Nigeria-key Enterprise Risks To observe In 2017
Banking sector is top watch
For the enterprise neighborhood, one space that they will be paying eager attention in 2011 will be the Nigerian banking sector. Would the disaster plaguing the sector lastly be put to rest The banking sector remain vital to the survival of companies and the way the disaster currently stopping the banking sector from enjoying their essential position in the Nigerian economy is resolved in 2011 can be necessary.
The important challenge that the enterprise community might be watching in the sector is the impact that the removal of the toxic property of banks may have on financial stability and credit score expansion. Will the anticipated freeing of banks from their toxic belongings load lead to enlargement in bank credit to the actual sector
Our take is that taking toxic assets off bank’s stability sheets is accounting determination that AMCON has already taken however lending is a administration determination which will largely depend on the managements of the respective banks and their risk appetites. Lending will return but very slowly in 2011 as banks each rescued and non rescued get their threat administration processes collectively.
August 14 is a date to watch because the tenure of the managing executives installed in the intervened banks expires. Would they require an extension of their tenure of would they be handing over the banks to new or current shareholders
June 30 is another date to watch as the CBN guarantee of all interbank transactions expires. Would this guarantee be extended or would the banking crisis have been resolved nicely sufficient for the CBN to take off the assure
Another difficulty in the banking sector is the possible emergence of new owners and new gamers within the Nigerian banking sector. Several of the rescued banks are said to be in negotiations with native and overseas buyers How would this new homeowners influence on the banking sector What new enterprise models and practices are we more likely to see particularly from new overseas entrants
Our take is that native banks that succeed in their acquisition bid for the rescued banks will see their normal business processes disrupted for better a part of 2011 and even beyond 2011 as they merge their operations with the acquired banks particularly the smaller banks that seek acquisition of larger banks like Oceanic, Intercontinental and Afribank which are all being courted by local banks.
The judicial aspect of the banking disaster must be watched closely How would this impression on the decision of the banking disaster especially if any of the cases in court docket goes against the Central Financial institution of Nigeria (CBN) What happens if it involves a financial institution during which the acquisition course of is already full Our take is any loss of any of the cases in will disrupt the resolution of the banking disaster in the shape the CBN is pursuing.
One other crucial situation within the banking sector is the deliberate disposal of subsidiaries following the directive by the CBN that banks concentrate on their core banking activity. BusinessDay estimates present that 50 banking subsidiaries price near N200 billion will be up on the market in 2011. This directive also impacts the Insurance Sector which has also been directed by the regulator, the Nationwide Insurance Fee (NAICOM) to dispose off their non insurance subsidiaries.
The implication is that there will be a lot enterprise buying alternatives in Nigeria ‘s financial sector in 2011. Entrepreneurs seeking bargain buying alternatives within the Nigerian financial sector have an opportunity here. The downside however is that banks could also be bugged down trying to sell this subsidiaries and realigning their companies to the new banking regime or to their most well-liked enterprise model. Banks are to turn out to be regional, nationwide or worldwide banks. So far only Wema Bank has decided to turn into a regional bank.
Also to be watched closely is the connection between the CBN governor and the national meeting. The national meeting won’t forget in a hurry the CBN governor’s expose that they are costing the nation too much of its revenues. They want their pound of flesh back and that may occur as soon as they get again their seats in the home. Be careful for a possible enquiry into the banking reforms and doable moves to amend the CBN act This will likely prolong the resolution of the banking crisis past 2011.
One other crucial situation to watch is how the asset management firm goes about recapitalising the rescued banks. What will probably be the character of any capital injection by AMCON Will or not it’s tier eleven convertible loan capital, preference shares or odd equity The nature of capital injected will decide what current shareholders in the rescued banks eventually management within the banks
Crowding out effect of government borrowing
The yr 2010 has largely been marked by heavy borrowing by the Federal Government by the usage of bonds. The government is estimated to have raised greater than a trillion naira via bonds in 2010 most of which went into financing its deficit spending estimated at more than N2 trillion in the out going year. 2011 shouldn’t be going to be any different because the Federal Authorities will nonetheless finance a funds deficit in excess of a trillion from bond issuance further giving banks another threat free outlet for his or her deposits.
The business group ought to expect to proceed to compete with the Federal Government for bank finance in 2011. With most banks simply emerging from promoting off their toxic belongings to AMCON, their willingness to take on new risks might be low. The implication is that most banks will want lending to the government both on the Federal and State level and with the Federal Government willing and able to borrow closely in 2011, most banks might be directing their loans to fund the federation account deficit in 2011.
The 2011 elections
Will 2011 elections be conclusive, free and honest Are we prone to see authorized challenges to the crucial presidential elections dragging This might be crucial for business confidence in 2011. The freer and conclusive the 2011 elections are, the faster enterprise confidence will probably be restored. A conclusive, free and fair election will probably be a major enhance to business confidence 2011.
There are nevertheless strong expectations that the 2011 elections shall be a more credible elections than elections seen within the recent previous. The assist and increased focus of the international group, the credibility of the new INEC chair, the on going course of to have a more credible laptop based mostly voters register and the general interest of most Nigerians to vote and make their votes depend in the 2011 elections will result in the conduct of a more credible election in 2011. The question though is that if it will likely be conclusive as Nigeria ‘s opposition for the primary time because the return of civil rule in 1999 have their finest likelihood of capturing energy on the centre if they will put their acts together. See a united opposition to provide the ruling party a run for its money is nevertheless like squeezing water from a rock.
Are we prone to see elevated inflationary development in 2011 The likelihood is a higher inflation fee than decrease. Election spending is the biggest push for inflation in 2011. Deficit financing by the federal authorities might be another push. Also feared is the attainable influence of AMCON as they clear toxic assets off banks steadiness sheets and free banks to begin lending to an financial system already awash with liquidity. Then there may be the attainable influence of the brand new minimum wage that the federal authorities intends implementing for Federal staff. It is also doubtless that the Federal Authorities might move to remove subsidy on gasoline in 2011. Nonetheless, the federal government might not have the political will to do that before the 2011 elections so this may occasionally not push into inflation till later a part of 2011. The expectation is that inflation rates will remain at double digits in 2011.
The possibility that lending rates will trend increased oil refinery plant process name in 2011 is higher than the potential for it dropping. First crucial mover for higher lending rates in 2011 would be the most certainly move by the CBN to boost its Monetary Policy Charge (MPR) at its subsequent meeting on January 24 and 25, the benchmark lending at which CBN lends cash to Nigerian banks. There are two causes that can make the CBN raise the MPR at its subsequent meeting. The primary can be to pre empt the probably inflationary side of election spending and secondly to make it dearer for the Federal government to proceed financing its deficits by means of the issuance of bonds. Rising the MPR will push up lending charges to your complete economy. The MPR is presently 6.25%. The CBN could increase it to 7% at its next assembly.
The Naira Alternate Charge
The official fee of the Naira to the USD in 2011 will probably average N155 as against the Federal authorities official projection of N150 to the USD. Two elements are more likely to lead to a drop in the Naira towards the USD. The CBN may not be as robust in defending the foreign money because it has executed 2010 if the current demand strain on naira is sustained. The dollar may also strengthen marginally in 2011 because the impact of the Federal Reserves amount easing initiated in 2010 eases off. With the current degree of external reserves, at about US$33 billion which represents an annual drop by more than US$10 billion regardless of record crude oil prices, any continuous defence of the naira might deplete the external reserves to levels that can create a speculative run on the Naira which the CBN will want to avoid by permitting the depreciating the Naira progressively than allow a sudden fall.
Crude oil prices
Nigeria ‘s revenue is at the moment highly susceptible to any fall in crude oil prices primarily resulting from the fact that the surplus crude account which is to act as a buffer in case of drop in crude oil costs has been depleted. The implication is that any future drop in crude price will immediately translate into a drop in federation revenues and stress on government expenditures which can also be largely recurrent. The excellent news however is that crude oil prices are expected to remain excessive in 2011 primarily on the back of a weak dollar slightly than world financial progress. Barclay’s capital initiatives a mean crude oil worth of US$91 in 2011.
Businesses nevertheless will have to maintain a keen eye on any doable drop in crude oil prices and how it would have an effect on their business projections in 2011. Any drop in crude oil prices will possible lead to a drop in the worth of the naira, non implementation of key facets of budget 2011 and doable labour disaster all over the federation as government expenditure comes underneath pressure. Enterprise scenario analysis ought to issue this into their projections for 2011.
Religious and ethnic strife
Militancy within the Niger Delta and religious riots in Northern parts of Nigeria in addition to kidnapping within the South East will all be key enterprise risks in 2011. The expectations are that militancy and kidnapping might not be as essential issues as they’ve been in the past as the government clamps down on the major king pins in this trade and as politicians feel the hit of giving clandestine help to these teams.
Nonetheless, religious riots might develop into an enormous difficulty in 2011 especially in Northern Nigeria and with the anticipated emergence of Jonathan as President in 2011. The likelihood is that politicians are possible to use political discontent to fuel religious discontent. The capacity of the security forces to handle that is in doubt particularly with their failure to forestall recurrent disaster in Jos even after being on the ground for greater than a year. There is also the suspicion that the security forces are taking sides in these conflicts. Companies may have to incorporate the upper value of a operating in a low safety environment especially in Northern Nigeria in 2011.
Writer Box Anthony Osae-Brown has 1 articles online
Finance and communication specialist with experience in banking, analysis, monetary evaluation and media. Anthony has tutorial skills in finance and skilled skills in risk management. He is currently concerned in the development of a Financial Transparency Index (FTI) and awards for quoted firms in Nigeria.
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