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Will Oil Prices Help or Harm Nigeria’s Economy in Q3?

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By Lukman Otunuga, FXTM Research Analyst,

Global Oil prices looked tired, exhausted and ready for an early summer break during the second quarter of 2019 as global growth fears overshadowed supply disruptions and ongoing OPEC supply cuts. At the time of writing, Oil prices remain shaky and vulnerable despite OPEC+ latest decision to extend production cuts until March 2020.

The crucial question is whether Oil prices will ever recover and trade back towards the $70+ levels. That depends less on geopolitical tensions in the Middle East and more on whether the US and China can reach a trade deal, settling disputes over tariffs and opening the door to continued global growth. In this case, it’s likely that Oil prices will be injected with a renewed sense of confidence on the back of boosted global growth expectations and demand for Oil. But what if the current circumstances persist and the US-China trade disputes continue throughout the second half of 2019?

Taking each scenario one-by-one, starting with the upside for Oil prices, Nigeria’s economy could benefit considerably if a US-China trade deal is reached and global growth expectations become brighter. The manufacturing sectors in the US and China are the Oil-gobbling engines which drive demand for international Oil suppliers. China is the world’s top crude Oil consumer, importing more than 50 percent of its consumption, part of which comes from Nigeria. In the fourth quarter of 2018, Nigeria exported N23.5 billion worth of crude Oil to China and remains a major trading partner to the Asian giant. It’s likely that if China’s economy roars back to life, Nigeria’s growth would see more long-term support, benefiting foreign exchange reserves and the Naira. Although unlikely, if a trade deal were to be announced early in the quarter, it’s possible the nation’s 2019 budget would also see ample support from increased Oil revenues from China. This argument doesn’t apply to the US which has considerably reduced its crude Oil imports from Nigeria as it heads towards energy independence, relying instead on domestic production to meet its own needs.  

If you take the negative outlook on Oil, it’s more likely the rise in Oil prices is a temporary result of supply shortage fears and the prevalent trend in Q3 will be downward pressure from concerns over a global recession. In this unfavorable scenario, the world’s two largest economies do not reach a trade deal in the third quarter and aggregate demand for Oil continues falling as it tracks economic weaknesses in China and the US. As demand for Oil is whittled away, Nigeria’s foreign exchange reserves may be negatively impacted, along with the Naira, the 2019 budget and most importantly GDP growth. In terms of the national budget sheet, expenses like the petrol subsidy may take the limelight as they drag on revenues, overshadowing growth and threatening fiscal stability.

There’s another factor we haven’t talked about so far but it’s significant in terms of Oil market economics. Oil sales are denominated in US Dollars. Recently, the currency has weakened against its rivals, meaning that Oil is more affordable and possibly giving traders an incentive to snap up contracts at current levels before they rise further. If the Dollar bears have their way and the currency keeps declining, Oil price benchmarks could see further support in the third quarter. The impact of a weaker USD might not be as strong as a US-China trade deal, but it could feed positively into Nigeria’s Oil revenues and go some way to counter possible losses from ongoing global recession fears.

To sum up, Nigeria’s foreign exchange reserves, currency, growth and budget will face headwinds should trade disputes persist. However, provided the USD keeps weakening there’s scope for support from higher Oil prices based on bargain hunting. There’s always the possibility that the US and China could decide on a trade deal, if this happens sooner than later, Nigeria’s economy would benefit accordingly.

Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University.

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E-Financial

CBN Gives 3 New Banks Nod to Start Operations

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Godwin Emefiele, Governor of the Central Bank of Nigeria
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Central Bank of Nigeria (CBN) has confirmed the licensing of three new banks by adding them under different lists published on its website.

 

The new operators are Titan Trust Bank Limited, TAJ Bank Limited and Globus Bank Limited.

 

Though Titan Trust Bank Limited and Globus Bank Limited started operations earlier, the addition to the list of  Deposit Money Banks (DMBs) and financial holding companies operating as on July 23, 2019, by the CBN has cleared every speculation.

 

The list also indicates that the regulator has issued a Non-Interest Banking license with regional authorisation to TAJ Bank Limited. While two of the newly licensed banks will operate as commercial lenders, the third one, TAJ Bank Limited was licensed to operate as a non-interest bank.

 

Before the banking reform of 2005, instituted by ex-governor of the CBN, Charles Soludo, Nigeria has as many as 89 banks operating as commercial and merchant banks. With the reform, which hiked minimum capital base to N25 billion from N2 billion, the number reduced to 24 universal banks.

 

However, subsequent alignment and take over by the regulators led to further consolidation in the operations of the banks, leading to a downward reduction in the number of operators.

 

The newly licensed TAJ Bank Limited has joined Jaiz Bank as only two operating as non-interest banks in the country.

 

Though details of the newly licensed lenders are still scanty, industry watchers revealed that Titan Trust Bank has as its Chairman, a former Deputy Governor of the Central Bank of Nigeria (CBN), Mr Tunde O. Lemo, and Mr Mudassir Amray as Managing Director and Chief Executive Officer (MD/CEO).

 

Titan trust bank was established in 2018 but officially obtained its license in April 2019 as a national bank and started operations. The Executive director is Adaeze Udensi. The bank’s operations include Small and medium-scale enterprises (SME) banking, Digital banking and Commercial banking

 

Also, Globus bank limited obtained its regional banking license in 2019 and begun operations on May 2, 2019.

 

Available records show that the executive director of Globus Bank Limited is Elias Igbinakenzua. Igbinakenzua has had stints as an Executive Director of Zenith Bank and Access Bank respectively

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NDIC Pays N593.8m to Shareholders of Banks In-liquidation

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Nigeria Deposit Insurance Corporation (NDIC) on Tuesday revealed that it paid the sum of N593.78 million to shareholders of some banks in-liquidation in 2018.

 

NDIC said this amount was paid to 48 shareholders of the affected lenders.

 

“The NDIC paid the sum of N593.78 million to 48 shareholders of Alpha Merchant Bank, Rims Merchant Bank and Continental Merchant Bank in 2018,” the report titled NDIC 2018 Annual Report.

 

It stated that the cumulative liquidation dividend paid amounted to N3.30 billion to 679 shareholders of six Deposit Money Banks (DMBs) in-liquidation as at December 31, 2018 against N2.71 billion paid to 631 shareholders of DMBs in-liquidation as at December 31, 2017.

 

“However, the total liquidation dividend declared for shareholders of DMBs-in-liquidation stood at N4.04 billion as at December 31, 2018,” the report added.

 

The NDIC further said in the report that during the year, it paid the sum of N1.52 billion to uninsured depositors of 20 DMBs in-liquidation.

 

In total, the agency said it has paid the sum of N100.39 billion as liquidation dividend to uninsured depositors of closed DMBs as at December 31, 2018.

 

The report stated that through sustained and diligent liquidation activities, the NDIC has realized assets to fully pay the deposits of the customers of 17 out of the 49 DMBs in-liquidation.

 

“In effect, all the depositors of the 17 defunct banks who came forward to file their claims have been paid all their monies (both insured and uninsured) that were erstwhile trapped in such banks,” it said.

 

On the asset management activities in the year under review, the NDIC said it ensured the efficient conversion of assets of closed financial institutions to cash for the payment of liquidation dividend to uninsured depositors, creditors and shareholders.

 

“Overall, the NDIC realised the sum of N777.03 million from the disposal of risk assets, physical assets and investments for the DMBs, MFBs and PMBs in-liquidation during the year ended December 31, 2018,” it added.

 

Commenting on the major challenges faced in asset management activities in 2018, the agency said they were majorly inadequate documentation of borrowers’ information by failed banks; unwilling attitude of high net-worth debtors of failed banks to liquidate their debts; preponderance of uncollateralised loans; problems associated with identifying assets of judgment debtors; protracted legal processes due to frequent adjournment of cases; large outstanding insider-related debts usually characterised by poor documentation and insider abuse; and difficulties to repay loans induced by economic realities, policy inconsistencies as well as issues relating to moral hazards.

 

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Ecobank Takes Over Shoreline Power Company over N4.6Bn Debt

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Taiwo Ogbara, a receiver-manager appointed by Ecobank Nigeria Limited, has been empowered by a Federal High Court sitting in Lagos to have unrestricted access to one of the debtors of the financial institution, Shoreline Power Company Limited, into its premises.

 

The power firm was said to owe the lender about N4.6 billion and that when the bank appointed a receiver to take over the company, it resisted, which prompted a court action and Justice Chuka Obiozor restrained the firm’s management, including Orikolade Karim, Tunde Karim, Yinka Karim, Marc Hasenclever and Graeme Stout, from interfering with or obstructing Mr Ogbara in the course of his duties as receiver-manager, pending the hearing and determination of the motion on notice.

 

According to reports, the judge granted an order of interim injunction restraining the defendants or their agents from tampering with or disposing of the firm’s assets and properties covered by a Deed of All Assets Debenture of March 18, 2013 between Ecobank and Shoreline Power Company, registered at the Corporate Affairs Commission (CAC).

 

In his ruling, Justice Obiozor directed the Inspector-General of Police (IGP) and his officers and men to assist the receiver-manager in carrying out his duties over the firm’s properties and equipment and further granted an order of interim mareva injunction restraining all Nigerian banks from accepting or honouring any mandate or cheques presented by the defendants for the withdrawal of any sum kept in Shoreline Power Company’s account, pending hearing of the motion on notice.

 

The banks were also directed to file the company’s statements of account with them within 48 hours and to transfer such funds into a receivership account as may be requested by the receiver-manager.

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