• Friday, March 29, 2024
businessday logo

BusinessDay

Banks to cut off lending tap: Five things to start your day

start your day

Why banks could cut off lending tap to economy

Deterioration in macroeconomic conditions brought on by the coronavirus pandemic and a sharp drop in crude oil price could force banks to stop lending to the real sector of the economy.

Analysts say banks will be reluctant to create new loans in view of the disruption to economic activities following the lockdown in some key states across the country as well as the increased risks to asset quality.

That’s a double whammy for a country reeling from high employment rate, spiraling inflation, and decrepit infrastructure, and the virus has compounded such woes.

With business activities grinding to a halt due the spread of the pandemic, customers may find it difficult to pay interest on money borrowed from financial institutions.

Credit creation to the economy has been improving since the central bank introduced stringent measures such as hike in minimum loan-to-deposit ratio to 65 percent, as well as banning corporates and pension fund administrators (PFAs) from participating in its Open Market Operation (OMO).

According to the recent data on the banking sector released by the National Bureau of Statistics (NBS), banking sector credit to the economy grew for the second consecutive quarter by 5.8 percent quarter on quarter (q/q) in the fourth quarter (Q4) 2019 to N17.2 trillion, the highest level since 2007.

Accordingly, credit growth rose significantly by 14 percent year on year (y/y) in 2019 compared to the decline of 4 percent in 2018.

Here’s what could go wrong after 3 German banks join Siemens deal 

Three of Germany’s biggest banks – Deutsche, Commerzbank, and KfW – have expressed an interest in providing financing to support the Siemens power deal with the Nigerian government, BusinessDay has learnt, even as the deal is fraught with teething challenges.

Abba Kyari, chief of staff to President Muhammadu Buhari, Sale Mamman, minister of power, and their entourage met with Siemens executive and senior officials of these banks on March 9 to discuss the proposed $1.6bn power deal.

The discussions were inconclusive, according to some people with knowledge of the meeting.

According to an early draft of the negotiation between the Nigerian government and Siemens, a German bank through Siemens will fund an SPV (special purpose vehicle) or public entity to carry out the project. It is to be repaid by collections from DisCos, backed by the Ministry of Finance.

However, DisCos’ finances are awful. There is an estimated shortfall of over N2.4 trillion in the Nigerian Electricity Supply Industry, which consists of market shortfall of N1.335 trillion caused by DisCos’ inability to collect adequately and fully remit their collections, and tariff shortfall of N1.109 trillion caused by the regulator’s decision not to allow cost-reflective tariffs according to a new government report.

Piling $1.6 billion debt on a weakened balance sheet presents a difficult challenge.

The deal had previously included a floating interest and lower equity contribution from Nigeria of around 20 percent on some key projects. Tenor would be for the construction period of two years plus repayment term of eight to 10 years.

These terms have since changed. The three banks could finance the project at 2 percent interest if negotiations proceed according to plans. The German government will provide a guarantee.

NSE index declines by most in 5yrs 

The Nigerian Stock Exchange (NSE) All Share Index as at market close on March 31 recorded its single biggest monthly decline in five years as the bourse shed about 4,915 points in the month, outpacing the selloffs experienced during the economic recession in 2016.

The biggest monthly decline on record remains October 2008 when the NSE shed up to 9,890.27 points in the aftermath of a global financial meltdown coupled with a sharp decline in global oil demand, leading oil prices to collapse from a record $144.28 in July 2008 to $33.87 in December 2008. The massive oil price decline of 76.5 percent brought about the second biggest decline of the NSE-ASI by 9,637.02 point in January 2009.

Meanwhile, since then the Nigerian stock market has crashed every time oil prices plummeted at an alarming rate. The stock market shed 5,098.08 points in January 2015 as oil prices tumbled again from $115 in June 2014 to $49 in January 2015. The NSE Index dropped by around 12,920.41 points during the same period.

The index performance in March slightly outpaced the selloffs recorded in January 2016 when oil prices fell below $30 for the first time in several years. The NSE-ASI dipped by 4,726.10 points in January 2016, about 200 points less than was recorded in March 2020, making it the fifth worst month on record in the local bourse.

However, the crash in oil prices from $73 in April 2019 to $26 in March 2020 is not the only factor responsible for the current selloffs on the NSE. The global outbreak of the coronavirus is also at the heart of these selloffs as the Nigerian economy comes under pressure due to the effect of full lockdowns in Nigeria’s biggest city economies, including Lagos where the local bourse is situated.

The selloff is driven both by local and foreign investors exiting the stock market to buy dollars largely as a hedge against potential losses arising from uncertainties caused by declining oil prices and a COVID-19 outbreak.

FG grants three-year tax holiday to 25 companies 

The Federal Government has granted a three-year tax incentive to 25 companies under the Industrial Development Income Tax Act.

A pioneer status is an incentive from the Federal Government, which exempts companies from basic income tax.

The incentive is also known as tax holiday and it is generally regarded as an industrial measure aimed at stimulating investments into the economy.

This means companies with a pioneer status do not have to pay tax for a certain period of time, thus allowing the firms to get established. This can be a full or partial tax exemption.

The products or companies suitable for this pioneer status are industries or products that do not already exist in the country; the existing industries do not meet the required needs.

An analysis of the 2019 Pioneer Status Incentive report released by the Nigeria Investment Promotion Commission showed that 25 companies were given the three-year tax holiday.

The companies that got the waivers are Royal Mills and Foods Limited, UVA Limited, Pinnacles Apartments Development Limited, Obu Cement Company Limited, Saba Steel Industries Nigeria Limited, Gowus Nigeria Limited, Fidson Healthcare Plc, Gowus Nigeria Limited, Lafarge Africa Plc, Edimara Properties Limited and Wacot Rice Limited.

Others are Tribon Aqua Africa Limited, Grand Pela Hotels, Globus Resources Limited, Karshi Agro Farms Limited, Crown Flour Mills Limited, Dharul Fertilizer Limited, Olam Hatcheries Limited, Harvestfield Industries Limited, and Jabi Mall Development Company Limited.

The rest are Power Gas Global Investment Limited, Polar Petrochemicals Limited, Royal Pacific Group Limited, Montego Upstream Services Limited, Dangote Sinotrucks West Africa and Hayat Nigeria Ltd.

Nigerian actress Funke Akindele arrested after hosting party during lockdown 

Funke Akindele, a prominent Nigerian actress, was arrested Sunday evening by the Lagos state police command for hosting a house party, in violation to the lockdown order in the state.

Akindele hosted a party Saturday to celebrate the birthday of her husband, Abdulrasheed Bello, also known as JJC Skills, that may have  contravened the lockdwon rules.

President Muhammadu Buhari had ordered a 14-day lockdown in Lagos, Ogun and Abuja so as to prevent the spread of the Coronavirus pandemic.

Under the lockdown, all gatherings of more than 25 people are banned in Lagos, Nigeria’s biggest city, which has an estimated population of 20 million people.

Lagos is the epicentre of the virus outbreak, accounting for around half of the total confirmed cases in the country.

It is not clear from the video, posted online by JJC Skillz, whether the party exceeded that limit – but it has nevertheless been widely condemned for setting the wrong example.

Bala Elkana, the state’s police spokesperson, confirmed Akindele’s arrest in a statement.

“Attention of Lagos State Police Command was drawn to a viral video showing a large number of persons mainly in the entertainment industry in an Estate, along Ajah, Ibeju-Lekki axis, Lagos celebrating a birthday party organised by Funke Akindele Bello and her husband,” the statement read.

“Police detectives from the State CID Yaba were promptly drafted to the location. Funke Akindele was arrested.”

The police PRO said the command has also intensified efforts to arrest Bello and music artiste, Azeez Fashola, otherwise known as Naira Marley.

“Investigation is ongoing, efforts are intensified to arrest the remaining persons in the video, among whom are Azeez Fashola a.k.a Naira Marley and Abdul Rasheed Bello a.k.a. JJC Skillz,” the statement added.

“They are in their best interests urged to report at the State CID Yaba on Monday 6th April, 2020 or risk being declared wanted.”