E-Financial
Mixed Oil Markets and Q2 Slowdown Signal Economic Warnings to Nigeria
By Lukman Otunuga, Senior Research Analyst at FXTM,
Another recent escalation in the trade dispute between the US and China has punished crude Oil prices and set off warning signals for Oil-producing countries like Nigeria.
At the same time, Nigeria’s GDP slowed down to 1.94 percent in the second quarter from 2.1 percent in the first quarter, following the trend seen in several economies such as Germany and the UK.
It is becoming quite clear that as long as oil dependence remains one of Nigeria’s biggest risks, this will continue weighing heavily on the economy for the rest of 2019. While the GDP data should nudge the Central Bank of Nigeria (CBN) to cut interest rates for the second time this year in September in an effort to stimulate growth, this is a temporary fix to a bigger problem
What trade disputes mean for Nigeria’s economy
Persistent trade disputes between the world’s two largest economies is set to fuel fears over a global slowdown or even recession. Oil prices declined on the basis that a decelerating global growth may result in lower demand for the commodity Nigeria relies on for 90% of its export earnings.
In the context of a trade dispute, tariffs are like bombs exploding on trading relationships, supply deals and eventually on company profits.
Trade tensions also remain a direct threat to Nigeria’s economy. The risk factors are escalating along with the probability that the world may see an economic slowdown in the short-to-medium term.
Under the current circumstances, there are three main challenges Nigeria must navigate. They are China’s slowdown, lower oil prices, and the need for fast and adaptive monetary policy to handle local and external shocks.
Will China impact Nigeria’s growth prospects?
China’s growth slowed to 6.2% in the second quarter, its weakest expansion in three decades.
Most recently, China’s backing in the form of loans reached $16 billion and its vested interest is seen as a key support for the current production level of 1.85 million barrels per day.
However, Nigeria aims to reach three million barrels per day and needs more investment from China, which may prove to be more difficult going forward if China’s economy continues to decline.
The high level of debt to China is also proving to be a weight on fiscal revenues because Nigeria spent 50% of its 2018 government revenues on debt repayment.
Indeed, the IMF has urged Nigeria to curb its large appetite for Chinese loans as the country struggles with a €70 billion debt burden. That’s up from €62 billion in 2017, representing a year-on-year rise of 12.25 percent.
Lower oil prices remain a threat to Nigeria’s recovery
The prospect of high debt levels to China amid lower oil prices is something that must not be overlooked.
At the time of writing, Oil benchmarks come under continuous pressure from demand-side concerns, including recession fears stemming from trade disputes.
The money from Oil sales is the lifeblood of the Nigerian economy. In the worst-case scenario, if Oil prices start drifting lower there could be unwelcome consequences such as even slower GDP growth, job losses, sovereign debt defaults, less money in the fiscal budget for development, and constrained consumer spending.
Reduced crude Oil sales would affect government revenues and reserves, meaning the capacity to fund projects will be weakened. Stock markets together with investor sentiment domestically and externally would be impacted and possibly even trigger capital outflows.
Can Monetary policy handle downside shocks?
One would have expected economic momentum to pick up from Q1 after CBN cut interest rates in March and forced lenders to dish out more credit in a bid to boost growth.
While lower rates have the potential to keep the economy running, the answer to Nigeria’s woes can be found in diversification. The level of progress the nation has made in breaking away from the shackles of oil reliance remains a question for many with even the International Monetary Fund urging the nation to diversify revenues.
Another concern is friction over a recent UK court decision allowing a natural gas company to take over nine billion USD worth of Nigerian sovereign assets in London. The government has refused to accept the ruling and plans to appeal but the CBN may still need to step in to defend the Naira.
There is still some light at the end of the tunnel for the Nigerian economy if the right steps are taking in breaking away from oil reliance to other sustainable sources of economic growth. However, if Oil prices continue to send warning signals to Nigeria’s economic policy makers by trading sideways or declining, fiscal measures combined with monetary policy easing measures may become urgently needed to accelerate economic diversification.
E-Financial
Diaspora Remittances to Nigeria Reach $4.22 Billion in 2024, Says CBN
Central Bank of Nigeria (CBN) has announced that diaspora remittances through international money transfer operators (IMTOs) reached $4.22 billion between January and October 2024.
This figure represents a 61 percent increase, or $2.62 billion more than the amount recorded during the same period in 2023.
CBN Governor Olayemi Cardoso shared the figures during an interactive session with the Senate Committee on Banking, Insurance, and Other Financial Institutions at the National Assembly on Wednesday. “The year-on-year increase reflects significant growth,” Cardoso noted.
He also reported that remittances rose from $336 million in September 2024 to $402 million in October 2024 on a month-to-month basis.
Cardoso expressed optimism about continued growth in remittance inflows, saying, “The remittance inflows would continue to rise by the end of the year, given the current trajectory.”
He attributed the surge to improved efficiency in the remittance system, the positive effects of President Bola Tinubu’s policies, and increased trust among Nigerians in the diaspora to contribute to national development.
In addition to remittance updates, Cardoso addressed the state of Nigeria’s external reserves, which he said had grown to $42.01 billion as of December 12, 2024, from $38.35 billion on September 30, 2024.
“External reserves rose largely due to receipts from crude oil-related taxes and third-party receipts in Q3 2024,” he explained.
He added that Nigeria’s external reserves could fund over nine months of goods and services imports, surpassing the international benchmark of three months. “Our external reserves level is a robust buffer against shocks,” Cardoso said.
On the issue of cash shortages, the CBN governor reiterated the enforcement of the new policy imposing a fine of N150 million on any bank branch found distributing new naira notes illegally to currency hawkers.
Cardoso also shared his outlook for the Nigerian economy in 2025. “Distinguished Senators, as we conclude this briefing, I want to highlight that despite the challenges facing our economy, there are clear reasons for optimism,” he said.
“The gradual stabilisation of the forex market, ongoing banking sector recapitalization, and positive growth trends in key sectors, especially the services sector, indicate a path toward recovery and stability.”
This comes as the CBN continues to implement measures to strengthen the economy. On October 17, the apex bank reported that remittance inflows had risen to almost $600 million by the end of September, while on June 25, it granted eligible IMTOs access to trade on the official FX window.
E-Financial
Fraud in Bank Branches Surges by 31 Percent in Q2 — FITC
The Nigerian banking sector has witnessed a concerning rise in fraudulent activities, with incidents of fraud in bank branches increasing by 31 percent in the second quarter of 2024.
This alarming statistic was disclosed by the Financial Institutions Training Centre (FITC) in its Fraud and Forgeries report, highlighting significant challenges to the integrity of the country’s financial system.
Fraudulent activities in Nigerian banks led to a staggering N42.33 billion in reported losses during the first half of 2024.
This sharp rise was driven by escalating fraud across multiple channels, most notably within physical bank branches.
The FITC report revealed that fraud in bank branches rose dramatically to N42.2 billion in the second quarter, compared to N133.9 million in the first quarter.
The FITC data also pointed to a massive 1,560.3 percent increase in computer and web fraud. Losses in this category surged from N24 million in the first quarter to N400.8 million in the second quarter.
In contrast, mobile fraud witnessed a significant decline, dropping by 59 percent from N216.4 million in the first quarter to N88.7 million in the second quarter.
Interestingly, no cases of ATM-related fraud were recorded during the period under review.
The figures also indicate a shift in fraudulent activities involving various financial instruments. Card fraud saw a notable decline of 47.66 percent, with cases dropping from 21,469 in the first quarter to 11,231 in the second quarter. Conversely, cheque-related fraud rose by 36.67 percent, increasing from 30 cases in the first quarter to 41 in the second quarter.
Mobile fraud recorded an even steeper decline in value terms, dropping by 99 percent from N21.6 billion in the first quarter to N216.36 million in the second quarter.
These figures suggest evolving strategies among fraudsters, with some methods becoming less prevalent while others gain traction.
Amid the rising tide of fraud, legal actions have also intensified. In one notable case, an Abuja Federal High Court issued a 30-day freeze on 818 bank accounts linked to a N10 billion cyberattack on a Nigerian bank.
The court’s directive, issued on October 15, 2024, was based on a motion filed by the police against James Akagwu Isaac and other suspects, including several financial institutions.
Analysts say the surge in fraudulent activities underscores the urgent need for heightened vigilance, enhanced security measures, and robust regulatory interventions in Nigeria’s banking sector.
While the decline in some fraud categories, such as mobile and card fraud, offers a glimmer of hope, the sharp rise in branch-based and web-related fraud highlights the evolving tactics of fraudsters.
To combat these threats effectively, experts recommend that banks must invest in advanced fraud detection systems, conduct regular staff training, and strengthen internal controls.
Collaboration between financial institutions, law enforcement agencies, and regulators will also be crucial in mitigating the impact of fraud and safeguarding the financial ecosystem.
The FITC report serves as a stark reminder of the vulnerabilities within the banking sector and the need for proactive measures to address them. Without sustained efforts, the rising trend of fraud could pose significant risks to Nigeria’s economic stability and the trust of consumers in the financial system.
Credit: Tribune
E-Financial
UBA to Deepen International Expansion, Others with N239bn Rights Issue
United Bank for Africa (UBA) Plc said it will utilise the net proceeds of its ongoing N239.4 billion rights issue to invest in additional digital technologies and business expansions that will strengthen the bank’s seven and half decades of impressive performance.
UBA is offering 6.84 billion ordinary shares of 50 kobo each to existing shareholders at N35 per share. The rights issue is pre-allotted on the basis of one new ordinary share of 50 kobo each to every five ordinary shares held as at November 05, 2024.
The rights issue is scheduled to close on December 24, 2024.
Tony Elumelu, group chairman, UBA, said the primary objective of the ongoing rights issue is to strengthen the bank’s position as a pan-African banking industry leader and a highly rewarding institution for all stakeholders.
He said the group decided on the rights issue to ensure that shareholders continue to derive undiluted benefits from a stronger, more innovative and resilient pan-African banking group.
Elumelu said the rights issue would enable the bank to drive organic expansion and business growth within and outside Nigeria, while strengthening its international operations, adding that UBA recently signed an agreement to commence full banking operations in France.
According to him, with presence in key global financial hubs including the United Kingdom (UK), United States of America (USA), France and United Arab Emirates (UAE), the bank would deepen its global operations by investing more in these global markets and further extend its global reach.
He noted that, “With African subsidiaries contributing more than 50 per cent of the group’s overall performance, the bank would also make additional investments in existing African operations while exploring new opportunities. UBA currently has operations in 19 African countries outside of Nigeria.”
He pointed out that the bank’s expansion plan is driven by its philosophy of developing African businesses, noting that UBA is not only expanding its geographical reach, but also playing a strategic and pivotal role in the economic transformation of Africa as a continent.
He added that while the rights issue would enable the bank to meet the new capital requirements stipulated by the Central Bank of Nigeria (CBN), the net proceeds would put the bank in a better stead to expand lending to small and medium enterprises (SMEs).
He outlined that the bank would make substantial additional investments in technologies to consolidate its reputation as a cutting-edge financial services group and deliver a more robust customer experience.
To him, new investments in information and communication technology (ICT) would further strengthen the group’s digitisation and operational efficiency, thus fostering improving coordination and synchronisation amongst the various entities and delivering improved service delivery and customer satisfaction.
UBA said it plans to strengthen collaboration and partnership with TELCOs and FinTechs to drive technology-enabled initiatives across Africa that will improve intra-trade, remittances, and payments across Africa.
The bank added that it plans to broaden its payment capabilities to enable it to transform the way merchants collect payments by offering solutions that offer seamless, secure and user-friendly ways of managing and consummating transactions.
Elumelu reiterated the bank’s long-term strategy of becoming the undisputed leading and dominant financial services institution in Africa, with greater emphasis on Nigeria.
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