…FG revenue drops to N1.159tn in Q2, investors await flurry of economic data this week
In bid to ensure financial system stability and integrity, while restoring calm, the Central Bank of Nigeria (CBN) will today meet with the Body of Bank CEOs, following which it will consider the plea by eight bank executives whose institutions were suspended from the foreign exchange (FX) market last Tuesday, to give them more time to return the Nigerian National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas (NLNG) Company dollar deposits held by the affected banks to the Treasury Single Account (TSA) domiciled with the CBN.
Nine banks were initially suspended from participating in the FX market by the CBN last Tuesday for failing to return $2.334 billion belonging to the NNPC/NLNG to the TSA, despite the federal government’s directive since August last year that all government deposits must be remitted to the account by September 15, 2015.
The eight banks – First Bank of Nigeria (FirstBank) Limited, Diamond Bank Plc, Sterling Bank Plc, Skye Bank Plc, Fidelity Bank Plc, Keystone Bank Limited, First City Monument Bank (FCMB) Limited, and Heritage Bank Limited – were yet to remit a total of $1.804 billion NNPC/NLNG funds to the TSA as of Friday.
United Bank for Africa (UBA) Plc, which complied last week by refunding $530 million to the TSA, has since been re-admitted into the FX market.
However, following the plea by the eight banks that remain barred from participating in the FX market, the central bank will be meeting with all bank CEOs today and will afterwards consider the plea to give the affected banks more time to refund the funds, a reliable industry source informed THISDAY on Sunday.
A top CBN source also confirmed to THISDAY that the central bank was considering the request by the CEOs of the affected banks after the meeting held with them last week following their suspension from the FX market.
He, however, blamed the banks for failing to comply with the deadlines and repeated reminders given to them to refund the NNPC/NLNG dollar deposits since last year.
According to him, “Following the federal government’s directive on the movement of all government funds to the TSA, the NNPC approached us last September to compel the banks to return its dollar deposits to the TSA.
“Based on this, we discovered $6 billion was held by all the banks and we agreed with them that 50 per cent of the amount should be paid by October last year, 25 per cent after 60 days and the outstanding 25 per cent after 30 days.
“However, after meeting the October deadline by paying $3 billion, the banks have since failed to meet the December and January deadlines and have only refunded an extra $900 million, leaving an outstanding balance of $2.1 billion. All entreaties that they should return the balance of about $2.1 billion have fallen on deaf ears, which was what led to the suspension of the nine banks last week.
“We even discovered that some of the banks had converted the dollar deposits to naira and lent them out for various projects, which was ill-advised, given that most government funds are current account or demand deposits and should not be lent out for long-term projects, so basically there was a major mismatch of assets and liabilities.
“It got to a point whereby the presidency felt that the CBN Governor, Mr. Godwin Emefiele, was treating the banks with levity because he was once one of them. So, the measure to suspend the nine banks was forced on the CBN by the banks who failed to comply with the directive.”
The official said since the suspension, the central bank has met with the bank executives twice.
He said the primary objective of the CBN is to ensure financial system stability and integrity, and to restore calm in the markets, adding that it is for this reason the CBN is considering their request for more time to refund the NNPC/NLNG dollar deposits.
“Another reason the CBN is considering their request is because most of them are already speaking to foreign investors and donor institutions to raise money in order to refund the NNPC/NLNG funds,” the official said.
Owing to the suspension of the eight banks from the FX market, the naira fell sharply on the parallel market to a record low of N412 to the dollar on Friday, as against the N397 to the dollar the week before.
On the interbank forex market, the naira also closed at N314.95 to the dollar on Friday, reflecting the huge gap between the interbank and parallel market.
The sharp depreciation of the naira on the parallel forex market was attributed to the strong demand for the greenback by customers of the eight banks that were banned from the official FX market.
It was gathered that a lot of them resorted to the parallel market for dollar purchases to meet pressing obligations, as they await the resolution of the matter between the banks and the CBN.
But a banking source expressed optimism that the plea by the eight banks for more time, if approved, would help to resolve the problem in FX market.
“One of the resolutions from the meeting of the Body of Bank CEOs which met in Lagos last Thursday, was that the affected banks should be given some time to repay the money.
“The meeting which was presided over by the CEO of Access Bank Plc, Mr. Herbert Wigwe, agreed to send a proposal to the CBN to accept a repayment plan and also appealed that the CBN should help them to convince the federal government and presidency to accept the proposal,” the source added.
Wigwe, in a statement last week, said that the body agreed to work closely with the CBN to address the issue that led to the ban in a manner that would protect the stability of the industry, and to ensure proper conduct in the optimisation of the FX market.
While clarifying that there was no concealment in any form, as the banks had always disclosed the funds in their returns, the statement from the Body of Bank CEOs noted that the situation arose out of the maturity mismatch of funds found in certain strategic sectors to ensure the growth of the economy.
Meanwhile, the federally collected revenue during the second quarter of 2016 fell to N1.159 trillion, which was 51.3 per cent and 8.6 per cent lower than the budgetary estimates for Q2 2016 and the receipts in the preceding quarter, respectively.
In its second quarter economic report for 2016, the CBN attributed the decline in federally collected revenue (gross) relative to budgetary estimates, was due to the shortfall in receipts from both oil and non-oil revenue during the second quarter of 2016.
At N537.19 billion or 46.3 per cent of total revenue received, gross oil receipts were lower than the provisional quarterly budget and the receipts in the preceding quarter by 39.2 per cent and 19.4 per cent, respectively.
The decline in oil revenue relative to the budget estimates was attributed to the persistent fall in receipts from crude oil/gas exports due to persistent low price of crude oil in the international market and the series of shut-ins and shutdowns at some NNPC terminals owing to pipeline vandalism.
Similarly, at N621.86 billion or 53.7 per cent of total revenue, gross non-oil receipts were above the receipts in the preceding quarter by 3.2 per cent. It was however below the provisional budget estimates by 58.4 per cent.
The decline in non-oil revenue relative to the provisional budget estimates was due largely to the shortfall in receipts from all of its components except Customs Special Levies (Non-Federation Account) during the review quarter.
Furthermore, the CBN report showed Nigeria’s crude oil production, including condensates and natural gas liquids, was estimated at an average of 1.54 million barrels per day (mbd) or 141.68 million barrels (mb) for the second quarter of 2016.
This represented a decline of 0.37mbd or 15.4 per cent, relative to 1.82mbd or 165.62 million barrels produced in the first quarter of 2016.
“Crude oil exports stood at 1.09mbd or 100.28mb. This represented a decline of 20.4 per cent, compared with 1.37mbd or 124.67mb recorded in the preceding quarter.
“Supply disruptions owing to continued attacks on oil installations by vandals accounted for the decline in crude oil production. Deliveries to the refineries for domestic consumption remained at 0.45mbd or 41.40 million barrels during the review quarter.
“At an estimated average of US$46.44 per barrel, the price of Nigeria’s reference crude, the Bonny Light (37º API), rose by 35.0 per cent, compared with the level in the preceding quarter.
“The average prices of other competing crudes, namely, the UK Brent at US$45.29/b, WTI at US$45.18/b and Forcados at US$46.05/b exhibited similar trends as Bonny Light.
“The average price of OPEC basket of eleven selected crude streams, at US$42.38 per barrel, indicated an increase of 40.5 per cent, compared with the average of US$30.16/b recorded in the preceding quarter,” it added.
Of the gross federally collected revenue, a net sum of N665.67 billion was transferred to the Federation Account for distribution among the three tiers of government and the 13 per cent Derivation Fund in the quarter under review.
On the back of the CBN’s Q2 report on the economy, the markets are expected to witness a flurry of data releases from the National Bureau of Statistics (NBS) this week.
This would definitely influence investment decisions in the coming days, said Lagos-based financial advisory firm, Afrinvest West Africa, last week.
Scheduled for release by the NBS on Wednesday include: the Q2, 2016 quarter unemployment and underemployment watch; Q2, 2016 foreign trade estimates; Q2, 2016 Gross Domestic Product estimates (Production Approach); July 2016 Consumer Price Index and Inflation; Q2, 2016 Capital Importation and FDI report and July 2016 PMS/Petrol Price Watch, amongst others.
Of these, focus would mostly be on the Q2, 2016 GDP report and July 2016 Inflation, Afrinvest said in a report.
“Analysts’ consensus forecasts on both data (including ours) is decidedly bearish and we do not expect any positive surprise from the rest.
“The downtrend in growth of the Nigerian economy which began in late 2014 majorly due to falling oil prices, has persisted into 2016, as forex market illiquidity, downtime in power supply and depressed real consumer income continue to weigh on productivity, investment and consumer spending.
“Developments in the forex market – which has seen the naira depreciate significantly against a host of foreign currencies – as well as increases in power and fuel tariffs have had pass-through on consumer prices with the inflation rate in June 2016 far above the CBN’s allowable band of 6-9 per cent and an eight-year high of 16.5 per cent from 9.6 per cent in January,” Afrinvest said.