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Nigeria’s “Too Big to Fail” Banks Shop for N405Bn Lifeline

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Banks in Nigeria particularly the big four banks considered “too big to fail” are all in the market shopping for some N405 billion from both local and foreign sources to shore up their cash reserves.

Experts who should know also said that the banks are taking advantage of a drop in borrowing costs before the Central Bank of Nigeria (CBN)  increases how much capital they need to hold.

Banks may raise as much as N405 billion ($2.5 billion) this year compared with N342 billion ($2 billion) in 2013, according to FBN Capital, the investment-banking unit of Nigeria’s largest bank by assets FBN Holdings Plc.

Nigeria’s central bank last month changed the way lenders calculate capital buffers to align with global standards and increase their ability to withstand losses.

The CBN action is preparatory to tap into the G-20 proposal that will require top banks in the country to issue special bonds as capital that can assist them in times of crises.

In the international financial community government leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue.

The bonds, to be known as “Gone Concern Loss Absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s biggest banks from being “too big to fail.

According to international financial sources the plans are being drafted by the Financial Stability Board, the regulatory task force of the Group of 20 economies which declined to comment ahead of a G20 summit in November, when G20 leaders will discuss the reform before it is put out to public consultation.

The reform would put in place the final major piece of G20 regulation on banking as the global body turns to a “post-crisis” agenda of fostering economic growth and bedding down the rules it has approved.

There had been unease in Asia and parts of Europe over how big the bond issues need to be to provide this cushion but there is now a new optimism amongst bankers and regulators that the G20 will reach a deal in November.

“The industry is definitely in favor of making resolution, supported by an appropriately flexible concept of GLAC, work.

That is the key pending aspect on ending too-big-to-fail,” said Andres Portilla, director of regulatory affairs at the Institute of International Finance, a Washington-based banking and insurance lobby.

The CBN ordered Nigerian banks it considered too big to fail to boost minimum capital ratios to 16 per cent last year, compared with 10.5 per cent for South African banks, which control most of the continent’s banking assets.

The central bank removed some assets banks can count as capital in preparation for the implementation of Basel II and III, while limiting Tier 2 capital to 33 per cent of Tier 1 capital, according to its August 5th circular.

Minimum capital requirements for banks with operations outside the country were kept at 15 per cent and at 10 per cent for those with interests only in Nigeria.

The changes will shave 100 to 400 basis points off the capital adequacy ratios of most banks. The central bank increased cash-reserve requirements on deposits made by government ministries and agencies and state-owned companies to 75 per cent from 50 per cent last year.

It also raised requirements on private deposits to 15 per cent from 12 per cent in March to reduce liquidity and support the naira.

The capital changes are making it “tougher for banks to generate profits to pay as dividends,” Richard Segal, head of international credit strategy at Jefferies International Ltd. in London, said in an e-mailed reply to questions.

Higher spending by government and politicians before elections in February may cause foreign outflows at the same time as banks seek to finance power, oil exploration and manufacturing projects to feed an economy forecast to expand 6 percent in 2014.


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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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E-Financial

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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