…Requests For 4.1tn To Bridge Funding Gaps of Nigeria’s Recapitalisation
…But Global Economic Activities Resilient in Period Review
By Ikenwa Charity
Nigerian Banking Sector report, 2024 has mentioned that the economic hardship has been a global issue as a result of currency volatility, escalating debt crisis, which have all led to the current state.
The Afrinvest Group CEO, Dr. Ike Chioke, stated the challenges of the industry in Nigeria during the 2024 Bank Recapitalisation held recently in Abuja
He said the banking industry it outlined that in 2023, Nigerian Banking Sector report themed “Getting Nigeria to Work Again”, the prevailing macroeconomic headwinds of elevated prices, currency volatility, and escalating debt crisis posed major risks to the global economy and financial sector health, saying in response, global systemic central banks adopted a higher-for-longer interest rate policy to steer global inflation toward target levels.
The report explained that the headline inflation eased to its pre-pandemic level in most economies towards the end of 2023.
It stated, “Despite the monetary tightening, global economic activity was resilient in the review period, coinciding with falling inflation – thanks to a post-pandemic expansion of the global supply chain.
“If you look at national banks as, their gap is N1.6 trn in additional capital to get them to N2.2bn. The regional banks as a group, have a gap of N500bn and merchant banks with lower gap of Just over N200bn.
“Whereas, the non-interest banks today are reasonably well capitaled as their gap is only N14bn and their audited accounts will show they’ve met their capitalisation by the end of this year.
It posited that the greater-than-expected rise in the labour force amid robust employment growth supported productivity and, in turn, disinflation in Advanced Economies (AEs) and several leading emerging markets.
“As global inflation converges toward target levels and central banks pivot toward policy easing, we expect the tightening of fiscal policies (notably, upward review of tax regimes) aimed at boosting fiscal capacity to weigh on growth momentum given lingering geopolitical tensions,” he said.
On Global Economic Growth Review and Projection GEGRP, the organisation noted that, “projects global growth at 3.2% in a blue-sky scenario for both FY:2024 and FY:2025 – a rate below the pre-pandemic average of 3.8% (2000 – 2019).
It went on to explain that the outlook reflects the divergent recovery across regions given limited success in curbing inflation in developing economies, contrasting effective monetary policy transmission in AEs.
“For the latter, IMF’s growth outlook brightened slightly to 1.7% and 1.8% in 2024 and 2025 respectively (2023: 1.6%) due to the upward revision of growth expectations in the US and Euro area. In the US, growth is projected to increase to 2.7% in 2024, before decelerating to 1.9% in 2025, as gradual fiscal tightening and softening labour markets slow aggregate demand.
For the Euro area, output recovery from c.0.4% in 2023 to 0.8% and 1.5% in 2024 and 2025, reflects the easing policy environment and dissipating effect of the Russia-Ukraine war on the region’s productivity.
“Elsewhere, a steady growth rate of 4.2% in Emerging Markets and Developing Economies (EMDEs) in 2024 and 2025 is underpinned by impressive fortune across Middle East & Central Asia and Sub-Saharan Africa (SSA).
However, emerging and developing Asia would experience a growth drag due to growing fiscal strains. Importantly, higher crude oil prices (Nigeria and Angola) and improved earnings on commodities (Ghana and Cote d’Ivoire) should lift SSA growth from an estimated 3.4% in 2023 to 3.8% and 4.0% in 2024 and 2025 respectively, “they stated.
It also gave records from the Pre-Pandemic 2022, 2023 2024. E 2025F as;
3.3%, 4.0%, 3.5%, 3.2%, 3.8%, 3.3%, 3.2%, 4.1%, 3.3%, 4.1%, 4.3%, 3, .4%, 4.2%, 4.2%, 4.0%, .2%, 2.6%, 2.0%, 1.8%, 1.7%, 1.6%, 1.6%, 1.5 %, 0.8%, 0.4%.
Continuing, the banking organisation expounded that a report from AEs Euro Area EMDEs SSA Source show that, IMF, Afrinvest Research, Afrinvest (West Africa) Limited, had since the Second World War, global merchandise trade witnessed a contraction only twice: in 2009, at the height of the global financial crisis (GFC), and in 2020, during the COVID-19 pandemic.
“Charmingly, the global merchandise trade rebounded in 2021, surpassing the pre-pandemic peak, on the back of fiscal & monetary stimulus and supply-chain recovery. Barely two years later, global goods trade contracted 1.2% y/y relative to a 3.0% expansion in 2022.
The downturn was instigated by higher shipping insurance premiums and energy costs owing to increased pirate attacks along major shipping routes (Strait of Hormuz) and geopolitical conflicts. Additionally, China’s capacity underutilisation and worsening trade protectionism added to this scourge.
“Looking forward, the World Trade Organisation (WTO) anticipates a rebound of 2.6% and 3.3% in global trade in 2024 and 2025, respectively. The prognosis hinges on expectations of de-escalating global tensions and continued disinflation, resulting in improvement in real income and aggregate demand.
In terms of regional imports, Asia (+5.6%) and North America (+1.0%) should support global demand for goods trade, trailed by South America (+2.7%), Middle East (+1.2%), Africa (+4.4%) and Europe (+0.1%). However, the Commonwealth of Independent States (CIS) are expected to contract by 3.8% y/y.
Meanwhile, Africa’s exports (+5.3%) are anticipated to grow faster given the depressed level since the pandemic. Also, CIS (+5.3%), North America (+3.7%), Asia (+3.4%), South America (+2.6%) and Middle East (+2.2%) should post moderate export growth.
“In an executive summary, it was said that lagging, European export growth is expected at 1.7% and on the overall, the outlook for global trade in 2024 cautiously optimistic due to potential downside risks such as reinflation, escalation of geopolitical tensions, and global finance polarity,” it stated.
On Global Monetary Policy, it maintained, that high inflationary environment, global systemic central banks had to maintain their hawkish monetary policy stance at the cost of a potential economic downturn.
It went on, “However, the global economy remained resilient, posting a 3.2% y/y output growth in 2023, mainly supported by divergent monetary policy plays by central banks.
Furthermore, they projected those economic activities were supported by lower real interest rates as central banks either raised nominal interest rates (US Fed and ECB) against inflation expectations or kept the policy rate near zero (Bank of Japan) but contrast, central banks in EMDEs raised interest rates relatively fast, leading to earlier increases in real interest rates.
“Nonetheless, structural gaps and FX quagmire dampened potential economic growth. Meanwhile, inflation inched closer toward target levels in most AEs and a selected few EMDEs as real policy rates began to increase, with the expectation that policy rates will decline in the second half of the year.
“These expectations have led to a decline in long-term borrowing rates, rising equity markets, and an easing in overall global financial conditions though, funding is still more expensive relative to pre-pandemic times.
Talking about Nigerian Banking, it also noted that the Federal Open Market Committee (FOMC) in its May 2024 meeting held the overnight federal funds rate for the sixth consecutive time at the range of 5.25% – 5.50% to drive the attainment of its 2.0% inflation and full employment targets.
“Thus far, consumer price inflation (CPI) has slowed to 3.3% y/y in May. Nonetheless, CPI initially moderated to 3.1% y/y in November 2023 and January 2024 before surging to 3.5% y/y in March 2024 due to increases in shelter and energy costs.
The unsteady recovery underscores the uncertainty around inflation, given the strong labour market (relatively, stable unemployment rate range between 3.7% – 3.9%) and exogeneity of energy pricing.
In the second half of the year, we expect the US Feds to cut the funds rate with the upper bound at 4.4%.
It further appended, “Central Bank of Nigeria (CBN) raised the policy rate by 150bps to a record high of 26.25% in May 2024, following a cumulative increase of 600bps in February and March, to curb spiraling inflation.
Despite these efforts, inflation maintained an uptrend, reaching 33.95% in May, due to structural challenges, FX pressures, supply constraints, liquidity trap, and lack of synergy between monetary and fiscal policies. Elsewhere, Ghana’s inflation eased to 23.1% y/y in May 2024 from 38.1% y/y in September 2023, following the Bank of Ghana’s decision to hold the interest rate at 29.0% in January 2024.
Looking ahead, as the AEs anticipate lower interest rates, EMDEs assets should witness increased appetite, barring countries with heightened currency volatility.
In the case of the global banking, it was stated that the sector appears to have turned problems into opportunities, outlining, “In our previous BSR edition, we highlighted that growing and sizable unrealised investment losses from deflating bond valuations (IMF estimates around 13.0% of total banks assets in held-to-maturity securities), combined with liquidity concerns and negative real estate spillovers from China remained potent threats, even after regulators helped placate depositors’ fear in the wake of the failures of Silicon Valley Bank (SVB), Signature Bank and Credit Suisse Bank.
“Defiantly, banks have leveraged the high-interest and yield environment, strong capital and liquidity buffers accumulated over the years, and robust implementation of effective regulatory frameworks, such as Basel III, to sustain profitable banking.
This bounce-back was also supported by the resurgence in consumer spending, investment, and trade which lifted the broad economic outlook.
The analysis goes on to explain that in 2024, the possibility of an end to the current tight interest rate cycle could consolidate the banking sector’s emergence from its worst scare since the GFC, while a lower inflation rate would reduce the risk of loan defaults.
In addition, recovery in bond assets valuation, net margin preservation from cheaper deposits and technology-facilitated cost efficiency could provide support for lenders.
The optimism, notwithstanding, re-inflation risks, widening economic & political polarities globally, and negative effects of climate change could be key risks to the financial sector, compounding challenges of global debt overhang.
In Domestic Macroeconomy, the body said, 2023 BSR “Getting Nigeria to Work Again marked the final assessment of the domestic macroeconomy and the banking industry landscape under the leadership of former President Muhammadu Buhari (May 29, 2015, to May 29, 2023) and Mr. Godwin Emefiele (Governor of the CBN from June 2, 2014, to June 9, 2023).
In the same vein, the report presented our maiden pragmatic recommendations for the then newly emerged leadership of President Bola Ahmed Tinubu (PBAT) and Dr. Olayemi Cardoso (Governor of the CBN) in their quest to give Nigeria a refreshing start.
“In our recommendation to the fiscal authority, we argued that reform initiatives rolled out or proposed in policy blueprints such as the Policy Advisory Council Report (PACR) of PBAT, would fail to achieve high impacts without institutional reforms.
Our prognosis was informed by the root cause analysis of prior reform programmes’ failure. For the monetary authority, our recommendations were mainly to revert to orthodoxy, supported by firmer fiscal and monetary policy coordination.
“Barely a year into the tenure of the new administrations, preliminary outcomes of reforms undertaken have produced a cocktail of experiences for the Nigerian populace,” it added.
End.
