Gloomy projections trail Q4 economic performance

Naira falls further as customers shun ‘BVN-for-forex’ rule
Expectations of improved economic fortunes in the fourth quarter (Q4) of the year (2015) may not be feasible afterall, given gloomy indicators, which put the overall performance of the economy low.

Specifically, 2015 economic performance, which has been characterised by a cocktail of macroeconomic challenges, has been riding on the back of sliding crude oil prices; political and policy uncertainties.

Consequently, the developments have now reflected in the trend of key macroeconomic indicators such as the slowing economic growth, with real Gross Domestic Product, wdropping to a 10-year low of 2.4 per cent in the second quarter of 2015.

Meanwhile, initial reluctance and fears over disclosure implications of BVN number for foreign exchange transactions, facilitated naira losses to the dollar, as renewed pressure mounted on the parallel market.

At the parallel market, there was increased activity leading to N3 depreciation of the local unit from N227/$ on Monday to about N230/$ on Thursday.

CBN had mandated all BDC operators and commercial banks to provide customers Bank Verification Number (BVN) in order to execute any foreign exchange transactions.

The steady rise in inflation to 31-month high at 9.4 per cent in October 2015), weak fiscal spending, hawkish monetary policy and foreign exchange constraints remained the case against Q4 expectations.

An economist and economy analyst at one of the Tier 1 banks in the country, told The Guardian over the weekend that a clearer picture over fiscal direction remained to be seen and it is eagerly expected to complement efforts of monetary authority.

He corroborated popularly sentiments that the diversification of government’s revenue base, together with its intervention in strategic sectors of the economy, would be important in boosting investment and consumption, which ultimately would impact on growth and corporate earnings.

Also, Afrinvest Securities Limited, in its weekly market update, however noted that the current state of the market presents the greatest attraction only to investors with long term horizon, but advise short to medium term investors to position themselves in dividend paying stocks ahead of full year results.

The Nigerian Stock market has not been exempted from this conundrum as foreign investors sold-down on the same heightened foreign exchange risk and weaker macroeconomic fundamentals.

Already, there are streams of unimpressive third quarter 2015 results released to the Nigerian Bourse, ranging from the banking sector to the consumer goods and oil and gas sectors.

Within the banking space, the constraining operating environment in 2015 was reflected in their levels of profitability in comparison to the corresponding period the year before.

The development has been blamed on high exposure of Nigerian banks to the public and the oil and gas sectors, which is estimate at 5.4 per cent and 27.0 per cent respectively as at June 2015.

Banks presently are awash with poor assets qualities, especially as the revenue profiles of government and indigenous downstream and upstream companies indebted them were impaired by oil price misfortunes.

“This has led to higher Non-Performing Loans and impairment charges affecting profitability of financial institutions, especially for Tier-2 banks.

“Our year-on-year analysis of banks bottom lines across tiers shows that in Q3, profitability was generally affected by higher impairment charges, with three of the big banks recording +521.3 per cent, +247.8 per cent, +129.9 per cent increases in impairment charges respectively.

“Regarding profit after tax figures, three Tier-2 banks recorded -46.3 per cent; -39 per cent; and -20.9 per cent year-on-year decline respectively,” the report said.

However, dollar-naira exchange relationship remained majorly stable at the interbank market last week, gaining two kobo at N199.08/$ until Thursday when the Naira depreciated by two kobo to N199.10/$.

But the assessed reluctance by customers to provide their BVN for foreign exchange transactions due to fears of their accounts being used for mischievous activities, resulted to demand pressure at the parallel segment and consequent further depreciation of the naira.

The apex bank, in a quick response to stem the tide, said in a statement that there are no attendant risks in revealing the BVN as it will help in confirmation of the identity of the customer, it will also bolster fraud prevention and ultimately lead to protection of the customers transactions.

CBN reiterated that the implementation of the BVN as a condition for foreign exchange transactions is to reduce speculative attacks on the naira-dollar rate, curb illicit transfer of funds and ultimately stabilise the value of the currency by ensuring that genuine demand are met.