E-Financial
FSDH Seeks Buffers Against Dangers of Easy Money
FSDH Merchant Bank Limited has called on the Federal Government and corporate organisations to implement measures to counter the negative implications of low interest (easy money) regime prevailing in the global economy.
The company made this call in the August 2019 edition of its Monthly ‘Economic and Financial Markets Outlook’, warning that the low interest rate regime, which is driven by expansionary policies in developed and developing economies in a bid to stimulate economic growth, can be reversed anytime leading to high interest rate and the risk of capital flight.
Speaking at the media presentation of the report, Head of Research, FSDH Merchant Bank, Mr. Ayo Akinwunmi, stressed that while the low interest rate regime makes it cheaper for governments and corporate institutions to borrow, it should not be seen as an opportunity to increase deadweight debt, but as an opportunity to access long-term funds that can be used to improve the wellbeing of the economy in order to generate increased revenue for all the economic agents.
He said: “Individuals, companies and governments can now borrow money both from the domestic and foreign financial markets cheaper than in the last few months. FSDH Research has observed that many banks and other credit providers in Nigeria have recently begun aggressively pushing credit to their customers.
“The Federal Government of Nigeria is refinancing maturing debt obligations and taking on new debt at cheaper rates because of the low interest rate environment.
“Foreign Portfolio Investors (FPI) are aggressively investing in fixed income securities in Nigeria with reasonable yields because of the low interest rates in advanced countries and the expectation of a further interest rate cut, particularly in the US.
“FSDH Research warns that the current developments in the global financial market may change, leading to rising interest rate and possible capital flight, particularly from developing countries. Therefore, companies and countries need to build buffers to protect themselves.”
Highlighting measures to explore the benefits of the easy money condition for long term growth, Akinwunmi said: “Companies may wish to issue debt capital at this moment to expand business operations and create additional lines of business that can generate improved earnings for them.
“When the financial market becomes tight again with rising interest rates, companies may then modify their capital structure in favour of equity capital and hopefully their earnings would have grown in order to eliminate the dilutive effect of increased equity capital on return-on-equity “In doing this, it may be important to provide forex hedging mechanism for foreign loans.
The FGN may also take advantage of the current low interest rate to access long-term debt and channel it specifically towards building the capacity of the economy to generate more revenue.
“Investment in infrastructure, security, education, healthcare and other social safety net will improve the productivity of the country and provide an opportunity for government to generate future tax revenue.
‘‘This strategy will increase the stock of foreign exchange in the country and may reduce inflation rate.”
Titan Trust Bank has selected Oracle FSS for its core and digital banking technology, it is understood.
The start-up bank recently obtained its license by the Central Bank of Nigeria (CBN).
It’s understood that Temenos and Infosys also competed for the deal.
The shortlist came down to the two most widely installed international core systems in Nigeria, Infosys’ Finacle and Oracle FSS’s Flexcube.
The Nigerian banking sector has seen a great deal of upheaval over the years, with many mergers, start-ups and closures. Flexcube is a well respected name since the late 1990s (the pioneer was Access Bank, now one of the country’s top five banks) and has been a commonly selected platform since then.
The new bank is believed to be one of five to have gained regulatory approval of late (Globus Bank is another).
Local media sources say the new licences stem from the Central Bank’s desire to attract new investments into the sector and better serve the country’s 50 million+ unbanked and under-banked citizens.
Titan Bank is said to be headed by a former executive director of Heritage Bank (which is a Finacle user).
Oracle FSS did not respond to request for comment.
International Monetary Fund (IMF), has appointed Tony Elumelu, Nigerian billionaire and group chairman of Heirs Holdings, owners of United Bank of Africa, to its advisory council on entrepreneurship and growth, convened by Kristalina Georgieva, the fund managing director.
The announcement was disclosed in a statement on Friday.
According to the statement, the IMF advisory council comprises global business leaders, policymakers, and academics dedicated to identifying and addressing regulatory barriers to entrepreneurship.
The IMF said Elumelu will be instrumental in ensuring that Africa’s entrepreneurship is central in policy making.
“Elumelu, Africa’s leading advocate of entrepreneurship and whose Foundation has funded, mentored, and trained over 25,000 African entrepreneurs since 2015, champions entrepreneurship as the engine for the economic transformation of Africa,” the statement reads.
“A self-made entrepreneur, Elumelu’s embracing of entrepreneurship is fundamental to his concept of Africapitalism, his belief that Africa’s private sector can and must play a leading role in the continent’s development, making long-term investments that deliver social and economic value.
“Elumelu will be instrumental in ensuring that Africa’s entrepreneurial potential is central to global economic policy making.”
Speaking at the inaugural meeting of the advisory council on March 26, Georgieva said the appointees would share their experiences on how macroeconomic and financial policies “can provide a supportive environment for innovation, entrepreneurship, and productivity — key ingredients for a thriving private sector and strong economic growth”.
Africa’s Micro, Small, and Medium Enterprises, fintech industry, scaling remittances, and cross-border payments will be the driving forces behind the continent’s digital ballooning payments system, which is estimated to reach $1.5 trillion by 2030.
This is according to a MasterCard-commissioned study by Genesis Analytics, which states that the digital payments economy is growing faster on the continent.
This comes as the World Bank says Sub-Saharan Africa has shown significant growth in financial inclusion over the past decade, much of it driven by mobile money account adoption.
Dimitrios Dosis, president, Eastern Europe, Middle East and Africa at MasterCard, comments: “Africa is filled with immense possibilities, and its people have the potential to shape the global economy in the decades ahead.
“MasterCard remains deeply committed to driving digital transformation across the continent, working closely with entrepreneurs, merchants, banks, start-ups, telcos, and governments. By increasing our investments, expanding innovation, and fostering inclusion, we are helping build a more connected and accessible digital future.”
The payment technology company went on to say as a longstanding technology partner to Africa, its continues to strengthen its commitment to the continent’s digital growth through strategic investments, public-private partnerships, and innovation initiatives that drive financial health and economic growth.
In addition, it says trends in Africa signal a strong shift towards digital transactions, with businesses and consumers increasingly embracing contactless solutions, further accelerating economic participation and financial accessibility across the region.
“For over five decades, MasterCard has worked alongside African governments, businesses, and communities to advance financial inclusion and economic development.
“With Africa projected to host nine of the world’s 20 fastest-growing economies, we are focused on leveraging our expertise and a technology to support the continent’s continued digital transformation.
“Our investments today will help build a more resilient economy for the future,” says Mark Elliott, division president, Africa, MasterCard
By fostering collaboration with key stakeholders, MasterCard says it aims to enhance digital connectivity, expand economic opportunities, and enable millions of people and businesses to thrive in the digital economy.
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