London-based rating agency, Fitch Ratings, has revealed that banks operating in Nigeria may suffer a plunge in their profit in the first quarter of 2018 due to the slowdown in the supply of treasury bills.
In a statement issued last week by the firm, Nigerian banks may find it more difficult to sustain profitability given the decline in net treasury bill (T-bill) issuance in Nigeria’s 1Q18 issuance programme.
The slowdown in T-bill issuance marks a change of strategy as the government looks to increase its financing from external sources and longer-dated domestic issuances.
Record T-bill issuance in 2017 helped support the Central Bank of Nigeria (CBN)’s strategy to maintain Naira exchange-rate stability.
High yields on T-bills issued in 2017 (around 13%-14% on 90-day T-bills) attracted investors and helped to support the Naira.
An increase in oil export earnings and the introduction in April 2017 of the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism, commonly referred to as the “Investors and Exporters’ FX Window”, also helped naira stabilisation during the second half of 2017.
Nigerian banks are highly reliant on net interest income for profitability and T-bills proved to be an important source of profits in 2017. Interest on securities represented 30% of total gross interest earned in 9M17, averaged across Nigerian banks rated by Fitch (2016: 23%).
By end-September 2017, government securities including T-bills represented more than 15% of the banks’ assets as new lending fell, reflecting weak credit demand, tighter underwriting standards and banks’ reluctance to extend new loans as they focused on extensive restructuring of troubled oil-related and other portfolios, Fitch said.
It noted that even the country’s largest banks cut back on new lending, with Guaranty Trust Bank’s stock of outstanding loans falling 10% during 9M17, FBN Holdings’ by 4.6%, Zenith’s by 3.7% and Access’s by 1.1%. United Bank for Africa’s loan book grew 5.6%, but this is likely to have been driven by non-Nigerian lending as the bank operates in 22 other African countries.
“We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018.
“The CBN’s latest issuance schedule shows NGN1.1 trillion (USD3.6 billion) of rollovers in 1Q18 against NGN1.3 trillion of maturing bills. In 2017, rollovers fully covered maturing bills,” the rating company said.
Fitch predicted that performance metrics at all banks will be affected by weak demand for lending, falling T-bill yields, lower foreign-currency translation gains and rising loan impairment charges, but the largest banks are best placed to withstand these challenges.
Operating returns are still strong at GTB (9M17 operating return on average equity (ROAE): 37%), Zenith (28%), UBA (22%) and Access (20%), while FBNH’s operating ROAE is lower (12%) but improving.
iiiiowever, some second-tier banks with a 9M17 operating ROAE of 4%-6% may struggle to remain profitable in 2018.iiiiiiiiUber ex-CEO Kalanick, Sells Nearly a Third of Stake for $1.4 iiibillion
Cab hailing firm, Uber Technologies Inc co-founder Travis Kalanick, who was ousted as chief executive in June, is selling nearly a third of his 10 percent stake in the ride-services company for about $1.4 billion, a person familiar with the matter said on Thursday, January 5.
Kalanick’s sale is part of a deal struck by a consortium led by SoftBank Group Corp which is taking a 17.5 percent stake in Uber, mostly by buying shares from early investors and employees. SoftBank last week secured agreements from shareholders who were willing to sell, and the deal will close early this year, Uber said.
The SoftBank deal values Uber at $48 billion, about a 30 percent discount from its most recent valuation of $68 billion. However, the investor consortium is also making a $1.25 billion investment of fresh funding at the older, higher valuation.
Kalanick had offered to sell half of his total shares, but because there was a limit on how much SoftBank will buy, he will sell just 29 percent, according to the source. Other investors also did not get to unload as many shares as they had hoped because of such widespread interest to sell.
The former CEO owns 10 percent of the company, which means his sale will unload 2.9 percent of Uber shares and earn him about $1.4 billion, the source added.
A spokesman for Kalanick declined to comment. SoftBank and Uber could not be reached immediately for comment.
The sale would make the Uber co-founder a billionaire for the first time, not just on paper. Kalanick has never before sold shares of the company he ran for almost a decade, the source said.
The SoftBank deal offers investors and employees what could be their last chance to sell shares in a company-approved transaction before Uber’s long awaited initial public offering, planned for 2019.
The transaction marks a victory for new CEO Dara Khosrowshahi, who helped broker the deal and who will benefit from a deep-pocketed investor like SoftBank, Reuters reports.
