E-Financial
Strengthening Nigeria’s Financial Future: The Imperative of Domestic Investment and Market Stability
By Aigbovbioise Aig-Imoukhuede
Nigeria stands at a pivotal juncture in its economic trajectory, navigating through a myriad of challenges and opportunities. The country’s financial outlook is being shaped by a confluence of factors ranging from regulatory changes and technological advancements to global economic trends and internal policy shifts. This piece aims to dissect these elements, drawing insights from the recent Bloomberg Discovery Series (Nigeria) panel session where I had the privilege of participating.
Aigbovbioise Aig-Imoukhuede
• The Current Economic Landscape
Nigeria’s economic landscape is characterised by a complex interplay of growth and stagnation. The National Bureau of Statistics reports growth, which is promising. However, the true metric of economic vitality lies in long-term investment. Unfortunately, Nigeria has been grappling with a significant exodus of multinational companies such as Glaxo, Proctor & Gamble, and PZ Cussons over the past year. This trend underscores a crucial issue: the need for robust domestic investment.
Strengthening Nigeria’s capital markets is paramount. These markets will serve as the bedrock for future investment, ensuring sustainable economic growth. Achieving this necessitates macroeconomic stability, particularly in currency and inflation management. Stability in the naira’s value against the US dollar and controlled inflation are essential for fostering an environment conducive to long-term business planning and investment.
• Regulatory Changes and Their Impacts
Recent regulatory changes are set to reshape Nigeria’s financial sector significantly. The ongoing bank recapitalisation process, which requires banks to raise over N2.0 trillion in fresh capital, is a transformative initiative. This move mirrors the impactful reforms initiated by Governor Soludo two decades ago, promising rapid consolidation and enhanced borrowing capacity within the banking sector.
Beyond banking, the Nigerian Exchange (NGX) is witnessing a surge in initial public offerings (IPOs), including the highly anticipated NNPC and Aradel IPOs. These developments signal a bustling year ahead, with increased market activity and potential for substantial economic gains.
• Technology and Digital Transformation
The impact of technology and digital transformation on Nigeria’s financial services industry is profound. Internally, banks have leveraged technology to streamline processes, enhancing efficiency and customer satisfaction. Externally, technology is broadening financial inclusion, integrating more individuals into the formal financial system.
Start-up internet-only banks are making significant strides, though they have yet to displace established banks. Traditional banks have swiftly adapted, launching their own digital products and leveraging their expertise in liquidity management to maintain a competitive edge. The synergy between fintech innovations and traditional banking institutions is driving a more inclusive and efficient financial ecosystem.
• Domestic and Foreign Investment Trends
While the departure of multinational companies highlights a challenging investment climate, Nigeria’s future lies in its capital markets. These markets must be robust enough to attract and sustain both domestic and foreign investments. Controlling inflation is critical to achieving this goal, as inflation undermines business planning and investor confidence. Once inflation is stabilised, consensus on the naira/dollar exchange rate can be established, fostering a more predictable and attractive investment environment.
• Central Bank of Nigeria’s Monetary Policies
The Central Bank of Nigeria’s recent shift towards orthodox monetary policies marks a significant development. With Nigerian Treasury Bills yielding around 25.0% for one-year T-bills and OMO bill auction yields reaching 29.0%, there is a renewed attraction for investment in the financial system. These high returns are enticing foreign portfolio investors and bolstering the naira.
However, there are trade-offs. High-interest rates impose a burden on borrowers but simultaneously strengthen the case for saving in naira. This policy approach is crucial for stabilising inflation and, by extension, the currency. As these policies take root, Nigeria can expect a more stable and prosperous financial landscape.
• Risks Facing Financial Institutions
Nigeria’s financial institutions are navigating a landscape fraught with risks. High-interest rates, while offering opportunities for profit, also pose significant challenges. Borrowers are under stress, and the valuation of investments must reflect these elevated rates, introducing volatility into financial statements.
The adoption of mark-to-market accounting, championed by the Fund Managers Association of Nigeria, is a crucial step towards mitigating these risks. This accounting method ensures that financial statements accurately reflect current market conditions, fostering transparency and stability in the capital markets.
• Sustainable Finance and ESG Considerations
Sustainable finance is gradually taking root in Nigeria, integrating environmental, social, and governance (ESG) considerations into financial activities. Regulatory policies by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) are paving the way. These policies encompass principles of environmental and social risk management, financial inclusion, and guidelines for green bonds.
Banks and financial institutions are also investing in capacity building and training, equipping themselves to better assess and manage ESG risks. Despite progress, challenges remain. Limited awareness, inadequate regulatory enforcement, and a nascent market for green financial products hinder widespread adoption. However, the global shift towards sustainability presents significant opportunities for Nigeria to leverage its natural resources for sustainable development.
• Financing SMEs: Challenges and Opportunities
Small and medium-sized enterprises (SMEs) are the backbone of Nigeria’s economy, yet they face formidable challenges. Limited access to finance, due to high risk, lack of collateral, and inadequate financial records, is a primary barrier. Additionally, many SME owners lack financial literacy and management skills, further impeding their ability to secure loans.
However, there are promising opportunities. Government initiatives, such as the SME Credit Guarantee Scheme and the Youth Entrepreneurship Support (YES) programme, provide much-needed funding. Policy reforms, like the National Collateral Registry, enhance access to finance by allowing movable assets to be used as collateral.
Innovative financing solutions are also emerging. Crowdfunding platforms, angel investors, and venture capital firms are providing alternative sources of capital. Fintech companies are leveraging technology to simplify the loan application process and reduce reliance on traditional collateral. Microfinance banks (MFBs) offer tailored financial products to SMEs, making microloans more accessible.
• Global Economic Trends and Their Impact
Global economic trends, particularly commodity price fluctuations and geopolitical tensions, significantly impact Nigeria’s financial sector. While commodity prices are relatively stable, the real concern lies with US bond rates. High yields on US Government bonds are drawing dollars away from emerging markets, including Nigeria. This trend is likely to persist until US bond rates decline.
• The Future of Technological Innovations
Technological innovations, particularly blockchain and artificial intelligence (AI), hold transformative potential for Nigeria’s financial industry. Blockchain can enhance security and transparency in financial transactions, while AI can drive efficiency and inclusivity. However, realising this potential requires a supportive ecosystem.
Collaboration among stakeholders—government, financial institutions, technology providers, and academia—is crucial. By fostering such partnerships, Nigeria can harness these technologies to spur innovation, improve financial services, and stimulate economic growth.
Conclusion
Nigeria’s financial outlook is at a crossroads, shaped by a dynamic interplay of internal and external factors. Strengthening capital markets, stabilising the macroeconomic environment, and leveraging technological innovations are essential for sustainable growth. By addressing these challenges and seizing the opportunities, Nigeria can build a resilient and inclusive financial ecosystem, paving the way for a prosperous future.
United Bank for Africa Plc (UBA) has rewarded 30 customers with over N17m in its August draw, in celebration of its 75th anniversary.
In a statement on Monday, the lender said the event, held recently in Lagos, featured a draw overseen by representatives from the National Lottery Regulatory Commission (NLRC).
It stated that in the top tier, 10 winners received N1m each, adding that the recipients included Joshua Izenobor, Chigozie Abel, Cornelius Nwankwo, and others.
It added that the second tier awarded N500,000 each to another set of 10 customers, which were Elizabeth Warekoromor, Deborah Ijeoma Simon, and others.
According to the bank, in the third category, 10 account holders won N250,000 each.
The winners included Olusegun Oke, Salisu Adamu, and others.
Congratulating the winners, Shamsideen Fashola, group head of retail & digital banking, UBA, encouraged others to continue saving for a chance to win in future draws.
“This is just the beginning of our legacy promo draw. We plan to reward 75 winners in each category, with 195 more customers to be selected in the coming months. Our draws are transparent, and the next millionaire could be you,” Fashola stated.
Also, Alero Ladipo, group head of marketing and corporate communications, UBA, emphasised that the draw was part of the bank’s efforts to appreciate customers and promote a savings culture.
“This initiative reflects our commitment to giving back to society and ensuring our customers feel valued,” he said.
The Securities and Exchange Commission (SEC) has clarified that its recent decision to grant approval-in-principle to two cryptocurrency exchanges, Busha Digital Limited and Quidax Technologies Limited, is aimed at encouraging youth participation in Nigeria’s capital market while ensuring adequate investor protection.
Emomotimi Agama, the Director-General of the SEC, highlighted that the move aligns with President Bola Tinubu’s commitment to engaging Nigeria’s youthful population. Agama explained that the approval will create a structure that enhances the participation of young Nigerians in the capital market, particularly in the digital asset space.
“A lot of young Nigerians are fully involved in digital assets, and we cannot shut the door against them,” Agama said. “Rather, the intention of Mr. President is to have them inclusive in the capital market, and that is why we are ensuring that there is regulation and no one is hurt at the end of the day. That’s our responsibility at the SEC, by protecting investors and developing the market.”
Agama emphasized that the commission’s approval is still at an incubation stage, describing it as a “controlled experiment.” He said the SEC will closely monitor the operations of the exchanges to assess the risks they pose to the economy, investors, and themselves as operators.
“It gives us an opportunity to know exactly what they are doing, the risks they pose to our economy, investors, and even to themselves,” he explained. “We are making sure they operate within regulations similar to what is obtainable in other jurisdictions.”
Agama explained SEC’s regulatory approach to digital exchanges is part of a broader strategy to embrace innovation without compromising market stability.
The commission’s Virtual Assets Service Providers (VASP) Regulation framework allows the SEC to fully understand crypto exchanges and virtual financial assets, safeguarding the financial ecosystem from potential risks.
“In our bid not to stifle innovation, we set up a ‘Sound Box’ to understand exactly what these companies are getting into, how it affects customers, the Nigerian public, and the economy,” Agama added. “It is important that they meet the necessary regulatory guidelines before full approval is granted.”
He noted that the SEC is committed to fostering trust and confidence in the capital market, particularly as it relates to integrating digital asset exchanges into the regulated environment.
The introduction of these exchanges, Agama said, opens up new opportunities for younger Nigerians who have shown growing interest in the digital asset space.
“By including these innovations within the broader capital market structure, we are ensuring a balance between fostering innovation and protecting investors,” Agama concluded.
Unity Bank Plc has projected gross earnings of N27 billion and a Profit After Tax of N4 billion in Q4, 2024, in its latest earnings forecast released to the Nigerian Exchange Group.
Although the projected gross earnings represent a marginal increase from the N26 billion projected for Q3 2024, the lender continues to maintain a profitable outlook, with pre-tax profit expected at N4.2 billion.
An analysis of the earnings forecast shows that the lender also expects interest income to rise from N23 billion to N24.5 billion, with net revenue expected to rise marginally by 1.0% to N7.2 billion within the quarter compared to N6.5 billion in Q3, 2024.
Net operating income is projected at N12 billion, while cash flow from financing activities is projected to rise to N481.4 billion from N353.6 billion, a 1.3% projected increase on a quarter-on-quarter basis.
This projected growth in cash flow from financing activities continues to reflect the lender’s growing liquidity position which is essential for sustained business operations.
The lender said it expects to cover the milestones with consistent optimistic outlook in its projection, barring any significant changes in the operating environment, under which the assumptions were made.
The lender noted that it will continue to deliver top-notch customer-centric products and services, especially in the digital lending space following the roll-out of enhanced platforms and channels for superlative customer experiences.
Analysts are of the view that the Q4 forecast reflect a steady growth trajectory on the back of key performance indicators and strategic repositioning to hedge the challenging market conditions.
Telecom Services Risk Shutdown as Workers Embark on Strike
NCC Unveils DMS to Protect Mobile Phone Users
Omniverse Africa Unveils Partners as Nigerian Gamers Compete for $1m Prize
UBA Rewards 30 Customers with N17m in UBA @ 75 August Draw
SEC Gives Reasons for Approving Digital Exchanges
NDIC Plans to Liquidate 87 Microfinance Banks, Others
Introducing TECNO POP9: The Smartphone That Redefines Affordability
NIN: NCC Tightens Loose Ends, Introduce Self-Help Measure
SentBe Enters the Global $5.9B Digital Overseas Remittance Market
Tokenized Economy Conference Focuses on Addressing Nigeria’s Challenges with Blockchain, AI
Telecom2 days agoTelecoms Workers Begin Nationwide Strike
E-Financial2 days agoOpay, Moniepoint others to Begin Deduction of N50 eTransfer Fee
Telecom2 days agoNCC Partners EFCC, Police to Track Identity Thieves
E-Business2 days agoKonga’s Back-to-School Campaign Empowers Learners and Educators with Unbeatable Deals
Telecom2 days agoAIT Embraces AI Driven Learning to Revolutionise Higher Education
Telecom2 days agoMTN Refutes Allegations against CEO after Independent Report
E-Financial2 days agoFRC Accuses Banks of Colluding with States to Bypass Fiscal Law
E-Financial18 hours agoSEC Gives Reasons for Approving Digital Exchanges