly chiefly for defense spending; the increase in government borrowing threshold by the DMO from 25% to 40% in relation to Debt to GDP as well as the fast depletion in foreign reserves and its consequences for Exchange rates stability.
It goes without saying that growing fiscal imbalance following more borrowing headroom will knock-on interest rates and slow down equities market with portfolio rebalancing in favour of fixed income Securities.
Without prejudice to likely impressive corporate results for H1 2021, a rebound in the stock market may take some time.
Against this backdrop, the MPC of the CBN will likely hold rates again this month, perhaps for the last time this year.
With rising inflation and increasing pressure in the forex market, the CBN may be armtwisted into changing current accommodative monetary policy stance to rein-in inflation and stabilise Exchange rates.
This may be accompanied by another upward adjustment in Exchange rate (naira devaluation) in pursuit of rates unification. This change in policy stance may happen as early as September or in November 2021 during the last scheduled meeting of the Monetary Policy Committee.
The way forward is to reduce the ability of government to engage in fiscal surprises by building buffers using Federation account revenue in excess of N640 billion as earlier agreed to by members of FAAC.
Currently, Excess Crude Account record is a paltry $60.8 million which puts the country in a precarious situation in the event of another oil price shock.
Moreover, liquidity mop up operations undertaken by the CBN often come at great costs.
As things stand now, it would appear that foreign loans should be preferred to domestic loans for the purpose of financing the capital component of the budget.
This is especially so if they are sourced from Multilateral and Bilateral windows considered largely concessional. Such must not include Eurobonds or commercial loans from the International capital market.
On balance, I think the uptake of more foreign than domestic loans is better for the economy at this time without undermining the impact of currency risk.
In the first instance, it will provide temporary relief to external reserves attrition, BOP position and forex market liquidity.
In contrast, continuous domestic borrowing by the government drives up interest rates and crowds out the private sector.
Worse still, using such proceeds to finance dollar-denominated capital components of the budget such as defense spending only draws blood from external reserves and weakens the ability of the CBN to intervene in the market.
Little wonder, the country’s foreign reserves is said to be depleting at a fast rate.
All said, inflation outlook in the near term is bleak. The 2021 budget projects inflation rate to come in at 11.95% by December. This is most unlikely- possibly sometime in 2022.
It bears repeating that given the major drivers of inflation in Nigeria, the government has a major role to play in line with the Fiscal theory of the Price Level. This calls for a strong handshake between the fiscal and monetary authorities.
*Prof Uwaleke is the Head of Banking and Finance Department, Nasarawa State University, Keffi
BUSINESS
My Vision to Simplify Payments in Nigeria with Innovative Solutions – Shema
By Raphael Atuu, Abuja
The Chief Executive Officer of Wireless Pay, Chonedu Shema Emmanuel has said his vision is to simplify payments in Nigeria with innovative solutions through his wireless banking platform.
Mr Sharma stated this during an interview with Daily Assets correspondent in his office in Abuja recently.
“I have launched one of Nigeria’s Leading payment platforms, ensuring seamless and efficient financial transactions online, the app is a subsidiary of Wired Banking Africa and collaborates with Asset Matrix MFB to deliver secure and efficient payment solutions. ”
“My company has an app with key features like NFC tap-to-pay for softPOS, enabling merchants to effortlessly receive card payments, and an alternative USSD option for customers who prefer to pay with USSD codes. Virtual accounts are also available for those who prefer transfers, and merchants can request physical cards for transactions with an impressive 99.9% uptime.”
Mr Shena added that his vision for the future of Wireless Pay includes sustained growth, expanded services, and becoming a trusted industry leader in payment processing, contributing to financial inclusion across different regions.
While advising the public to take advantage of wireless pay ‘s high features, secure infrastructure, and global accessibility, to transact business, the company is set to capture the business market.
The CEO maintained that the company is registered as Wireless Pay Technologies Limited in Nigeria, the US, and the UK, with a physical office in Abuja, and an entity under WOBILO Africa Limited, Wired Banking Africa, and Corporate Permit and Consultants Limited, further establishing its credibility and commitment to providing reliable payment solutions.
“It has a collaboration with Asset Matrix MFB to ensure seamless integration and efficient services, the founder stressed that the platform offers transparent pricing, with card transactions capped at 0.5% up to 100 naira and USSD collections capped at 1.3% up to 1,300 naira. Withdrawals and bank transfers incur a flat fee ranging between 15-20 naira.”
BUSINESS
Afreximbank Closes $282m India-Focused Club Deal
By Tony Obiechina, Abuja
The African Export-Import Bank (Afreximbank) has announced the successful completion of a first-of-its-kind India-focussed club deal for US$282.00 million.
Initiated for the exclusive participation of Indian lenders, and arranged by Bank of Africa UK PLC, the primary syndicated club deal saw participation from Indian lenders through their overseas branches and subsidiaries in the Dubai International Financial Centre in the United Arab Emirates, Singapore and Mauritius.
The facility, which was backed by six participating banks and financial institutions, including five that joined as first-time lenders to Afreximbank, helping the Bank achieve its objective of diversifying its funding sources, carries a three-year tenor.
At a commemorative event held in Dubai, U.A.E., to mark the conclusion of the deal, Haytham ElMaayergi, Executive Vice President at Afreximbank, said that the conclusion of the initiative represented a major milestone for the Bank as it sought to fulfil the key objectives of its funding programme.
Highlighting the importance of investing in, and for, Africa, Mr. ElMaayergi said: “this facility will help Afreximbank to continue to play a major role in the development of intra-African trade and trade between Africa and the rest of the world, particularly with India.
It is a testament to the rapid growth in Africa’s economic relationship with India and is evidence of Afreximbank’s growing ability to harness resources into Africa and to fund trade finance related investments that would have a positive impact on trade between Africa and India.”
Chandi Mwenebungu, Director and Group Treasurer of Afreximbank, reviewing the Bank’s vision for Africa, said that its funding objectives included achieving the diversification of its liability book by geography, investor type and tenor.
Also addressing guests at the event were Said Adren, CEO of Bank of Africa UK PLC, who thanked the lenders for their participation, and Zineb Tamtaoui, General Manager of Bank of Africa, Dubai Branch, who expressed appreciation for the opportunity to put together “a landmark deal that would be a stepping stone to many India-focused club deals going forward.”
BUSINESS
CBN Unveils New Minimum Capital Requirements For Banks
Gives Them 24 months To Recapitalise
By Tony Obiechina, Abuja
Days after urging Nigerian banks to expedite action on the recapitalisation of their capital base in order to strengthen the financial system, the Central Bank of Nigeria (CBN) on Thursday, March 28, 2024, unveiled new minimum capital requirements for banks, pegging the minimum capital base for commercial banks with international authorisation at N500 Billion.
Confirming this in Abuja, on Thursday, March 28, 2024, the Acting Director, Corporate Communications Department, Mrs.
Hakama Sidi Ali said the new minimum capital base for commercial banks with national authorisation is now N200 Billion, while the new requirement for those with regional authorization is N50 Billion.Mrs. Sidi Ali also disclosed that the new minimum capital for merchant banks would be N50 Billion, while the new requirements for non-interest banks with national and regional authorisations are N20 Billion and N10 Billion, respectively.
A circular signed by the Director, Financial Policy and Regulation Department, Mr. Haruna Mustafa, to all commercial, merchant, and non-interest banks and promoters of proposed banks emphasized that all banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026
According to the circular, the move, initially disclosed by the CBN Governor, Olayemi Cardoso, in his address to the Annual Bankers’ Dinner in November 2023, was to enhance banks’ resilience, solvency, and capacity to continue supporting the growth of the Nigerian economy.
To enable them to meet the minimum capital requirements, the CBN urged banks to consider inject fresh equity capital through private placements, rights issues and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrade or downgrade of license authorisation.
Furthermore, the circular disclosed that the minimum capital shall comprise paid-up capital and share premium only.
It stressed that the new capital requirement shall not be based on the Shareholders’ Fund.
“Additional Tier 1 (AT1) Capital shall not be eligible for meeting the new requirement. Notwithstanding the capital increase, banks are to ensure strict compliance with the minimum capital adequacy ratio (CAR) requirement applicable to their license authorisation.
“In line with extant regulations, banks that breach the CAR requirement shall be required to inject fresh capital to regularise their position,” it added.
The CBN circular said the minimum capital requirement for proposed banks shall be paid-up capital, adding that the new minimum capital requirement shall apply to all new applications for banking licenses submitted after April 1, 2024.
It noted that the CBN would continue to process all pending applications for banking licenses for which a capital deposit had been made and/or an Approval-in-Principle (AIP) had been granted.
However, it said that the promoters of such proposed banks would make up the difference between the capital deposited with the CBN and the new capital requirement no later than March 31, 2026.
Meanwhile, the CBN said all banks are required to submit an implementation plan (clearly indicating the chosen option(s) for meeting the new capital requirement and various activities involved with their timelines) no later than April 30, 2024.
The CBN also disclosed that it would l monitor and ensure compliance with the new requirements within the specified timeline.