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Friday, June 24, 2016

How BREXIT will shape Nigerian financial Industry

     June 23rd 2016 will be remembered as the day UK vote to leave the EU bloc. The financial industry around the world was shocked by this single outcome. Banks share prices fall on the announcement of the final result of the referendum. London stock market was also affected. But, things will remain as it is for at least two years when UK will formally exit from the bloc.

     The Nigerian economic sector that will be most affected is the banking sector where Nigerian banks are highly correlated with some London based international banks who are bound to move some of their businesses over to other EU member nations. Some Nigerians banks have set up offices in the UK just because of it strategic importance in the EU, now that is about to go they will reconsidered their position. Nigerian Central bank financial dealings with London base banks will also be affected, be it in form of foreign exchanges dealings or its foreign reserve savings there. At this very difficult moment for Nigerian banks, Brexit will add to their difficult situation. Thus, clever banks will began immediate move to address the outcome of the vote. Nigerian companies that are planing to sell their shares on London stock exchange are also going to consider their next action in view of current realities on the ground.

     Investment by Nigerians in the UK will also be affected as the world fear for recession in the UK economy. Thus, expect desperate moves to diversify investments out of the UK. Many Nigerian real estate investors will also find London less attractive and make move to sell their holdings.But, Nigerian investors holding Gold will smile to the banks as the price of gold has increased around the world. The same applied to Nigerian banks holding gold reserves. Then come Nigerian elites looking for safe heaven for their ill gotten wealth, Britain out of EU will be perfectly OK with that, as it will help cover the losses from exiting the EU. What a fantastic Britain!

Tuesday, June 21, 2016

Are Nigerian Banks Efficient?

    It was Charles Soludo, the architect of Banking sector consolidation, who championed the creation of mega banks in the Nigerian Banking landscape. The idea behind consolidation is to create 'too big to fail' banks with larger capital to support economic development. But, what we later have are banks that are too complicated and lack efficiency. Instead of using their capital to support development they ended up supporting share buy back and speculative investment of oil marketers. Instead of banks to relied less on public funds, due to their bigger capital base, they turn to monsters that depend on easier to get public money without paying equal return to the government treasury. By the time Soludo left CBN, Nigerian banks have return to the business as usual state they were before the consolidation with the exception that they are now very big in size with huge loads of non performing loan, the result of the bank wasted credit creation process and thieving CEOs.

     AMCON itself absorbed some N5.7 trillion of toxic assets in the aftermath of the banking crisis of 2009. A recent report on the banking sector show that five banks lose some N54 billion from their 2014/15 financial year. There was sharp increase in the non performing loans in the banking industry as CBN report showed an increased of 78.8% in the year 2015, a staggering figure ofN649.63bn. Between April 2015 to April 2016 the banking industry recorded a decline of  N154bn in its total assets, while gross credit to both public and private sectors declined by 0.3 percent. Of recent there were sharp increases in CBN loans to the banking industry which indicate that Nigerian banks are relying more on CBN to meet their day to day obligations and that banks are unwilling to lend to each other. 


The total toxic assets that were absorbed by AMCON at this time was N5.7trillion.

Read more at:
The total toxic assets that were absorbed by AMCON at this time was N5.7trillion.

Read more at:
         The level of innovation in the Nigerian banking industry is low compare to what obtain elsewhere, even for the little innovation we are seeing it is done by few banks who are in the forefront; and we can see the result of it in term of operational efficiency of these banks. For detail essay on innovation and efficiency in the banking industry see my article available at (see reference below). Due to weak revenue many of Nigerian banks have witnessed declining profit during the first quarter of 2016, hence the desperate moves by banks to cut cost through retrenchment of their workforce.The major blow to the Nigerian banks is government Treasury Single Account (TSA) policy which has deprive banks of the main source of their cheap funds and send them in other directions looking for funds. According to estimates, the TSA mopped in an excess of N1 trillion from the banking system back to the Central Bank of Nigeria.The decline in the price of crude oil in the international market also hit the banks hard, as they have issued loans to major oil marketers in the sector and the fact that lower oil price lead to cash crunch in the economy.

      With the introduction of the flexible foreign exchange policy, foreign investors are expected to return to the Nigerian market which will positively affect the performance of the banking industry. Already banking stocks have witnessed increases on the first days of the introduction of the flexible exchange rate, performing better than the NSE all shares index.Nigerian banks according IMF chief are in better shape than during the last global financial crisis. There are huge opportunities in other sectors of the economy that banks are neglecting to invest in such as agriculture, and infrastructures which are the focus of the current administration economic transformation agenda. Nigerian economy is hugely under bank which means that there is huge opportunity for grow in the industry. The Bank Verification Number (BVN) system has revolutionized the banking business in Nigeria, it has cut bureaucracy and reduce corruption as well as open the retail sector. It will indeed help the grow of consumer credit in the banking industry.Finally, the answer to the title of this article about the efficiency level of Nigerian banks, is simple: they are not efficient considering the opportunities available they fail to utilize and the wastage in the system.
Lagardeare in better shape than


WALKING ON A STRING: Bank management in a world upside down, in

Saturday, June 11, 2016

Can Nigerian Economy avoid Recession?

     The word recession according to investopedia means, "a significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP)". Due to the current problems Nigeria found herself in economists have started talking of recession to the extent that some have predicted it to occur next month, when the second quarter report on the economy would be ready. South Africa, Africa's other biggest economy has entered recession, according to  some analysts. This is the second time in the last one decade that Nigeria has inched near recession, the other time was during the global economic melt down of 2007 and its Nigerian version of 2009-2010. The last recession unlike the impending one was as a result of global financial crisis that affect the global financial industry including Nigerian banking sector. As a result, the Nigeria stock exchange collapsed, unemployment increased (including massive sacks by the private sector more especially banking sector), and closure of businesses. But, at that time Nigeria fall back on her savings and used them to bail the economy out (AMCON was funded from such savings). Unlike today when there is no savings left by previous administration to fall back on. It is now up to Buhari regime to come out with creative ideas of how to get the economy out of this quagmire it found itself. The first thing i will suggest is that Buhari shall welcome modern ideas that have already been tested elsewhere around the world and have worked. 

      What are the major factors responsible for the current economic woes, and that will probably push Nigerian economy into recession:

1- Falling oil price in the international market: oil is the major foreign earner for the Nigerian economy that provide almost 90% of our foreign exchange; it shall be clear now why continue fall in the price of this commodity pushes Nigeria into recession. Unless the country has large savings to fall back on, which i am very sure we do not have.

2- Empty Treasury: the treasury the present administration inherited from the former regime of Jonathan was virtually empty, even former President Jonathan himself last week declared that he was forced to squandered about $18 billion Dollars of Nigerian savings. With empty vaults there is no way government can have any leverage to fall back on when the economy goes into problems like we are at the moment. Thus, lack of saving is the same thing as saying the government is bankrupt.

3- Global economic slow down: the global economy has experienced slow grow in the last two years, due to slow down in world biggest economies such as the US and China. That is why demand for Nigeria's major export has continue to decline. 

4- Political transition: the in-coming government had to sort out a lot of other things before it hit the ground running. In the process of doing this there were delays and time was wasted. 

5- Delay in signing and implementing 2016 budget: the current and last government as well as legislative arm of the government shall all bear the blame for the delay in signing the 2016 budget. 

6- Poor revenues and declining earnings: businesses, the major movers of our economy, have experienced declining revenue and profit over the last one and half year mainly due to slow down in economic activities. This in turn plunge the nation into further recession as private sector employers sack workers, firms pay small dividend or no dividend to shareholders; as well as pay smaller tax to the government. This in turn lead to fall in government revenue. 

7 -Insecurity and violence: the current violence and attacks on oil facilities in the Niger Delta have no doubt help caused the current depression in the economy. The government efforts at dealing with Boko Haram insurgency in the North have help restored confidence in that part of the country.

    The answer to the question of 'whether Nigeria can avoid recession' is in negative. I don't see how we can avoid recession when we are already in it. Over the last two years both business and consumer confidence have fallen. Inflation rate has moved from a single digit to a double digit today. Government have to adopt both short term and long term measures to bail out the economy. For the short term measures, the government needs to quickly allow the value of Naira to be determined by the forces of demand and supply instead of being fixed by fiat. The current measures being put in place aim at removing wastage and leakages in government revenue must continue. Government shall continue with it fight against corruption, and the amount of money recovered shall be used judiciously. Government shall immediately release money for infrastructural project such as building of new roads and railway lines. Government shall also devise ways to put money in the hands of people as this will help boost purchasing power and reduce the hardship people are currently facing. In this year budget, government intends to spend more than N200 billion on road construction, this represents 1001 percent increase  from what the previous government budgeted for last year which was N18 billion. Government shall make it policies and plans on the economy open, so that the public know about it economic policy and its direction. This will help remove the uncertainty that is currently hanging over the economy as no body is sure of the next policy the government is going to take. For the long term measures, the government must redirect the economy away from dependence on oil through diversification. The current move toward rejuvenating the agricultural sector is commendable and shall continue. Likewise the development of the manufacturing sector and mining of mineral resources.

Thursday, June 2, 2016


     Since early 2014, the performance of the Nigerian stock exchange (NSE) is in fact abysmal, resulting in shading of value by the market. At the end of year 2014 the market ended as one of the worst in the world, prompting more investors to be cautious in putting their money in the NSE. According to Oscar Onyema, current chief executive officer of the NSE, the market has lost $30bn since July 2014.  But in 2013 the market performance was good as it ended the year as one of the most performing markets. In 2015 the uncertainty associated with the general election made matters worst, as nobody was sure of what was going to happen after announcement of the final results. It is also not unconnected with the fall in oil price, our major foreign earner, and the global economic slow down. In China alone, the world second largest economy, the stock market has lost a lot of value in the last one year. Likewise other emerging stock markets of Russia, Brazil, and South Africa have all lost values during the last one year. But, how does Buhari economic policy or lack of it contributes to the poor performance of the market?

     Nationalism and restoration of Nigeria prestige in the eyes of the global community is at the centre of President Buhari economic agenda. It is the same policy that anchor President desire to restore the value of Naira as well as his refusal to devalue the Naira. His drive to make Nigeria self sufficient in manufacturing and food production is part of the same policy. In many ways i do not blame Mr President, this is his first year in office (even former President Obasanjo suffered the same fate during his early years). Buhari inherited an economy that was in worst shape in decades, Naira was already performing poorly in the market, crude oil price had collapsed, mounting subsidy debt of the previous government, insecurity, corruption, to mention just a few. Added to that, Mr. President himself was still believing that the economic policies that worked in the 1970 and 1980s would work today. Many of his advisers also believe the same. In his last visit to china, President Buhari was sold the idea of currency swap between Nigeria's Naira and Chinese Yuan. It was done with the intention of reducing the demand for Dollar (which many analysts believe is the source of the problem in the market), therefore, avoiding the devaluation of the Naira. Just like with Chinese Yuan, which every one agree is under valued, a nation have to devalue her currency in order to make her export cheaper to the outside world. But, like Mr President rightly argued, a nation that export nothing but crude oil has not much to worry about making her export cheaper through devaluation.

      Critics of President Buhari have pointed out his lack of passion for the economy (leaving the economy to take care of itself) through his unwritten philosophy that if you fight corruption in Nigeria everything will be right. The economy is now in a critical condition, inflation in double digit, GDP in negative growth for almost two consecutive quarters as well as growth in unemployment. The stock market crashed by N1.732 trillion within one year of his government .But, that notwithstanding, the President seem to have realized some of his policy mistakes, as seen from his renew focus on the economy, inviting some professionals to do the job of advising the government on what to do to put the economy on growth path. The delay experienced before the passing of this year budget has contributed in slowing down the growth of the economy, but now that the budget has been passed things will turn for the better. I will advise that President Buhari listing to his critics on the manner he handles the economy, because by paying attention to some of their positive criticisms, it will no doubt help him to run the economy better. The President decision to allow CBN to adopt flexible exchange rate is a wise decision and this blog support it. Nigerian authorities have held the Naira at N197-N199 to the US Dollar since March of 2015, when other oil exporters from Russia, Colombia to Malaysia have let their currencies drop amid the slump in global crude prices since the middle of 2014.

   Immediately after the announcement of the expected liberalization of Nigerian currency market, in one single day the stock market has added some N354 Billion as foreign investors rushed to return their money back.There are empirical evidences that links liberalization of foreign exchange markets with greater inflow of foreign investments. For example a study by Dimitrova (2005) find a link between higher stock price and week currency in the US during the short term period. The notion of capital control is at the back of nations attempt to impose fixed exchange rate. Since early days of this government, Central Bank of Nigeria has imposed some capital control in a move to stop deterioration in the value of Naira, that include banning of importation of 41 items, limiting daily withdrawals with domiciliary accounts, control of Bureau De Change, etc. The decision to impose capital controls have led to the withdrawal of Nigeria from emerging market indices such JP Morgan’s Government Bond Index-Emerging Markets as well as from Barclays index and Morgan Stanley Index. On the other hand, the capital control has help reduces speculative attacks on the currency and the equity markets, it has also control the importation of luxury goods that the country can do without as well as reorient the priorities of Nigerian business community toward looking inward instead of always rushing abroad to import things we can produce internally. 


    Dimitrova, D. (2005), "The Relationship between Exchange Rates and
   Stock Prices: Studied in a Multivariate Model", Issues in Political Economy, Vol. 14

Wednesday, June 1, 2016


      Nigeria's only Islamic Bank has appointed Hassan Usman as its substantive managing director. This come after rigorous selection process that screens seasoned Islamic Bankers from within and outside Nigeria. Before his new appointment Hassan was the executive director of the bank in charge of operations and IT. Islamic Development Bank (IDB) Jeddah,  is a shareholder of the bank, the bank also has partnership with Islamic Bank Bangladesh (IBBL) for Technical and Management Assistance.

     The bank also declared profit before tax of N794.2 million (for the year ended December 2015, against N126.8 million realized in the year 2014), in its 4th full year of operation despite the challenging environment, as the first non interest bank in traditionally conventional banking environment. In the last three years, even conventional banks have witnessed declined in their profit expectations. The result has demonstrated continued growth and operational efficiency of the Bank and its model of doing business. It has continued to attract new customers from different religious background since its establishment to date. The Bank hope to be present in other sub Saharan African countries in the next five years.