Banks, Govts Set to Retrench Staff

Deposit Money Banks (DMBs) and state government may soon commence massive staff retrenchment according to Mr. Bismarck Rewane, managing director, Financial Derivatives Company Limited (FDC), has predicted.

Rewane who made this forecast in his firm’s projection for 2016, also stated that State governments will retrench a significant number of workers in the first quarter of this year.

He, however, predicted that, “There will be massive civil works and construction (of roads, bridges, railways) in 2016 (and) oil prices will recover to $55pb by Q2’2016.”

Rewane further forecast that, the benchmark interest rate-the Monetary Policy Rate (MPR)- will be reduced to 10per cent per annum while the Cash Reserve Ratio (CRR) to 15per cent.”

According to him, “Accommodative monetary policy- lower interest rate and increase liquidity -and expansionary fiscal policy- bailout payment and N6trillion proposed budget will reflate the economy.”

Other predictions made by the FDC boss include that, “Inflation will spike to 11per cent in Q1’2016 before falling to 9per cent in Q3’2016; official rate of the naira will depreciate to N220/$ (and) parallel market rate will appreciate to N235/$.”

This is because with the price of oil, which is responsible for 70 per cent of Nigeria’s revenue predicted to fall to $20 per barrel, lenders may be forced to restructure their credits and debts locally and abroad.

This implies that banking industry’s ratio of nonperforming loans would exceed the stipulated 5 per cent threshold. Indeed, in a statement issued last month, Fitch Ratings noted that Nigerian banks’ non-performing loans have been rising over the past 12 months.

“We expect them to rise above the central bank’s five per cent of total loans cap but to remain below 10 per cent at year-end,” the agency stated.

Similarly, banks that have borrowed foreign denominated currencies would also be forced to restructure their debts as the naira is being expected to be devalued by a minimum of 22 per cent – meaning that lenders would have to put in extra efforts to generate enough cash to repay their debts. Furthermore, analysts point out that banks are still reeling from the full implementation of the Treasury Single Account (TSA).

It will be recalled that the policy led to the withdrawal of public sector deposits-a cheap source of funds for lenders.

A bank executive, who spoke on condition of anonymity because of the sensitive nature of the issue, told this newspaper that the tough times that the industry faced last year were likely to be child’s play compared to what it will face this year.

He pointed out that the International Monetary Fund’s (IMF) recent prediction that oil could slump to $20 per barrel in 2016 had made prospects for Nigerian banks this year worse. He said, “If the IMF’s prediction comes to pass, the impact on the industry will be devastating.

Banks are highly exposed to the oil and gas sector. But these loans were given out when oil prices were above $100.

Since June 2014 when the sharp decline in the price of oil started, many of these companies have begun to default on their loans. This has resulted in most banks having to restructure these loans.

But any further decline in oil prices as the IMF is predicting will clearly make the situation unmanageable and we could have another crisis triggered by a surge in Non-Performing Loans (NPLs).”

The Central Bank of Nigeria (CBN) in its Financial Stability Report for December 2014, obtained by the New Telegraph, had noted that sustained low oil prices could trigger an increase in NPLs especially as the exposure to the oil and gas sector accounted for 25.70 per cent or N3.24 trillion of the total credits of N12.63 trillion at end- December 2014.