It is very moody with these two calls by Moody’s, a global credit agency, on Nigeria and its banks:
#1: Moody’s downgraded Nigeria sovereign rating deeper into the junk territory: “As the nation’s capacity to weather the storm remains eroded by deep-seated institutional vulnerabilities and social challenges, the agency now rates the country a level lower at Caa1, sinking Nigeria deeper into its non-investment grade from the country’s previous and worrisome rating of B3.”
#2: Moody’s downgrades 9 Nigerian banks: “Moody’s Investors Service … lowered the long-term deposit ratings of nine Nigerian banks to Caa1 from B3. …The lenders affected by the latest downgrade include Access Bank, Guaranty Trust Bank, Sterling Bank, Fidelity Bank, First Bank of Nigeria Limited, Zenith Bank, First City Monument Bank, Union Bank and United Bank for Africa….The downgrade of the nine lenders also affected their issuer ratings and the senior unsecured debt ratings, both of them reverberations of lowering Nigeria’s sovereign credit ratings into non-investment grade.”
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Moody’s said its stance on the banks’ ratings is an affirmation of the weakening operating environment manifest in the lowering of the macro profile of Nigeria to “very weak” from “very weak+”.
It added that the development is a reflection of the nexus between Nigeria’s fragile creditworthiness and the lenders’ balance sheets, considering the banks huge exposure to sovereign debt instruments.
“Rated Nigerian banks have significant direct and indirect exposure to the Nigerian sovereign, with a significant portion of their assets located in the country, and sovereign debt holdings representing 28 per cent of their aggregate total assets as of June 2022.” Moody’s said.
“Government exposure links the banks’ credit profiles with the sovereign’s, whose rating was downgraded on 27 January 27, 2023, to reflect Moody’s expectation that the government’s fiscal and debt position will continue to deteriorate,” it added.
With these outlooks or downgrades, the cost of borrowing and financing debts across many domains in the country will go up. To overcome the paralysis, Nigeria will need to do things differently and that is why the 2023 elections must be won on new ideas. People, it is in your hands. Do not vote for crazy people, and tomorrow start complaining: vote competence.
Meanwhile, Buhari has requested for 7 days to fix the ravaging new naira notes scarcity in Nigeria
– read statement below…
President Muhammadu Buhari Friday urged citizens to give him seven days to resolve the cash crunch that has become a problem across the country from the policy of the Central Bank of Nigeria to change high value Naira notes with new ones.
He was speaking to the Progressive Governors Forum who came to the Presidential Villa to seek solutions to the cash crunch which they said was threatening the good records of the administration in transforming the economy.
President Buhari said the currency re-design will give a boost to the economy and provide long-term benefits while expressing doubts about the commitment of banks in particular to the success of the policy. “Some banks are inefficient and only concerned about themselves”, said the president, “even if a year is added, problems associated with selfishness and greed won’t go away.”
He said he had seen television reports about cash shortages and hardship to local businesses and ordinary people and gave assurances that the balance of seven of the 10-day extension will be used to crackdown on whatever stood in the way of successful implementation.
“I will revert to the CBN and the Minting Company. There will be a decision one way or the other in the remaining seven days of the 10-day extension,” the president assured.
The governors told the president that, while they agreed that his decision on the renewal of currency was good and they are fully in support, its execution had been botched and their constituents were becoming increasingly upset.
They told the president that, as leaders of the government and party in their different states, they were becoming anxious about a slump in the economy and the series of elections that are coming. They requested the president to use his powers to direct the concurrent flourish of the new and old notes till the end of the year.
The president said when he considered giving the approval to the policy, he demanded an undertaking from the CBN that no new notes will be printed in a foreign country and they in turn gave him assurances that there was enough capacity, manpower and equipment to print the currency for local needs. He said he needed to go back to find out what was actually happening.
President Buhari told the governors that, being closer to the people, he had heard their cries and will act in a way that there will be a solution.
GARBA SHEHU
Senior Special Assistant to the President
Media and Publicity
Comment on Feed
Comment 1: Prof Ndubuisi I’m sure Moody’s have data to justify their decisions. All of these rating companies are the same, no different from their mates at S&P Global Ratings or Fitch Group.
Happy to downgrade nations outside the G20 when there is a pretext to do so, but slow to improve the rating again when there are prevailing arguments in support of same.
They know who their paymasters are and how their paymasters benefit.
I’m not saying I don’t pay attention, but you know… best advice DYOR
My Response: I am not sure any apolitical person will have a different call. I think these downgrades are open. Just the insecurity is enough concern. Then add japa where the nation is losing some of its best young people. Nigeria needs to restructure its economy to have any chance: we’re very unproductive because there is no incentive for excellence.
Comment 1A: I agree Prof. Ndubuisi , like I said, I’m not saying the decision isn’t supported by data, and the call isn’t right. My wife just a few hours ago had to pay N12k cash for N10k fuel and the stations have stopped taking PoS.
Living in Scam Times.
I’m just saying these rating systems don’t impartially paint all nations with the same brush.
If they did, indeed there are a few G20 nations whose ratings should have been downgraded to a point where they no longer deserve a G20 place.
But it hasn’t happened. I’m not going to get into names.. in the interests of staying ‘apolitical’
My Response: I understand your point. But note that G20 countries do not send 25-30% of their budgets to service debts. That is what the rating agency is really focusing on: where close to 80% of your revenue goes to service debt. In the US, they spend 7% of their budget on interest /debt service. Rating is speaking to investors: if you invest, how sure are you to make money.
Comment 2: It is a very sorry state. From all angles, this will have severe impact on the already struggling economy. Capital will become more scarce for new ventures, the few that are able to access capital, will do so at a very high cost.
At this point, allowing our brightest lawyers, economist, managers to go into corporate services in hope for a better future, while leaving government affairs to incompetent hands is a playbook that must be changed. Government plays the role of a conductor in an orchestra. If the conductor is confused, the whole thing ends up in chaos.
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The candidate of the ruling party advised the present government to print more naira notes in 2020, and that we shouldn’t be talking about exchange rate, that it’s a non issue. Then some days ago he was wailing in Calabar, that they allowed naira/dollar exchange to move from N200 to N800. Yet we regularly come here to yammer and respond to those who obviously know nothing about economics, but very bold in their ignorance, telling you that their candidate has the answers.
This election has really shown the Intellectual capital and soundness of judgment that can be attributed to most people here, it’s a waste of time debating important issues with delinquents.
The little goodwill we used to have has been squandered by Buhari, so it’s not like we still possess great capacity to continue borrowing at good rates. The options are moving from narrow to non existent, so you need a leader who thinks differently and can manage resources more efficiently. But again, democracy is never for the smartest, certainly not where ignorance is a premium.
We will all be all right, including those who don’t know their left from their right.
It’s looking moody from Moody.
Any action to reign in the excesses and corruption in Nigerian banks is a welcome development. It is important to use measures outside the govt to make Nigerian banks get closer to ethical banking. These guys are the reason why Nigeria is struggling. They don’t invest in any infrastructure. They don’t participate in any fiscal policy development. It just appears as if government is spending all its resources fighting banks. And somehow Nigerians have not asked how this is even happening. I have never seen any country where government’s job is to reign banks in. It would only be a matter of time before they overpower the government. That is what we are seeing now in Nigeria.
Nigerian banks are glorified bureau the change outlets. They are so in bed with BDC agents and any business that trades on cash in circulation that any policy around inflation acts to stop their business. Meanwhile, we should never forget that banks are the channels through which the monetary policies of government are executed.
Nigerian banks do not bother to vet any business that needs FOREX. They pretty much look you in your face and tell you that if you get dollars from them at ??460, you will sell it at ??750. Therefore even if you open Letter of Credit (LC) with them, you will not get bidding through them. To get bidding, you must deposit double the bid amount. Also when the bid is approved, you can only get 1% of the bid amount. Then when you win the bid, you will not get the dollars as they will tell you CBN is holding cash.
Yes. Nigerian banks contribute over 70% of the woes in Nigeria. If the government did not redesign the naira and put rules in place to curb excessive cash in inflation, how could we have known that banks can be selling naira through POS agents.
They bank on the fact that the government does not have the moral capacity to punish them. The fact is that Nigerians have taken notice. Therefore their downgrade by Moody’s is in order.