macroafricaintel | Banks in West Africa: Struggling amid tighter regulatory grip

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Banks in West Africa have been in the news for the wrong reasons lately. In Nigeria, four banks, of which three have foreign affiliations, namely Standard Chartered, Citibank and Stanbic IBTC Bank and Diamond Bank, were in total fined 5.65 billion naira by the Central Bank of Nigeria (CBN) for illegally facilitating the transfer abroad of $8.134 billion for MTN, a South African telecoms firm. The Nigerian central bank has also increased its scrutiny of some of the practices of banks that are clearly exploitative. In September, for instance, it instituted a fine for erring banks that fail to reverse failed electronic transfer transactions within 24 hours. In neighbouring Ghana, five banks, namely Unibank, Sovereign Bank, Construction Bank, Beige Bank, and Royal Bank, failed and had their licenses revoked by the Bank of Ghana, the central bank, in early August. The failures were largely due to weak corporate governance systems, with widespread fraud and insider dealings alleged. In Unibank, for instance, hitherto Ghana’s sixth largest bank, directors and their associates availed themselves of depositors’ funds to the tune of $1.1 billion, according to the BoG. Consolidation Bank Ghana, a resolution vehicle set up by the Bank of Ghana, to assume the assets and liabilities of the failed banks, is believed to be adequate to prevent a crisis, however. Stringent punitive measures against the directors of the failed banks are also expected. Nonetheless, poor banking supervision by the BoG is also a reason why the banks failed. That said, remedial measures by the central bank have proved to be effective. S&P Global Ratings, a rating agency, seems to think so, at least. In September, it raised Ghana’s sovereign rating to B from B- in part because it assessed the country’s banking sector to be largely stable. Regardless, there is a general lack of confidence by Ghanaians in the banking sector at the moment. It is also important to note the continued divide in the banking sectors of anglophone and francophone countries. “In West Africa generally, there continues to remain a deep divide between the banking systems in English and French West Africa,” says Andrew Nevin, chief economist at PwC, a consultancy, in Lagos. “Apart from Ecobank – a truly pan-Sub-Saharan African bank, the players are different in the 2 regions, and certainly, English-speaking banks have not had great success when they entered Francophone markets,” he adds.

De-risking, increased mobile banking, and tighter regulations
So what are the notable banking industry trends in the region over the past year, especially in Nigeria, Ghana, and Ivory Coast? “We have noted three trends,” says George Bodo, head of banking research at Ecobank, a pan-African bank, in London. First, we have generally seen a balance sheet de-risking trend in West Africa, where banks, in Ghana, Nigeria and UEMOA, increased the pace at which they purchased Central Government debt compared to lending to the real economy. In 2017, the share of Central Government debt to total banking sector assets rose sharply by 400bps y-o-y to 21%. In the same period, the share of customer loans rose by 200bps y-o-y. This is largely a risk-off trend informed by the elevation in credit risks (as gross NPL ratio rose to 16% in 2017, from 11% in 2015).”

“Second, there is an increasing adoption of mobile phone as a distribution channel-especially in Ghana and UEMOA. In Ghana, the value of mobile money transactions (primarily deposits and withdrawals) hit USD35bn in 2017, from USD18bn in 2016. In UEMOA, the value of mobile money transactions hit USD21bn in 2016, a sharp growth from the USD2.9bn transacted in 2013.”

“Finally, regulations seem to be tightening. In Ghana, commercial banks have until end of 2018 to increase their minimum fully paid-up share capital to a new regime of GH¢400mn (from GH¢120mn). In UEMOA, the regional central bank, BCEAO, has, effective January 1, 2018, rolled out a mix of Basel II and III inspired regulatory reforms. Some of the key reforms include: (i) introduction of operational and market risks in the calculation of risk-weighted assets; (ii) a capital conservation buffer surcharge – mainly 2.5% surcharge of core capital; (iii) a reduction in the single large exposure limit to 25% of core capital; and (iv) regulation and supervision of financial holding companies on a consolidated basis by the BCEAO and the Banking Commission.”

PwC’s Nevin provides additonal views on the Ghanaian banking sector: “With respect to Ghana, the number of banks was very high in a small market and it is not surprising there is a consolidation. The costs of banking technology – particularly with the Fintech challenge – and the increasing demands of regulatory compliance mean that small banks are going to be more and more uncompetitive. In the Ghana market, you have Ghana Commercial Bank as a huge player, and a number of very successful African Banks (GT, Ecobank, UBA, Absa for example). So it is not a surprise that small, poorly capitalized players cannot survive. The Bank of Ghana is doing an excellent job of resolving these banks and making sure the banking system in Ghana is robust.”

QE to the rescue?
And how does Ecobank’s Bodo see the banking industry in the region evolving over the next year or so; especially in the key countries Nigeria, Ghana, and Ivory Coast? “In Ghana and UEMOA, we are anticipating increased partnerships between traditional banks and mobile network operators (MNOs) especially in regards to liability mobilization. In Nigeria, we still anticipate increased risk-off liquidity deployment strategies.” How so? “In 2017, banks bought FGN-issued debt securities worth NGN245bn, while only lending NGN183.6bn to the real economy. This kind of asset allocation was bound to concern the CBN. However, we broadly believe that for balance sheets to grow, banks have to move up the risk curve. But this risk spectrum, which holds the right price incentives, still lacks the right ingredients that banks are looking for.” To push them along, the CBN announced a number of stimulus measures in August. It offered to release some of the funds kept by banks with it as reserves for lending to agricultural and manufacturing firms at the single-digit rate of 9 percent. Additionally, it offered to buy long-tenored bonds of corporates that demonstrate their activities would create jobs. But would these be enough to nudge the banks towards more lending to the real sector? Ecobank’s Bodo is sceptical: “CBN’s direct intervention in deposit intermediation will still not avail the ingredients.”

Innovate, innovate, innovate
“In the [Nigerian] banking sector, the environment remains very challenging. The uplift in oil prices has taken some pressure off non-performing loans in the oil & gas sector (but not the power sector). [And] there continues to be a widening gap between the major banks and the middle-tier banks in terms of return on equity and cost-to-income ratios. [Therefore,] middle-tier banks will need to find distinctive strategies to create value because if they do what other banks do, they will not earn adequate returns,” says PwC’s Nevin. Besides, banks all over the world and indeed Africa, are facing disruptions from new technologies at the behest of industry outsiders. At their current pace, financial technology companies could easily displace banks in the very near future. For the Nigerian experience, PwC’s Nevin provides some perspective: “all [Nigerian] banks (even the top tier banks) are challenged by FinTechs and they need to create new, innovative products if they want to appeal to a very young, connected population in Nigeria. FinTechs are very strong in the payment space – Interswitch, Paga, [and] Flutterwave, [for example] – and are increasingly strong in the consumer credit market. There are also new players trying to create savings vehicles for retail clients. The banks carry significant legacy costs and the FinTechs will find ways to take revenue at a much lower cost.” Clearly, short of innovation, banks in Nigeria and broader West African region, might find the times even more challenging yet.

An edited version was published in the Q4-2018 issue of African Banker magazine

#Africa #Markets | 16 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asia shares absorb Nvidia blow, sterling licks its wounds
  • Nasdaq futures fall as Nvidia shares dive 17 pct on poor results
  • Nikkei subdued, Asia shares ex-Japan edge up
  • Pound shaky after hammering on UK political chaos
  • Oil tries to find footing after recent collapse

Oil Markets

  • Oil rises on expected OPEC cuts, but surging US supply drags
  • Brent crude oil futures up 0.7 pct at $67.10 per barrel (0353GMT)
  • US WTI crude futures up 0.7 pct at $56.84 per barrel

Precious metals

  • Gold prices edge higher amid Brexit turmoil
  • Spot gold up 0.2 pct at $1,214.77 per ounce (0121GMT)
  • US gold futures up 0.1 pct at $1,215.6 per ounce

Grains

  • US soybean prices steady amid hopes for US-China trade talks
  • Most active CBOT soybean futures nearly flat at $8.88-1/4 per bushel (0140GMT)
  • Wheat up 0.3 pct at $5.06-3/4 per bushel
  • Corn futures flat at $3.67-1/4 per bushel

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • AU heads of state meet in Addis tomorrow

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Pentagon to cut troops in Africa to focus on shifts to China, Russia
  • Seven peacekeepers killed in clashes near eboal-hit part of east Congo
  • Ethiopia arrests ex deputy intelligence chief in corruption, rights crackdown
  • Egypt keeps interest rates on hold, says inflation contained
  • Freeze aid to Tanzania over rights violations, campaigners say
  • South Africa should avoid uncertainty in land reform – World Bank executive
  • EU: Tanzanian govt pressure on its envoy forced his recall to Brussels – statement
  • Africa Crude – Traders wait for Jan programmes, Nigerian clears
  • Four Malawian UN peacekeepers killed in Congo – Malawi Defence Force
  • Morocco inaugurates Africa’s fastest train
  • Tanzanian cashew price hike could lead to global shortage, traders say
  • Tens of thousands die in Africa each year due to fake drugs
  • GE hands leadership of Nigerian rail concession to Transnet
  • Financier of Islamic State paid money to rebel group in eastern Congo – report
  • Russia’s Alrosa sells stake in Botswana diamond joint venture
  • Global cobalt glut won’t be stemmed by Glencore Congo output stoppage
  • Trump to nominate handbag designer as new South African ambassador
  • Glencore’s Katanga warns of earnings hit if Congo row not resolved
  • Zimbabwe’s Chamisa says he’ll testify to inquiry only if president does
  • Ghana budget deficit seen easing to 4.2 pct in 2019 from 4.5 pct 2018 target
  • Kenya’s shilling to weaken, Zambia kwacha to firm; in week ahead
  • Gabon VP takes over cabinet amid President Bongo’s illness
  • South African parliament team calls for law change over land reform
  • Uganda shilling weakens as uptick in importer demand weighs
  • MTN Rwanda close to finalising 50 bln franc syndicated loan
  • South Africa’s former home affairs minister resigns from parliament
  • Egypt targets narrower budget deficit of 7 pct in 2019/20 – ministry document
  • Danakali, other miners says Eritrea sanctions lifting a boost
  • Satellite company SAS Global joins rush to boost Africa connectivity
  • Egypt unemployment rate falls to 10 pct in Q3 – CAPMAS
  • Ethiopia arrests security head at state-owned Ethio Telecom – broadcaster
  • Kenyan shilling weakens on importer demand, nears 10-mth low
  • Angola battles to revive oil exploration as output declines
  • Tullow Oil expects full-year cash at $700 mln, debt down to $2.8 bln
  • South Africa’s Sappi reports 4 pct fall in annual profit
  • South Africa’s Investec reports H1 operating profit up 14.2 pct
  • South Africa’s Woolworths posts 2.7 pct rise in 20-week sales
  • Angola battles to revive oil exploration as output declines
  • Ethiopia’s former deputy intelligence chief arrested – attorney general
  • Nigeria Senate committee says NNPC amount probed has doubled to $2.2 bln

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 16 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
09:30 Hong Kong GDP Growth Rate YoY 
09:30 Hong Kong GDP Growth Rate QoQ 
09:30 Euro Area ECB Draghi Speech 
11:00 Italy Balance of Trade 
11:00 Euro Area Inflation Rate MoM 
11:00 Euro Area Core Inflation Rate YoY Final 
11:00 Euro Area Inflation Rate YoY Final 
15:15 US Industrial Production MoM 
15:15 US Industrial Production YoY 
22:00 US Foreign Bond Investment 
22:00 US Overall Net Capital Flows 
22:00 US Net Long-Term Tic Flows 
00:50 Japan Exports YoY 
00:50 Japan Balance of Trade
NEWS
Malaysia Q3 FDI Picks Up 
Malaysia Q3 Current Account Surplus Narrows Sharply 
Malaysia Q3 GDP Growth Weakest in 2 Years 
Singapore October NODX Rises More than Expected 
New Zealand Manufacturing PMI Climbs to 5-Month High 
US Stocks Rebound Sharply on Thursday 
Argentina Inflation Rate Jumps to 45.9% YoY 
Colombia Economic Activity Expands 2.3% YoY in September 
Mexico Lifts Interest Rate by 25 Bps to 8% 
Egypt Leaves Rates Unchanged 
Israel Inflation Rate Steady at 1.2% in October 
European Stocks Finish Lower on Brexit Turmoil 
Colombia Annual GDP Growth Slows to 2.7% in Q3 
US Crude Oil Inventories Rise the Most since Feb 2017 
US Business Inventories Match Forecasts

Source: Trading Economics, Macroafricaintel Research

#Africa #Markets | 15 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asia stocks lifted by China-US trade hopes; oil resumes retreat
  • MSCI Asia-Pacific index up 0.4 pct, Nikkei dips 0.25 pct
  • Pound, euro firm after PM May gains cabinet backing for Brexit

Oil Markets

  • Oil prices resume decline on oversupply worries
  • Brent crude futures down 0.3 pct at $65.90 per barrel (0254GMT)
  • US WTI crude futures down 0.5 pct at $55.95 per barrel

Precious metals

  • Gold prices hold steady as dollar eases
  • Spot gold little changed at $1,210.65 per ounce (0055GMT)
  • US gold futures flat 0.1 pct at $1,203 per ounce

Grains

  • US soybean prices extend gains on export sales, slow harvest
  • Most traded CBOT soybean futures up 0.5 pct at $8.82-3/4 per bushel (0123GMT)
  • Most active wheat futures up 0.2 pct at $5.03-3/4 per bushel
  • Most active corn futures up 0.3 pct at $3.67-1/2 per bushel

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • Ghana 2019 budget statement to be delivered today
  • Rwanda’s Kagame in Qatar on state visit
  • South Africa’s Ramaphosa on working visit to EU; 14-15 Nov

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Ethiopia arrests former deputy intelligence chief
  • Nigeria Senate committee says NNPC amount probed was doubled to $2.2 bln
  • Nigeria raises $2.86 bln in eurobonds to fund deficit
  • Shipbound migrants in Libya port say would rather die than disembark
  • UN bemoans lack of funding for African anti-jihadist force
  • Vodacom Tanzania approves sale of 26 pct stake to South Africa’s Vodacom Group
  • Kenyan judge sentences two police officers to death for murder
  • Ugandan soldiers to guard Chinese businesses after rash of robberies
  • Emerging economies see debt rise $1 trln in Q2, face record redemptions – IIF
  • Sibanye seals wage deal with South African unions
  • UN Security Council removes Eritrea sanctions after years
  • Africa Crude – Nigerian surplus persists, IOC picks up spot cargoes
  • Algeria’s ruling FLN party head quits
  • South Africa’s Standard Bank to lay off more than 500 workers
  • Global cobalt glut won’t be stemmed by Glencore Congo output stoppage
  • India’s African oil imports hit 3-yr high in Oct – trade
  • South Africa retail sales rise points to economic recovery; up 0.7% yy in Sep
  • Land reform in South Africa will not violate constitution – Ramaphosa
  • South Africa’s land expropriation unnerves investors – World Bank executive
  • Ugandan shilling firms as importer and interbank demand ebbs
  • Libya could hold elections next spring – Italy’s foreign min
  • European businesses help lift South Africa’s SPAR FY earnings

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 15 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
06:30 Netherlands Unemployment Rate 
07:30 China FDI (YTD) YoY 
08:00 Turkey Unemployment Rate 
08:00 Indonesia Interest Rate Decision 
09:00 Philippines Interest Rate Decision 
10:30 UK Retail Sales ex Fuel MoM 
10:30 UK Retail Sales ex Fuel YoY 
10:30 UK Retail Sales YoY 
10:30 UK Retail Sales MoM 
11:00 Euro Area Balance of Trade 
13:00 Israel Inflation Rate MoM 
13:05 India Balance of Trade 
13:15 Euro Area ECB Cœuré Speech 
14:10 Euro Area ECB Praet Speech
NEWS
Indonesia Import Growth Accelerates Sharply 
Indonesia Exports Rise More than Expected in October 
Australia Jobless Rate Unchanged at 6-1/2-Year Low of 5% 
US Stocks Close Lower on Wednesday 
Sterling Flat Against USD as Cabinet Agrees May’s Plan 
European Shares Fall Ahead of UK Cabinet Meeting Outcome 
Colombia Retail Sales Grow at a Faster 5.9% in September 
Ukraine GDP Growth Slows to 2.8% in Q3 
Colombia Factory Output Grows Less than Expected 
Colombia Trade Gap Widens in September 
Colombia Imports Rise 8.4% YoY in September 
Oil Prices Rebound 
Natural Gas Prices Hit 4-1/2-Year High 
Ecuador Posts Smallest Trade Gap in 6 Months

Source: Trading Economics, Macroafricaintel Research

#Africa #Markets | 14 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Crude oil struggles for traction after plunge, stocks sag
  • US crude struggles near 1-yr low after 7 pct plunge
  • MSCI Asia-Pacific index down 0.4 pct, Nikkei off 0.1 pct
  • Stocks capped after Wall St dips on sliding crude

Oil Markets

  • Oil markets struggle to find footing after 7 pct slump
  • Crude has lost a quarter of its value since early October
  • Jump in supply comes as demand outlook weakens
  • Top 3 oil producers see output surge
  • US WTI crude futures down 15 cents at $55.54 per barrel (0159GMT)
  • Brent crude futures up 4 cents at $65.51 per barrel

Precious metals

  • Gold edges up as dollar drifts away from multi-month high
  • Spot gold up about 0.1 pct at $1,202.55 per ounce (0101GMT)
  • US gold futures up 0.1 pct at $1,203 per ounce

Grains

  • Soybeans firm as USDA pegs harvest pace behind market forecasts
  • Most active CBOT wheat futures down about 0.1 pct at $5.07-1/2 per bushel (0131GMT)
  • Most active corn futures unchanged at $3.66-1/2 per bushel
  • Most active soy futures up 0.1 pct at $8.79-1/4 per bushel
  • Most active rice futures unchanged at $10.90 per hundredweight

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • South Africa’s Ramaphosa in Europe for SA-EU summit; 14-15 Nov
  • South Africa retail sales data for Sep-18 due [fcst. 2.5% yy, prev. 2.5%]

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Fast-growing African cities at ‘extreme risk’ from climate change – analysts
  • US senators alarmed if China get control of Djibouti port
  • At least 15 killed in Cameroon in clashes between army, seperatists
  • South Africa’s home affairs minister Gigaba resigns
  • Nigerian firm takes blame for routing Google traffic through China
  • Ethiopia arrests ex-head of army firm in crackdown on security services
  • Morocco expects 50 bln dirhams in mobile payments by 2023
  • Spotify launches in the Middle East and North Africa
  • Africa Crude – Angolan export programmes due, Nigerian market in surplus
  • Sudan expects bidding round to develop oil and gas in Q3 2019
  • Rival Libya leaders meet for first time since May, PM okays 2019 vote
  • Congo’s ebola outbreak to last at least six more months – WHO
  • Zimbabwe’s inflation at highest in a decade as dollar shortage bites
  • MTN making progress to resolve $10.1 bln dispute with Nigeria – CEO
  • Families of freed Cameroonian kidnap victims feared Chibok repeat
  • Turkey withdraws from Libya summit in Italy – vice president
  • Facebook auction of South Sudan child bride could inspire other families – activists
  • MTN aims to offer mobile banking in Nigeria next year
  • Zimbabwe’s October inflation at 20.85 pct, highest since 2008
  • Former head of Ethiopia’s military-run METEC was arrested on Ethiopia-Sudan border
  • Zambia committed to improving debt transparency – president
  • South African court approves winding up graft-hit VBS bank
  • Ugandan shilling steady amid slump in demand for hard currency
  • NNPC says Nigeria will raise oil prodn to 1.8 mln bpd in 2019
  • Zambia committed to improving debt transparency, President Lungu says
  • Libyan leader meets eastern commander in Palermo
  • Kenyan shilling firms, helped by investor inflows into t-bond sale
  • South Africa’s Telkom H1 profit up 10 pct, mobile unit robust
  • Tunisia must control wage bill, IMF warns after deal with union

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 14 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
05:30 Japan Tertiary Industry Index MoM 
07:30 India WPI Inflation YoY 
08:00 Finland GDP Growth Rate YoY Prel 
08:00 Finland GDP Growth Rate QoQ Prel 
08:00 Germany GDP Growth Rate QoQ Flash 
08:00 Germany GDP Growth Rate YoY Flash 
09:00 Nigeria Inflation Rate YoY 
09:30 Netherlands Balance of Trade 
09:30 Netherlands GDP Growth Rate YoY Flash 
09:30 Netherlands GDP Growth Rate QoQ Flash 
09:30 Sweden Inflation Rate MoM 
09:30 Sweden CPIF YoY 
10:00 Poland GDP Growth Rate YoY Prel 
10:00 Poland GDP Growth Rate QoQ Prel
NEWS
Sri Lanka Hikes Key Rate by 75 bps to 8% 
China Retail Sales Rise the Least in 5 Months 
China Industrial Output Rises More than Expected 
China Fixed Asset Investment Growth Beats Estimates 
Australia Wages Gain Steam in Q3 
Australia Consumer Confidence Climbs in November 
South Korea Jobless Rate Edges Down to 3.9% 
US Government Budget Deficit Widens in October 
Sterling Extends Gains on Brexit Draft Deal 
Natural Gas Prices Rally on Cold Weather Forecast 
European Shares Gain 
Oil Prices Dip Below $57 
US Stocks Rebound 
El Salvador Inflation Rate Hits 10-Month High of 1.50%

Source: Trading Economics, Macroafricaintel Research