The Good, The Bad And The Ugly Of Q1 2016 | Independent Newspapers Limited
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The Good, The Bad And The Ugly Of Q1 2016

Posted: Apr 11, 2016 at 2:20 pm   /   by   /   comments (0)

Many Nigerians were optimistic that the Year 2016 will go the way of 2015 which witnessed unprecedented economic downturn which was majorly cause by poor revenue from the sale of oil in world market.

In 2015, the nation’s apex bank, the Central Bank of Nigeria (CBN) tried out various measures as part of its efforts to curb naira volatility but all these seem not to have yielded the desired results and with this, it was obvious that more work are expected in this regard.

The evidence that the year 2016 will not be particularly different from 2015 was displayed early in the first quarter of 2016 when the CBN Governor, Mr. Godwin Emefiele, announced the intention of the bank to discontinue the sale of foreign exchange to Bureaux De Change (BDC) operators in the country.

According to him, the move became necessary because the BDCs had become, “A conduit for illicit trade and financial flows” and were contributing to the naira’s weakness on the parallel market.

Emefiele also announced at the media briefing that the CBN had lifted the restriction it placed on commercial banks a few months earlier preventing them from accepting cash deposits of foreign exchange from their customers.

But the main highlight of the briefing was clearly the stoppage of dollar sales to BDCs. The CBN had sold dollars to BDC operators for the better part of 2015, in its bid to keep the official and parallel market rates of the naira close to each other.

Thus the announcement that the sale had been stopped drew angry reactions from the Association of Bureaux De Change Operators of Nigeria (ABCON), which argued that the move would not only result in a further widening of the gap between the official and parallel market rates of the naira, but would also lead to most of its members closing shop.

No To Devaluation

However, despite the naira actually depreciating further against the dollar on the parallel market, fuelling calls by international investors that the local currency should be devalued, the CBN stuck to its position that it did not believe the time was right for another devaluation of the naira.

Significantly, the CBN received crucial support on the issue from President Muhammadu Buhari, who, on several occasions during the period under review, reiterated his opposition to the devaluation of the naira.

For instance, speaking at an interactive meeting with Nigerians living in Kenya during his visit to the East African country late last January, President Buhari maintained that while export-driven economies could benefit from devaluation of their currencies, devaluation will only result in further inflation and hardship for the poor and middle classes in Nigeria’s import-dependent economy.

Likening devaluing the naira to having it “killed”, President Buhari said that proponents of devaluation will have to work much harder to convince him that ordinary Nigerians will gain anything from it. The President also took sides with the CBN over the regulator’s row with BDCs. He was reported as saying that the BDC business had become a scam and a drain on the economy.

He alleged that some bank and government officials used surrogates to run the BDCs and prosper at public expense by obtaining foreign exchange from government at official rates and selling it at much higher rates. Similarly at another gathering in London, President Buhari attributed the stoppage of dollar sales by the CBN to BDC operators to fraudulent acts perpetrated by some CBN Directors.

The President disclosed that he discovered that some CBN Directors used BDCs that they own to shortchange the government. “We found out that some Directors of CBN owned BDCs and when foreign exchange comes, they take it to their bureau de change and give government the change,” he said.

However, according to forex dealers, the President’s remarks were in fact responsible for stemming the rapid slide of the naira against the dollar on the parallel market in a few weeks of extreme exchange rate volatility.

During that period, the naira had fallen to an all time low of N405 to the dollar on the parallel market only to suddenly appreciate to about N330 to the greenback in less than 24 hours.

However, industry analysts said that apart from the President’s statement, a number of measures taken by the apex bank also led to the naira’s recovery. They cited the CBN’s decision to publish all forex sales from the inter-bank market and its mop-up operations, which reduced the excess liquidity that usually drives currency speculation.

Job cuts

Though analysts had predicted that CBN’s forex measures coupled with other regulatory headwinds would impact banks’ earnings so severely that some of them would be forced to sack employees, the widespread expectation was that this would most likely occur in the second quarter after the first quarter results had been released and lenders had taken stock of their performance.

Indeed, respected financial analyst and Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane, had forecast that lenders would commence “massive” staff layoffs in the second quarter of 2016.

Still, industry watchers were not completely surprised when First City Monument Bank (FCMB) last January confirmed reports that it had let go some of its employees. A few weeks later, Ecobank Nigeria also confirmed that it too had sacked staff that failed to measure up to standards. Analysts believe that more banks are likely to reduce their staff strength in the coming months as part of efforts to cut cost.

In fact, the tough times compelled banks such as FCMB, First Bank, Diamond Bank and Ecobank Transnational Incorporated (ETI) to issue profit warnings over their 2015 results.

As some of the 2015 full year results so far released by banks show, despite a largely consistent performance by tier one lenders such as Guaranty Trust Bank, Zenith Bank, Access and UBA, the industry is really reeling from the harsh business environment.

But if the 2015 results of most banks were below expectation, analysts believe that the final stage of the CBN’s abolition of the Commission on Turnover (COT) charged current accounts, which commenced in the period under review, could mean that lenders would report even less impressive performances this year.

This is because although the CBN had in a circular issued in 2013 outlined plans to gradually phase-out the COT by 2016, latest data shows that several banks still source a significant part of their income via COT.

Aside from the issues of naira volatility and the challenges that banks are contending with, another issue that made headlines in the period under review was the CBN’s announcement in March that some of its key officials were suspended over the scamming of the apex financial institution by some fraudsters.

According to reports, those suspended included the Deputy Governor, Financial System Surveillance, Joseph Nnanna and four deputy directors. They were reportedly suspended for failing to follow financial regulations and due process thereby making it possible for the fraudsters to strike.

Also, during the period under review, UBA’s announced the appointment of Mr. Kennedy Uzoka as its new Group Managing Director, with effect from August 1st, 2016 and subject to the approval of the CBN. Mr. Uzoka succeeds Phillips Oduoza, who is expected to retire on July 31, 2016. With new CEOs resuming at First Bank and Ecobank Nigeria in January, it means that new helmsmen took charge of three of the industry’s big lenders this year.

In addition, during the period under review, there was an unsuccessful attempt by the Consumer Advocacy Foundation of Nigeria (CAFON) and the Coalition of Nigerian Consumer Protection Associations to organize a boycott of banks on March 1st.

The boycott call was, however, widely ignored by bank customers who shunned the organizers’ plea not to enter banking halls, make transfers, deposit or use their cards for any transaction throughout that day.

According to analysts, although the naira seemed to stabilise against the dollar on the parallel market as the first quarter drew to an end, the continuing gloomy outlook for oil prices coupled with growing uncertainty over the economic direction of the Nigerian Government, means that tough times are not yet over for the local currency and the banks.