Money market

Nigeria’s economic struggle deepens as $8.25bn W’Bank loan remains undisbursed

Published

9 months ago

September 7, 2023

…External debt to W’ Bank reaches $14.33bn — DMO

By Sodiq Adelakun

Nigeria, a nation struggling with economic difficulties, is facing a delicate predicament as it currently possesses an unallocated World Bank loan amounting to around $8.25 billion as of July 2023.

This revelation, based on data obtained from the World Bank’s Summary Statement of Loans/Credit/Grants, sheds light on the country’s increasing debt burden.

With $7.45 billion from the International Development Association (IDA) and $1.12 billion from the International Bank for Reconstruction and Development (IBRD) remaining undisbursed, Nigeria’s debt to the World Bank could surge by 66.27 per cent.

The IBRD and the IDA, constituting the World Bank, have been instrumental in providing loans to Nigeria over the years.

While the IBRD primarily lends to creditworthy low-income and middle-income countries, the IDA focuses on extending concessionary loans and grants to the world’s poorest nations.

Nigeria’s debt to the World Bank currently stands at $14.33 billion, comprising a $13.84 billion IDA loan and a $488.35 million loan, as per the Debt Management Office’s external debt report.

However, the audited financial statements of the World Bank for the fiscal year 2022 revealed that Nigeria was yet to receive approximately $8.12 billion in loan disbursements as of June 30, 2022.

The undisbursed loans include both approved but unsigned loans and signed loan commitments. The World Bank clarified in its 2022 statements that loan disbursements are contingent upon the borrowers and/or guarantors fulfilling certain actions and providing necessary documents.

This bureaucratic delay has contributed to the accumulation of Nigeria’s debt to the World Bank.

The undisbursed loans pose a significant challenge for Nigeria’s already burdened economy. If disbursed, the loans could potentially increase Nigeria’s debt to the World Bank from $12.72 billion to $21.15 billion, marking a staggering 66.27 percent rise.

This surge in debt could further strain the country’s financial resources and hinder its ability to invest in crucial sectors such as infrastructure, healthcare, and education.

In recent developments, the Federal Government of Nigeria has expressed its intention to refrain from borrowing from local or foreign organisations. This decision was reinforced by the removal of subsidies on petrol and the pursuit of exchange rate harmonization.

The government aims to reduce reliance on external borrowing and explore domestic revenue generation avenues to alleviate the country’s debt burden.

However, the undisbursed World Bank loans remain a pressing concern that requires immediate attention and resolution.

Nigeria’s undisbursed World Bank loan presents a complex dilemma for the country.

While the loans hold the potential to provide much-needed financial support, their non-disbursement exacerbates Nigeria’s debt burden.

Nigeria’s economic future hinges on prudent financial decision-making and a comprehensive approach to address its debt challenges.

The Minister of Finance and Coordinating Minister for the Economy, Wale Edun, announced during the inaugural Federal Executive Council meeting in Abuja that the Nigerian government will no longer borrow for recurrent expenditure. Instead, they will focus on borrowing for capital expenditure.

However, Edun clarified during a press briefing on Friday that the government will still proceed with the loan requirement approved in the 2023 budget.

Edun explained that the government’s decision to stop borrowing for recurrent expenditure is due to the country’s high debt service to revenue ratio, which currently stands at 90 per cent.

Despite these challenges, the borrowing requirement outlined in the 2023 budget, which was approved by the National Assembly, will still be pursued.The government’s commitment to finding alternative sources of funding, rather than relying solely on borrowing, is evident in their decision to prioritise borrowing for capital expenditure.

This type of borrowing is considered more beneficial as it has a return on investment and is self-financing. By reducing or eliminating borrowing for recurrent expenditure, the government aims to address the rising debt burden and improve the country’s financial stability.

They recognise the need to find sustainable ways to fund recurrent expenses, such as salaries and operational costs, without relying heavily on borrowing.

The government’s decision aligns with their long-term goal of reducing the country’s debt and ensuring that borrowed funds are invested in projects that generate economic growth and development.

While the government acknowledges the importance of borrowing to finance critical projects, they are also aware of the need to strike a balance between borrowing and debt sustainability.

They are actively exploring other sources of funding, such as public-private partnerships and foreign direct investment, to reduce reliance on borrowing and diversify the country’s revenue streams.

According to Wale Edun, “Government is not in a position to borrow if you consider 90 per cent debt service to revenue and behind that, a rising debt to GDP ratio. If you look at the last budget, you will see that there is a borrowing requirement built into it, appropriated by the National Assembly. And that is ongoing.

“It is an indication of the commitment of the government to find other sources of funding rather than relying on borrowing and to bring down or even eliminate a certain type of borrowing as soon as possible. That type of borrowing is borrowing for recurrent as opposed to borrowing for capital expenditure, which has a return and which is self-financing.”

Money market

BDC operators urge CBN to reverse recapitalisation guidelines

Published

2 days ago

May 31, 2024

NewsDirect

The Association of Bureau De Change Operators of Nigeria has demanded that the Central Bank of Nigeria reverse the new capital requirement for its operations.

In a circular issued, the CBN issued fresh guidelines for the operations of the Bureau De Change in Nigeria which include two new categories of licences with different capital bases.

According to the new rules, BDCs in the Tier 1 category would be required to have a minimum capital requirement of N2bn, pay N1m as a non-refundable application fee and N5m as a non-refundable licence fee.

The apex bank disclosed that Tier 2 BDCs would be required to have a minimum capital base of N500m, N0.25m as a non-refundable application fee and N2m as a non-refundable licence fee.

Also, the regulator mandated all existing BDCs to re-apply for new licenses in their preferred category with a six-month grace period to meet the capital requirement.

The BDC operators, at the end of a virtual meeting themed ‘New CBN Regulatory & Supervisory Reforms for BDCs: Challenges and Way Forward’ on Tuesday, decried the move by the CBN.

They noted that the apex bank was threatening their business and made recommendations that they claimed would be presented to the CBN.

Money market

Wema Bank will remain national bank — Oseni

Published

3 days ago

May 30, 2024

NewsDirect

The Managing Director/Chief Executive Officer of Wema Bank, Moruf Oseni, has disclosed that after the fresh banking sector recapitalisation, the bank would retain its national licence while aiming for tier-1 banking status.

Oseni said this during the week at the Annual General Meeting of the bank, held virtually.

Disclosing the bank’s progress towards realising the recapitalisation minimum target of N200bn, set by the Central Bank of Nigeria, Oseni said, “The apex bank has done its due diligence and approved our N40bn rights issue, which is currently undergoing Securities and Exchange Commission approval to be listed on the Nigerian Exchange.

“Our capital base now stands not at the current N15bn but, with the rights issue, at N55bn—significant headway towards N200bn.

“Following the shareholders’ and board’s approval, we are set to raise the N200bn within the 24-month timeline through public placements and a public offer, which we are confident that we will achieve before the timeline expires.

“We have shared our plans with the CBN, and we will work assiduously to balance our capital base in the nearest future.

“At a minimum, Wema Bank will remain a national bank, we will keep working tenaciously to become a systematically important bank, reattain tier-1 status, and continue providing optimum value for every shareholder and stakeholder of Wema Bank.”

During the AGM, the shareholders approved a N0.50 dividend for 2023, as well as the appointment of two new non-executive directors of the bank; Yewande Zaccheaus and Yusuf Kazaure, and the new executive director, Segun Opeke, as new additions to Wema Bank Board of Directors.

At the end of 2023, Wema Bank recorded a 196 per cent increase in profit before tax from N14.75bn to N43.59bn and a 220.4 per cent increase in profit after tax from N11.21bn to N33.66bn.

Its gross earnings rose from N132.30bn to N225.75, indicating a 70.63 percent increase.

Commending the bank’s 2023 results, a shareholder, Mr Badmus Tunde, said, “Since 1945, Wema Bank has seen the good, the bad, the beautiful and the ugly, and through thick and thin, it has gotten to where it is today. The results are overwhelming, and profitability has been maintained. Kudos to the board and management.”

Wema Bank, one of the oldest banks in Nigeria, recently celebrated its 79th anniversary.

It is also the pioneer of Africa’s first fully digital bank, ALAT, which is in its seventh year of operations.

Its gross earnings rose from N132.30bn to N225.75, indicating a 70.63 percent increase.

Wema Bank, one of the oldest banks in Nigeria, recently celebrated its 79th anniversary.

It is also the pioneer of Africa’s first fully digital bank, ALAT, which is in its seventh year of operations.

Money market

Access Holdings calls for responsible use of AI at Smart Banking Summit

Published

3 days ago

May 30, 2024

NewsDirect

Access Holdings PLC, a leading financial services group, has echoed the need for ethical considerations in using Artificial Intelligence (AI), calling stakeholders in the financial industry to factor its sustainability implications.

This call to action was driven by a compelling keynote address delivered by Executive Director of IT & Digitalisation at Access Holdings, Lanre Bamisebi, at the Smart Banking Summit 2024 held in Kenya on Wednesday.

Speaking on the topic, “AI Guardians: Securing Compliance and Mitigating Risks,” Bamisebi’s keynote shed light on the imperative to strike a balance between innovation and responsibility as the banking sector and broader society embrace AI’s transformative potential.

“Artificial Intelligence has the power to revolutionise our societies. Over the years, this has become increasingly evident, offering unprecedented opportunities for growth, efficiency, and innovation.

“From enhancing customer service to optimising risk management, AI’s potential benefits in finance are vast. However, as we embrace AI, we must also ensure that its deployment is ethical, secure, and compliant with regulatory standards to mitigate risks effectively,” he said.

As the transformative power of AI continues to fuel innovation, concerns remain about its negative impact on the environment. According to OpenAI researchers, since 2012, the amount of computing power required to train cutting-edge AI models has doubled every 3.4 months.

They also posit that by 2040, the emissions from the Information and Communications Technology (ICT) industry will reach 14 percent of the global emissions, with the bulk of those emissions coming from ICT infrastructure, particularly data centres and communication networks.

Speaking to these concerns, Bamisebi said, “The exponential growth of AI adoption must be met with thoughtful consideration for its environmental footprint.

“As we harness the power of AI, we must prioritise sustainable practices to mitigate its energy consumption and carbon emissions, ensuring a harmonious coexistence between technological advancement and environmental preservation.

“We must embrace our roles as guardians, and place comprehensive regulatory frameworks, ethical standards, and continuous learning at the fore of our considerations so that we create a future that is safe, inclusive, and prosperous for all,” Bamisebi charged.

Themed ‘Navigating the Next: Africa’s Leap into Smart, Secure, and Inclusive Banking,’ the summit was a pivotal gathering of leaders spearheading the digital evolution in the African banking and finance space.

Other contributors at the summit include Head of Product and Digital Banking, Access Bank Plc, Winnie Kaaka; Co-Founder and Chairman, dx5, Harry Hare; CIO/CTO, Absa, Moses Okundi; CISO, Safaricom/M-Pesa Africa, Tim Theuri; CISO, SunTrust Bank Nigeria Ltd, Daniel Adaramola; Founder and CEO, Metis Technology Solutions Ltd, Steve Njenga, and more.

Access Holdings Plc is a leading multinational financial services group that offers commercial banking, lending, payment, insurance, and asset management services. Headquartered in Lagos, Nigeria, Access Holdings operates through a network of more than 700 branches and service outlets, spanning three continents, 21 countries, and 60+ million customers.