Second Wave of Naira Devaluation Expected
The Naira could see further weakening in the coming weeks as unofficial market rate hits N450 amid a scarcity of the greenback.
Despite the weakening of the Naira’s official rate from 306/$ to 360/$, analysts say the currency is still too strong and some estimated it should trade around 410/$.
The interbank rate was quoted at 387 naira per dollar late afternoon on Monday while twelve-month naira forwards was trading at 509 naira per dollar.
Chapel Hill Denham analyst Omotola Abimbola told Bloomberg that Retail investors are trying to diversify their portfolios by shifting to foreign-currency assets.
The CBN had in late March suspended sales of dollars to Bureau De Change (BDC) operators until further notice, a move seen to manage its dwindling FX supply amid speculative attacks in an economy grinding to halt over the novel coronavirus.
With the gradual easing of lockdown in Lagos, Ogun, Abuja, Nigeria’s commercial, industrial and Federal capitals, the transaction demand for dollars is expected to increase from next week, weakening exchange rate further in the unofficial market.
With an FX reserve of around $33bn, Brent oil price at less than $20, the CBN would be relying on facilities it is currently seeking from institutions like IMF and World Bank to shore up the reserve.
Moody’s downgrade Nigerian lenders
Moody’s Investors Service, a leading provider of credit ratings, research and risk analysis, on Monday changed its outlook for Nigeria’s banking system to negative from stable.
The change reflects the firm’s view that banks will face weakening loan quality and foreign-currency liquidity challenges as depressed oil prices and the coronavirus pandemic weigh on Nigeria’s economy.
These new difficulties add to existing headwinds from weak economic growth and rising regulatory costs.
Nigeria’s largest banks, however, will continue to benefit from a high probability of government support.
The Moody’s report revealed that Nigerian banks’ high exposure to foreign-currency loans will be a further asset quality pressure point in the event of a naira devaluation. Some 41 percent of loans extended by Moody’s-rated Nigerian banks are denominated in foreign currencies, predominantly dollars. Some of these borrowers are vulnerable to a devaluation of the naira, as they do not earn foreign-currency income. A weaker naira would increase their debt repayments so reducing their repayment capacity.
“We expect some foreign-currency loans to be converted into local currency if persistent low oil prices pressure the naira exchange rate,” Moody’s said.
The US-based investor services firm expects Nigerian banks’ profitability to weaken substantially due to lower lending margins and higher costs, with return on assets falling to 0.5 percent-1 percent in 2020 from about 2.5 percent at year-end 2019. Constrained interest income because of limited loan volumes and lower asset yields, cost pressures from investments in IT, a levy to cover the cost of banking resolution and higher loan-loss provisions will strain banks’ profits.
According to Moody’s, Nigerian banks’ local currency liquidity and funding profiles will remain strong. The banks’ proportion of liquid assets to overall deposits was high at about 38 percent in 2019, surpassing the regulatory requirement of 30 percent. However, Nigeria has historically been susceptible to outflows of dollar deposits in times of financial and exchange-rate policy uncertainty or low oil prices.
“We expect the growth of foreign-currency deposits, which contribute about 25 percent of total deposits, to fall substantially. This will lead to renewed foreign-currency shortages if low oil prices persist,” analysts at Moody’s said.
Polaris Bank grows profit 836% to N26.2bn in 2019
Polaris Bank, the bridge bank created to take over the assets and liabilities of Skye Bank, has announced a profit of N26.2bn in 2019, approximately 836% more than it made in the prior year.
This result comes “amidst the highly challenging business environment which forced many businesses to cut down on their operating expenses,” the lender said.
Polaris posted a gross earnings figure of ₦150.8bilion and a Profit Before Tax (PBT) of N27.8billion within the first full year of operations.
The Bank also closed the 2019 financial year with Total Assets of N1.1trillion and Shareholders Funds of N83billion, with a Capital Adequacy Ratio of 14% and liquidity ratio of 81%, above regulatory requirements.
The Bank’s customer deposits stood at N857.9billion while the loan book stood at N261billion.
Sunmonu succeeds Aig-Imoukhuede as Wapic Insurance Chairman
Wapic Insurance on Monday announced the appointment of Mutiu Sunmonu as Chairman, Wapic Insurance Plc, to succeeds Aigboje Aig-Imoukhuede whilst Bode Osunkoya is appointed Chairman, Wapic Life Assurance Ltd.
The announcement followed the retirement of Aig-Imoukhuede on April 27, 2020, after 8 years of diligent and committed service to both organisations.
According to the companies, “this board-leadership transition heralds the second phase of our growth plan, which is focused on extending our culture of distinction in service excellence, innovation, technology, sustainability practices and operational efficiency”. The companies added, “During the first transformation phase under Aig-Imoukhuede’s exemplary leadership, Wapic Insurance and Wapic Life Assurance implemented a number of transformational initiatives that stabilised and returned the 62-year old company to profitability and enabled Wapic to take its place amongst Nigeria’s Top 10 Underwriting companies”.
COVID-19 update
The Federal Government has approved for a phased and gradual easing of the COVID-19 lockdown measures in FCT, Lagos and Ogun States effective from Monday, May 4.
The highlights of the new measures, according to President Muhammadu Buhari, include that selected businesses and offices can open from 9 am to 6 pm; there will be an overnight curfew from 8 pm to 6 am, which means all movements will be prohibited during this period except essential services.
The president said there will be a ban on non-essential inter-state passenger travels until further notice, and partial and controlled interstate movement of goods and services will be allowed for the movement of goods and services from producers to consumers, and there will be mandatory use of face masks or coverings in public in addition to maintaining physical distancing and personal hygiene.
“Furthermore, the restrictions on social and religious gatherings shall remain in place. State governments, corporate organisations and philanthropists are encouraged to support the production of cloth masks for citizens,” Buhari said.
He, however, said this will be followed strictly with aggressive reinforcement of testing and contact tracing measures while allowing the restoration of some economic and business activities in certain sectors.
For the avoidance of doubt, the president said the lockdown in the FCT, Lagos and Ogun States shall remain in place until these new ones come into effect on Monday, May 4. A two-week lockdown has been announced for Kano.
64 new cases of COVID19 were reported On Monday; 34 in Lagos, 15 in FCT, 11 in Borno, 2 in Taraba, and 2 in Gombe totalling 1337 confirmed cases of COVID19 reported in Nigeria, with 225 Discharged and 40 Deaths.
