Bank CEOs Hinge 2017 Economic Performance on Fiscal Reforms

By Obinna Chima    
The performance of the Nigerian economy in 2017 will largely be driven by the quality of reforms initiated by the fiscal authorities as monetary policies appear to have reached their limit, some bank chief executive officers (CEOs) have said.
The CEOs spoke to THISDAY yesterday in separate phone interviews.
Speaking on his expectations in 2017, the Managing Director/Chief Executive, FirstBank of Nigeria Limited & Subsidiaries, Dr. Adesola Adeduntan said invariably the outlook for the banking sector would reflect the fortunes of the Nigerian economy.
According to him, “The main transmission mechanisms are via consumer spending, which shows up in retail deposits, card usage, and retail loans; business investment, especially through its effects on term deposits, loans, and foreign trade; and government spend, including through borrowing by the issuance of government securities.
“Of these three lines, only the latter has held up well as rising domestic prices drive up yields on government securities. However, it is unlikely that the industry’s bottom-line can subsist entirely on fee incomes. So, much will depend on how the economy fares next year.
“The economy’s contraction this year was the worst it has been in the last few decades. Interestingly, I believe monetary policy may be reaching the limits of its possibilities because of structural rigidities in the economy, including through the effect of this on inflation and the naira’s exchange rate.
“Both of these indices have fared poorly on the back of dwindling government revenue, which was the result of the precipitous drop in global oil prices.”
The FirstBank boss stressed that the burden of economic adjustment this year would thus fall on the fiscal sector, and to an increasingly larger degree on the extent to which government can drive reforms in the economy, promote an investor friendly environment, and send a clear harmonised message of the government’s economic intent.
“It is important, therefore, that the budget for this year is both larger than it was last year and that it includes major policy interventions in the area of pro-poor initiatives. I would have loved to see a much more significant drop in the recurrent expenditure share of the budget.
“Essentially, much-needed reforms will include completing the transition of government from provider of goods and services to that of a regulator of a private sector-led economy, and changes to the way the economy is organised, with further strengthening of entrepreneurial initiatives across board.
“Combined, both the structural reforms and increased and better targeted government spend should see a recovery in consumer spending and business investments that should drive a pick-up in domestic economic activity in 2017.
“Helpfully, OPEC’s oil production agreement late last year should see global oil prices rise higher than last year’s average, supporting higher public revenues. Banks, on the other hand, have far higher levels of capital this time around than they had just before the 2008-09 global financial and economic crises, and thus are far more resilient today than they have been at any other time in the history of the economy,” he added.
To the CEO of Access Bank Plc, Mr. Herbert Wigwe, there is no quick fix to the current economic situation.
Wigwe said what was required to lift the economy out of recession was “very coordinated efforts by government, that is monetary and fiscal authorities, as well as the total cooperation of all other economic agents”.
“While that is being done, the sequences of events that it takes to come out of this situation is also just as important,” he added.
According to Wigwe, “If we get it right, we should start to see some recoveries in the second half of the year.”
This he however stressed requires coordinated efforts.
“If we don’t do that and allow the situation to degenerate, then it (recession) can last a lot longer,” he added.
On his outlook for the banking industry, Wigwe, who is also the chairman of the Body of Bank CEOs said: “First of all, there is no way that the industry is not going to feel the pain, first of all, coming from the fact that manufacturers are not getting enough foreign exchange to support importation of their raw materials for production.
“So, you are going to see banks struggle as far as their non-performing loan (NPLs) ratios are concerned. Just because these guys do not have enough raw materials to produce and break even, not to add repaying their loans. That in itself is a really big issue.
“But I think that one of the things you are going to see is that people are going to resort to other mechanisms to look for income. For instance, the pursuit of retail, and other alternative means of income.”
Furthermore, Wigwe pointed out that the effect of the downturn on economic activities, as well as the rise in NPLs would clearly reflect in banks’ 2016 financial statements, adding that in 2017, banks might not record strong performance.
“But 2018 would be a year for full recovery for banks,” he said.
In his contribution, the CEO of Diamond Bank Plc, Mr. Uzoma Dozie acknowledged that 2016 was tough and 2017 will be no different, but added that the Nigerian market was big and the current challenges present opportunities for people and systems to develop new markets and improve existing ones.
“For us at Diamond Bank, we are bringing more people into the financial system by taking banking to people via digital and mobile channels.
For our existing customers solutions that make things, easier, cost effective and safer.”
The CEO of Financial Derivatives Company Limited, Mr. Bismarck Rewane, in a recent presentation at the Lagos Business School’s executive breakfast session, forecast that growth in 2017 would be a function of oil output and market efficiency.
According to the economist, commodity windfall and shortfalls would catalyse or suppress growth. He also predicted that oil sector output would go from -22 per cent to five per cent in 2017, adding however that corruption, waste and inefficiency would remain a drag on government expenditure.
In terms of policy reforms in the oil sector, he projected that the new JV cash call alternative funding arrangement would unlock $6 billion of cash and reduce production interruptions.
He also predicted an inflow of $73 billion into the economy comprising the proposed $1 billion Eurobond, which he anticipated would take at least three months for the federal government to close; the final tranche of the $400 million AfDB loan; inflow of the World Bank’s concessionary $2 billion loan; $22 billion from remittances; about $40 billion from exports; and others $11 billion.
On FAAC allocations shared by the three tiers of government, Rewane expects that this would average N500 billion, up from about N415 billion in 2016.