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British Pound Sterling outshines global currencies as Naira struggles to stabilize

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By Sodiq Adelakun

The British pound sterling has been outperforming most of the world’s currencies, including the Nigerian naira, despite the Central Bank of Nigeria’s (CBN) aggressive monetary policies.

Recent reports from the CBN have indicated that foreign portfolio investors (FPIs) have shown a keen interest in Nigerian debt, purchasing a substantial portion of the N1.053 trillion worth of bills with maturities ranging from three to twelve months.

This high demand, driven by attractive yields, is seen as a positive response to the CBN’s efforts to draw in dollar inflows to support the naira.

Nevertheless, the naira continues to struggle in the unofficial market, where it is currently trading at 2,078 to the pound.

This rate hovers close to its all-time low of 2,414 against the pound, signaling ongoing concerns about the Nigerian currency’s stability.

On the other hand, the British economy is demonstrating unexpected resilience, prompting traders to anticipate that the Bank of England may begin to ease its monetary policy as early as August.

This expectation contrasts with the anticipated policy cuts by the Federal Reserve and the European Central Bank, which are expected to occur in June.

Amid these developments, the Economist Intelligence Unit has suggested that the CBN may need to resort to foreign borrowing to preserve the naira’s value and fulfill its foreign exchange obligations.

The organisation’s analysis suggests that such borrowing is essential for rebuilding the CBN’s reserves, clearing the backlog of unmet foreign exchange requests, and restoring investor confidence in the Nigerian economy.

However, it is projected that these measures may only materialise by the end of 2024, indicating a potentially prolonged period of economic adjustment for Nigeria.

“Our view is that foreign borrowing is necessary to rebuild the CBN’s buffers, fully clear a backlog of unfulfilled foreign exchange orders, and restore confidence,” the statement read. Likely, this will only be possible by the end of 2024.

While confidence in the naira remains fragile, the British economy appears to be recovering, and inflation is declining.

The data mix is improving, which supports GBP, and UK rates are expected to stay higher for longer. As a result, the pound has benefited from this, with GBP/NGN reaching a multi-month high this month.

Last week, the pound reached its highest level in seven months and had its best week since November versus the dollar. Data in the upcoming days may contribute to consolidating those gains and supporting the thesis that the UK economy is recovering.

The British economy is expected to grow in January after a slight contraction in December, according to monthly gross domestic product data.

Industrial production is expected to advance by 0.7 percent annually in January, which is a little faster than in December.

The UK escaped the severe recession that many had projected for 2023, but the economy remained stagnant as a result of aggressive interest rate hikes that raised the benchmark rate to 5.25 percent.

The cost of food, energy, and mortgage payments all skyrocketed, placing severe strain on consumers, and business confidence fell to levels not seen since the global financial crisis.

However, Bank of England Governor Andrew Bailey noted last month that there had been “encouraging signs” on the major employment and service price indicators while emphasising that policymakers are still seeking proof that the current trend can continue.

Furthermore, there are many reasons to exercise caution. Concerns about the government announcing large giveaways before elections later this year have been expressed by some investors, particularly in light of the Conservatives’ significant lead over opposition Labour in the polls.

After the administration of Liz Truss attempted to spur growth with unfunded tax cuts in 2022, markets went into meltdown.

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FBN Holdings’ quarterly earnings rise to N208bn

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The earnings of FBN Holdings, the parent company of Nigeria’s oldest bank, First Bank rose to the highest in at least 13 years in the first quarter of 2024, according to its latest financial statement.

The group’s after-tax profit rose by 315.3 percent to N208.1 billion from N50.1 billion in Q1 last year. Its interest income, which often accounts for the lion’s share of lenders’ revenues, surged by 153 percent growth to N454.9 billion, driven mainly by loans and advances to customers at N261.1 billion, investment securities at N146.6 billion, and loans and advances to banks at N47.3 billion.

FBN Holdings’ net interest income rose to N228.5 billion in the first quarter of 2024, a 104.3 percent increase from N111.8 billion recorded in the first quarter of 2023.

The holding company saw its interest expense grow 234.4 percent to N226.4 billion on the back of N131.8 billion expense on deposits from customers, deposit from banks expense which stood at N66.2 billion, borrowings and others at N28.3 billion in March 2024.

FBN Holdings’ revenue from external customers arrived at N730.3 billion which comprised commercial banking business group (N682.4 billion), merchant banking and asset management business group (N45.4 billion), and others (N2.3 billion) for the period ended March 2024.

Net fee and commission income during the period stood at N63.6 billion in the first quarter of 2024, up 48.6 percent from N42.8 billion in the first quarter of 2023.

However, foreign exchange income increased to 3,035 percent to N94.7 billion from N3.03 billion in the period reviewed.

Net gains on sale of investment securities dropped to N12 billion in the first quarter of 2024 from N33.28 billion in the similar period of 2023.

Dividend income grew 180 percent to N364 million in the first quarter of 2024 from N130 million in the first quarter of 2023

Other operating income increased by 94.7 percent to N5.14 billion in the first quarter of 2024 from N2.64 billion in the first quarter of 2023.

Furthermore, the analysis of the cash flows of the holding company reveals net cash flow generated from operating activities amounted to N2.18 trillion in March 2024, up 34 percent from N365.69 billion in March 2023.

Net cash flow used in investing activities stood at a negative N1.17 trillion from N1.04 trillion in the period reviewed.

Net cash flow used in financing activities stood at a negative N184.8 billion in the first quarter of 2024 from N45.54 billion in the first quarter of 2023.

Cash and cash equivalents rose to N3.46 trillion in the first quarter of 2024, 181 3 percent decline from N1.23 trillion in the first quarter of 2023.

FBN Holding’s basic and diluted earnings per share rose to N5.76 in the first three months of the year from N1.38 in the same period of last year.

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Shareholders confident of Fidelity Bank’s Recapitalisation plan, applaud management team

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…Investors delighted with bank’s impressive performance

By Seun Ibiyemi

Shareholders have expressed readiness to massively support and mobilise for the ongoing recapitalisation of Fidelity Bank Plc amid commendations for the impressive performance of the bank over the years.

Shareholders were unanimous that Fidelity Bank has shown strong resilience over the years and demonstrated its investors’ friendliness with significant dividends and capital gains.

Shareholders, under the auspices of Nigeria’s leading shareholders’ associations, said they would buy into any share offering by Fidelity Bank as the bank holds an exciting future for above-average returns.

The sundry shareholders’ endorsements underlined market pundits’ expectations that Fidelity Bank would easily raise additional funds and retain its status as one of Nigeria’s leading commercial banks with international authorisation.

With nearly 400,000 shareholders, Fidelity Bank has the most diversified retail shareholders’ base among Nigerian banks. No single shareholder held up to 5.0 percent of the issued share capital of the bank.

Five percent and above are considered the material shareholding under extant laws and market regulations.

The highly diversified shareholding base, while it has its challenges of corporate register management and stock volatility, shows Fidelity Bank as a popular stock.

 Its huge free float also underscores the pricing efficiency of the stock at the stock market, ensuring that the share price is a reflection of the bank’s fundamentals and investors’ expectation.

With average annual return of more than 81 percent over the past five years, comparative analysis shows that Fidelity Bank outperforms all other major market indices with the bank’s average annual return for the period twice the average return by the overall market and almost four times of average return in the banking sector.

Shareholders said the performance of Fidelity Bank has endeared them to the bank, expressing optimism that the bank is poised for a major leap in the emerging Nigerian financial services sector.

National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Mr. Moses Igbrude, said Fidelity Bank has shown that shareholders can trust it for sustainable growth and returns.

“Fidelity Bank is a promising bank that is growing organically, it is servicing its niche and share of the market. My appeal to the board is to continue to imbibe good corporate governance in order to sustain this growth,” Igbrude said.

President, Association for the Advancement of Rights of Nigerian Shareholders (AARNS), Dr. Faruk Umar said the performance of Fidelity Bank over the years has been very encouraging.

According to him, the bank has a very good corporate governance structure that reassures investors of the safety of their investments.

He pointed out that the successful acquisition of Union Bank UK was a testimony to the financial strength of the bank.

“The bank has since joined the league of banks paying interim dividends, which shareholders are happy with,” Umar said.

He commended the board and management of the bank “for the good results they have been posting,” noting that investors have confidence in the future of the bank.

“The appointment of Dr Nneka Onyeali-Ikpe as the Group Managing Director, after serving as Executive Director, indicates that the bank has a good succession planning in place.

“The calibre of the independent non-executive directors on the board gives shareholders strong confidence of the kind of board oversight they will be expecting.

“Now that the bank is coming out with a rights issue offer, we are very confident shareholders will take their rights , and we are sure the bank will meet the recapitalisation requirement set out by the Central Bank of Nigeria (CBN),” Umar said.

National Coordinator, Pragmatic Shareholders Association of Nigeria, Mrs. Bisi Bakare, said Fidelity Bank has created a “very excellent impression” in the minds of shareholders.

According to her, the bank has continually showcased exemplary leadership with continuous impressive results, with successive growths over the past five years.

“Despite various challenges and economic uncertainty and other unforeseen occurrences, Fidelity Bank weathers the storm with strong performances,” Bakare said.

She cited the 2023 business year when the bank doubled its pre-tax profit by 131.5 percent to N124.2 billion on the back of 64.9 percent growth in gross earnings to N555.8 billion. The bank’s deposits increased by an impressive 56 percent from N2.6 trillion in 2022 to N4.0 trillion while total assets grew by 56 percent from N3.9 trillion to N6.2 trillion.

“Furthermore, Fidelity Bank paid a dividend of 85 kobo, including interim dividend of 25 kobo and final dividend of 60 kobo. Considering the share price of Fidelity Bank, their dividend policy is very robust.

“It is evident that our bank has not only weathered the storm of economic challenges but has also managed to thrive. Fidelity Bank is a very good bank that shareholders are very happy with their investments and we have never regretted buying into Fidelity Bank.

“I believe their right issue is going to be oversubscribed considering their past performances,” Bakare said.

National Coordinator, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie said Fidelity Bank’s growth has been “very amazing as it has delivered good returns in terms of good dividends to shareholders.”

According to him, shareholders are proud of the bank’s balance sheet, which is something that gives shareholders hopes for better rewards in the years ahead.

“All that average investors look for in a company is the fundamentals, and Fidelity Bank is very strong in this. They are poised to surpass what they have projected. I should say the sky is their limit despite the headwinds.

“Fidelity Bank remains one of the best stocks that investors should look forward to investing in for better returns. I’m very optimistic about the bank’s healthy strong assets. With its good corporate governance and excellent customers’ service, there is every reason to hope for a more promising future,” Okezie said.

The interim report and account of the bank for the first quarter ended March 31, 2024 showed that the bank started the current business year on stronger footing with three-digit growths across key performance indicators.

The three-month report, released at the NGX, showed that gross earnings increased by 89.9 per cent to N192.1 billion in the first quarter 2024. The bank’s top-line performance continued to be driven by broad-based growth across income lines with interest income rising by 90.7 per cent and non-interest income growing by 84 percent in the first quarter 2024.

Growth in interest income was primarily spurred by a higher yield environment and strong earning assets base, while the increase in non-interest income was led by double-digit growth in account maintenance charges, foreign exchange (forex)-related income, trade, banking services, and remittances, supported by increased customer transactions.

Profit before tax doubled by 120 percent to N39.5 billion in first quarter 2024 as against N17.9 billion in first quarter 2023.

The bank’s performance was driven by expanding market share with total deposits rising by 17 percent within the three months to N4.7 trillion, compared with N4 trillion recorded at the end of 2023.

The bank also increased its support for national economic growth with net loans and advances rising by 21 percent from N3.1 trillion at the end of 2023 to N3.7 trillion by March 2024.

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Naira holds N1,500/$ line amid EFCC clampdown

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The naira held its ground on the unofficial market, appreciating against the dollar on the parallel market as the dollar index posted some losses amid profit-taking.

The value of the naira was N1,500 on Friday, compared to N1,510/$1 on Thursday on the black market.

The naira settled at N1,482.8 on Friday, up from N1,485.7 on Thursday in the Nigerian Autonomous Foreign Exchange Market (NAFEM).

The Economic and Financial Crimes Commission (EFCC) has increased its efforts by adopting stronger new laws on Bureau de Change (BDC) and foreign exchange transactions on the black market to combat speculation against the weak naira.

EFCC agents recently arrested illegal currency traders in Abuja, Lagos, Kano, and Port Harcourt as part of their ongoing crackdown on street trading. The EFCC has already frozen more than 300 accounts connected to illegal foreign exchange trading.

The country’s financial watchdog, the Securities and Exchange Commission (SEC), also plans to work with the EFCC to mitigate forex trading manipulations within the digital space. According to CBN head of risk management, Blaise Ijebor, foreign exchange trading on the street is prohibited.

The CBN significantly increased the capital requirements for the nation’s BDCs, citing the need to regulate the sector and ensure that it isn’t undermining the value of the naira.

The apex bank increased the capital requirements for tier one BDCs operating nationwide from N35 million to N2 billion, while tier two BDCs operating in a single state saw an increase from N35 million to N500 million. The sector has six months to comply.

The umbrella group of the BDCs has requested a delay and a reduction in the new thresholds from the authorities.

This action follows the Federal Government’s announcement of plans to outlaw the trading of cryptocurrencies between individuals in naira as part of a larger crackdown on cryptocurrency platforms, which they claim is exacerbating the volatility of the local currency.

The naira has lost more than two-thirds of its value to the dollar since last year’s liberalisation of Nigeria’s FX market.

The haven currency declined against major currencies on Friday as investors booked profits following recent gains, but the US currency was still in a solid position to rise further due to encouraging U.S. economic data that caused markets to reduce their expectations for interest rate reductions.

Data released on Friday showed shipments and new orders for important capital goods made in the United States surged in April, surpassing expectations and pointing to a possible increase in business equipment spending in the first part of the second quarter.

This followed statistics released on Thursday revealing that U.S. manufacturers were reporting rising input prices and that U.S. business activity in May increased to the highest level in just over two years.

This week’s release of the minutes from the Federal Reserve’s most recent meeting revealed a heated discussion among decision-makers about whether the current interest rates were tight enough to curb inflation.

Following five straight trading sessions of gains, the dollar index saw a 0.3 percent decline on Friday, closing at 104 index points against a basket of major currencies. However, the dollar index increased by 0.2 percent for the entire week.

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