Macro-Economic Outlook and Implications For The Ability Of Banks To Grow Loans To The Private Sector

Proshare

Thursday, November 28, 2019   /09:34AM  / By Bode Agusto / Header Image Credit: EcoGraphics

 

Text of the keynote address to the alumni of Lagos Business School on 21 November 2019.

 

Outline

  • Macroeconomic outlook for 2020
  • Growing loans to the private sector
  • How are the key players positioned to do this?

 

Key Objectives Of Macroeconomic Management

 

  • Price stability
    • Inflation
    • Interest rates
    • Exchange rates

 

  • Growth and employment
    • Real GDP
    • Growth per capita
    • Unemployment rate

 

The long-term rate of inflation in Nigeria is 12%

 

Proshare Nigeria Pvt. Ltd.

 

Yield on 90 An Agusto & Co. Company -day FGN T-bills just covers inflation

Proshare Nigeria Pvt. Ltd.

 

The Nigerian Naira is weaker than the USD

 

Proshare Nigeria Pvt. Ltd.

Key currencies in SSA are weaker than the USD

Proshare Nigeria Pvt. Ltd.

Real growth is tepid

 

Proshare Nigeria Pvt. Ltd.


Growth per capita has been negative in each of An Agusto & Co. Company the past 3 years

Proshare Nigeria Pvt. Ltd.


Unemployment is very high

Proshare Nigeria Pvt. Ltd.


Population grows at 5mm per year

Proshare Nigeria Pvt. Ltd.


Shale production is having a significant impact An Agusto & Co. Company on crude oil prices

Proshare Nigeria Pvt. Ltd.


And consequently Nigeria's oil and gas export An Agusto & Co. Company revenues

Proshare Nigeria Pvt. Ltd.


Will we see significant improvements in these areas in 2020?

 

Key Drivers Of Growth

  • Oil and gas export revenues?
  • Foreign Direct Investment?
  • Government infrastructure spending?
  • Banking sector loan growth to businesses?
  • Quality of infrastructure
  • Power & Transportation?
  • Net CAPEX by businesses?
  • Easing of monetary policy?

 

Macroeconomic outlook for 2020

 

  • Growth and employment
    • Real growth (weak and below 3%)
    • Unemployment rate (unlikely to improve)

 

  • Price stability
    • Inflation (remain close to the long-term rate of 12%)
    • Interest rates (average yield on 1-yr FGN securities about 200-300 basis points above inflation)
    • Exchange rates (ability to sustain peg is contingent upon the size of oil & gas export revenues)

 

Ability Of The Banking Sector To Support Economic Growth By Growing Loans To The Private Sector

 

A key role of the banking sector

 

  • Financial intermediation
    • Take deposits and lend these deposits
      • to businesses that will grow output
      • to individuals to buy goods and services (e.g. cars and homes)

 

  • But in order to play this role effectively banks must be healthy.

 

What does healthy mean?

  • Low level of bad loans
  • Adequate capital to absorb losses
    • Capital is built in two principal ways
      •  Internally generated profits
      • New capital (money) raised from existing and/or new shareholders

 

Historical level of Non-Performing Loans

Proshare Nigeria Pvt. Ltd.


Disaggregating ROE

Proshare Nigeria Pvt. Ltd.

Return on assets

Proshare Nigeria Pvt. Ltd.


Leverage

Proshare Nigeria Pvt. Ltd.


The ability of Nigerian banks to grow capital from internally generated profits is weak

Proshare Nigeria Pvt. Ltd.

Cost of equity

Proshare Nigeria Pvt. Ltd.


How Are The Key Players Positioned?

 

Gross Earnings

Proshare Nigeria Pvt. Ltd.

Cost of Funding Assets

 Proshare Nigeria Pvt. Ltd.

Cost of Day-To-Day Running of Business

Proshare Nigeria Pvt. Ltd.

Cost of Risk

Proshare Nigeria Pvt. Ltd.

Return on Assets

Proshare Nigeria Pvt. Ltd.

Leverage 

Proshare Nigeria Pvt. Ltd.

Return on Equity

Proshare Nigeria Pvt. Ltd.

Valuation

Proshare Nigeria Pvt. Ltd. 


Return On Market Value

Proshare Nigeria Pvt. Ltd. 


Why are Nigerian banks less profitable than those in Kenya and Ghana?

 Proshare Nigeria Pvt. Ltd.


Regulatory Costs

 

  • Impact of regulatory costs on the ROA of the banking industry
    • AMCON levy
  •  0.5% of total assets & contingents
    •  Cash reserves as at 31 December 2018
    • 30.1% of deposits or 14.4% of total assets


 Proshare Nigeria Pvt. Ltd.

About the Author:

Mr. Olabode Mubasheer Agusto, founder of Nigeria's leading ratings agency Agusto & Co. Limited, has public and private leadership experience spanning over 30 years including PriceWaterhouse, Nigeria International Bank,  Director of the National Pension Commission, Member of the Central Bank of Nigeria Monetary Policy Committee and Director - General of the Budget Office of the Federation. Mr. Augusto is a fellow of the Institute of Chartered Accountants of Nigeria. Bode Agusto. He can be reached via @BodeAgusto

 

Proshare Nigeria Pvt. Ltd.


Related News

  1. How CBN's November 2019 MPC Meeting Affects the Common Man
  2. Nigeria's Central Bank Digs From A Pit - A Review of Year-End 2019 MPC Decision
  3. CBN Communique No. 127 of the MPC Meeting - Nov 25 - 26, 2019
  4. Nigeria MPC Maintains Status Quo At Final Meeting Of The Year 2019
  5. Total Value Of Capital Imported Into Nigeria In Q3 2019 Stood At $5,367.56m
  6. FG To Extend Border Closure Till January 31,2020
  7. Nigeria's GDP Grew By 2.28% YoY In Real Terms In Q3 2019
  8. Headline Inflation Increases By 11.61% YoY In October 2019; 0.36% Higher Than September 2019 Rate
  9. Fiscal Prudence: Federal Government Approves Token Cost Saving Measures
  10. 2020 Budget Proposal: Key Takeaways
  11. President Buhari's 2020 Budget Speech
  12. 2020 Federal Government of Nigeria Budget Proposal - Highlights
  13. The Central Bank Of Nigeria's OMO - Implication Of The Recent CBN Circular
  14. Differences Between CBN OMO Bills and The Nigerian Treasury Bills
  15. Possible Implications of CBN's OMO Ban
  16. Implications of CBN's New Instruction on Open-Market Operations
  17. CBN Excludes Individuals And Local Corporates From Investing in OMO Auctions
  18. Yet Again! Another Directive From The CBN
  19. CBN Reviews LDR Target Upwards To 65%; DMBs Required To Attain LDR of 65% By Dec 31, 2019
  20. Banking Sector Update - Reviewed SDF Guidelines: Clear Intent; Minor Impact
  21. CBN Delivers Another News On Standing Deposit Facility of Nigerian Banks
  22. CBN Issues Guidelines on Accessing Standing Deposit Facility; Effective Thursday July 11, 2019
  23. CBN Releases Modalities For The Implementation of The Creative Industry Financing Initiative
  24. DMBs No Longer Require Prior Approval From CBN To Offer Mobile Money Wallet Services
  25. CBN's New Minimum LDR Requirement May Worsen NPLs
  26. CBN Mandates DMBs To Maintain Loan To Deposit Ratio Of 60% Effective Sept 30, 2019
  27. Monetary Policy: Adapting to a Changed World - Speech by Gertjan Vlieghe
  28. MPC Maintains Status Quo - Surprise, Surprise
  29. CBN Communique No. 126 of the MPC Meeting - Sept 19-20, 2019
  30. CBN MPC Retains MPR At 13.5%, Calls on FG To Build Fiscal Buffers
  31. Nigeria MPC Holds Key Policy Rates Constant
  32. MPC To Maintain Accommodative Stance - To Balance Extant And Emerging Risks
  33. Countdown to September 2019 CBN MPC Meeting: Key Economic and Market Issues To Watch
  34. CBN Reschedules September 2019 MPC Meeting To 19th And 20th

 

 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

 

READ MORE:
Related News
SCROLL TO TOP