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CAPITALDIGEST DAILY NEWS, 22/5/2023

OIL PRICES STABLE AS US RESERVES RISE As economic worries competed with a tighter supply outlook for later in the year, oil prices remained steady on Wednesday despite a surprise rise in U.S. crude inventories, Reuters reports. In the futures market, Brent crude rose 2 cents, or 0.7 per cent, to $74.42 a barrel. The West Texas Intermediate U.S. crude oil price fell 5 cents to $70.81 at 0921 GMT. The International Energy Agency on Tuesday predicted demand would outpace supply by 2 million barrels per day (bpd) in the second half of the year, with China making up 60 per cent of oil demand growth in 2023. “Crude prices remain heavy as energy traders just can’t shake off global demand concerns. It doesn’t matter how upbeat everyone is for China’s second half of the year, the current situation is too disappointing,” said Edward Moya, an analyst at OANDA. U.S. crude stockpiles rose by about 3.6 million barrels in the week ended May 12, according to market sources citing American Petroleum Institute figures. Seven analysts polled by Reuters had expected a 900,000 barrel drawdown. U.S. government data on crude and product stockpiles is due at 1430 GMT. Oil steady as demand worries face tight supply outlook Oil prices were steady on Wednesday after a surprise rise in U.S. crude inventories stoked demand concerns as economic worries competed with a tighter supply outlook for later in the year. Brent crude futures rose 2 cents, or 0.7 per cent, to $74.42 a barrel. West Texas Intermediate U.S. crude was down 5 cents to $70.81 at 0921 GMT. The crude inventory build added to concerns about U.S. growth after data showed retail sales rose 0.4 per cent in April, short of estimates for an increase of 0.8 per cent. Talks on raising the U.S. debt ceiling continue to weigh on the market. The U.S. Treasury Department has estimated that the United States will go into a crippling default as early as June 1 if Congress does not lift the ceiling. BANKS’ ASSETS GROWS TO N78TN, SAYS CBN Total assets of the Nigerian banking industry rose by 25.12 per cent in one year to N77.59tn as of the end of February 2023. The Central Bank of Nigeria disclosed this in the personal statement made by the Deputy Governor, Financial System Stability Directorate, CBN, Aishah Ahmad, at the last Monetary Policy Committee meeting. She said, “Key industry aggregates also continued year-on-year upward trajectory with total assets rising by 25.12 per cent to N77.59tn in February 2023 from N62.01tn in February 2022, while total deposits rose to N49.36tn from N39.38tn over the same period. “Industry credit also increased by N4.98tn between end-February 2022 and end-February 2023, with significant growth in credit to manufacturing, general commerce, and the oil & gas sub-sectors. Notably, this impressive increase was achieved with continued decline in non-performing loans ratio.” According to her, capital adequacy and liquidity ratios were strong at 13.70 and 43.10 per cent in February 2023, respectively, with non-performing loans ratio at 4.2 per cent over the same period, compared with the prudential benchmark of 5.0 per cent. Notwithstanding the strong financial system fundamentals and satisfactory stress test results, she said, the Bank must remain vigilant and proactively manage emerging risks to financial system stability, especially with the challenging global economic and financial environment. She said, “The optimism of continued positive output growth was further buttressed by sustained stability of the financial system, despite heightening global headwinds and domestic vulnerabilities. “A comprehensive review and stress testing of the Nigerian banking system by Bank’s staff, to assess the impact of continued rate hikes by the MPC, recent bank failures in the US and Switzerland, and other idiosyncratic risks, shows robustness of the financial system. SEVEN BANKS FINED N1BN FOR FOREX OFFENCES Seven Deposit Money Banks paid a total of N1,088,334,000 as fines to the Central Bank of Nigeria, Securities and Exchange Commission, National Insurance Commission, Pension Commission and others in the 2022 financial, according to findings. This was disclosed in the financial statements of the banks for the year 2022, which were filed on the Nigerian Exchange Limited. The financial services firms included in this report are Access Holdings Plc, Wema Bank Plc, Union Bank of Nigeria, Guaranty Trust Holding Company, FCMB Group Plc, Fidelity Bank Plc, and Stanbic IBTC Holdings. Some of the infractions the lenders were sanctioned for ranged from mismatched details on accounts, foreign exchange guidelines contravention, late rendition of monthly returns, late rendition of daily returns, publication of unapproved adverts, and unethical conduct, among others. In the period under review, Access Bank paid a total of N604m to the Central Bank of Nigeria. The details included a N2m paid to the CBN in respect of the breach of accounts’ administration agreement on March 11, 2022. On July 11, the bank paid another N2m for wrong account opening with mismatched details. On December 8, 2022, the bank said it paid N100m and N500m, respectively fine for contravening regulatory guidelines on forex. For Stanbic IBTC Holdings, a total of N159m (Dec 2021: N233m), was paid as fines during the year across its business interests.A fine of N44,850,000 was paid by Stanbic IBTC Bank Plc over failure to report export proceeds and Certificate of Capital Importation to the CBN and the NFIU. A fine of N5,000,000 was also imposed on Stanbic IBTC Bank Plc for a late rendition of daily returns and another fine of N5,000,000 for a late rendition of monthly returns. Fines paid to the CBN by the banking arm of the group stood at N54.850m. Stanbic IBTC Capital Limited paid N500,161.25 fine to the Securities and Exchange Commission for not depositing all the proceeds of the Stanbic Infrastructure Fund issue in an interest-yielding account with the custodian. TRANSITION TO SECURED OVERNIGHT FINANCING RATE AND ITS IMPLICATION ON DOLLAR LOAN IN NIGERIA The London Inter-Bank Offered Rate (LIBOR), established in 1969, is an estimate of the interest rate for which London banks can borrow from each other, and it became the leading international interest rate benchmark. This estimate is based on the average rate at which panel banks can obtain unsecured funding in the London interbank market. It is especially prevalent in five leading global currencies: the U.S. dollar, the Euro, the Pound Sterling, the Swiss franc, and the Japanese yen – the locations correspondent with where the panel banks can be found. LIBOR is produced across seven tenors (overnight, 1 week, 1 month, 2 months, 3 months, 6 months, and 12 months), and is administered by the Intercontinental Exchange Benchmark Administration which is now regulated by the United Kingdom (UK) Financial Conduct Authority (FCA). LIBOR is being replaced by alternative risk-free rates such as the Secured Overnight Financing Rate (SOFR) for the U.S Dollars and Sterling Overnight Index Average (SONIA) for Pound Sterling. SOFR is administered and published by the Federal Reserve Bank of New York, and it was based on the recommendation of the Alternative Reference Rates Committee (ARRC) that the US LIBOR should be replaced with a rate derived from a repurchase agreement with Treasury securities as collateral. SOFR differs in several key respects from LIBOR; for example, LIBOR includes credit risk, is unsecured, and is based on expert judgment, whilst SOFR is a risk-free rate, is collateralised, and is based on market transactions. This article examines the transition from LIBOR to SOFR and the implication of the transition on dollar-dominated loans in Nigeria. FOREX INFLOW DROPS BY $3BN IN THREE MONTHS Net foreign exchange inflow into the economy fell by $2.6bn in the fourth quarter of 2022, according to the latest figure from the Central Bank of Nigeria. The banking regulator disclosed this in its fourth-quarter economic report.It stated, “Net foreign exchange inflow to the economy stood at $5.78bn in 2022,Q4, compared with $7.29bn in the preceding quarter. “Foreign exchange inflow into the economy decreased by 15.1 per cent to $14.62bn, from $17.22bn in the preceding quarter. “The development was driven by the 14.7 per cent and 15.4 per cent decreased inflow through the CBN and the autonomous sources, respectively.” It said the foreign exchange inflow through the bank at $6.21bn, fell below the $7.28bn in the preceding quarter. Foreign exchange inflow through autonomous sources decreased to $8.41bn, from $9.94bn in the preceding period. Similarly, foreign exchange outflow from the economy decreased by 10.9 per cent to $8.85bn, relative to the level in the third quarter. Outflow through the bank at $7.51bn, decreased by 12.1 per cent, from $8.54bn. Autonomous outflow also fell by 3.6 per cent to $1.34bn, from $1.39bn in the preceding quarter. Consequently, the economy recorded a net foreign exchange inflow of $5.78bn in 2022, Q4, from $7.29bn in 2022, Q3. Similarly, autonomous sources recorded a net inflow of $7.08bn, from $8.55bn in 2022Q3. However, a net outflow of $1.30bn was recorded through the Bank, compared to a net outflow of $1.26bn in 2022, Q3. In the period under review, it added, the average turnover at the I & E segment increased by 11.7 per cent to $0.12bn, relative to the level in 2022,Q3, reflecting improved liquidity in the segment.