COVID 19: Banks’ Shares To Fall, FG Borrows N4 Trn

By Tosin Olatokunbo

Bode Agusto, former Director General of the Nigerian Budget Office has disclosed that commercial banks in the country will struggle to survive this year in the face of the novel corona virus pandemic.

The financial analyst also stated that the federal government will borrow more than N4 trillion this year, the highest ever, to balance the 2020 budget and cushion the effects of virus on the economy.

The analyst has now joined others who already predicted a gloomy future for some commercial banks in the country.

Deposit Money Banks, DMBs profitability will slump to an abysmal level, and banks with the capacity to raise local and foreign equity will survive the impact of COVID 19 on the economy, the Founder, Agusto & Co, said during an online presentation titled: How Will COVID-19 Impact the Economy.

He said many banks will also lose the value of their stocks at the Nigerian Stocks Exchange, NSE as a result of economy downturn.

Agusto said “The banking industry will continue to deliver sub-optimal returns sub-optimal returns in 2020. In fact, ROE will drop further due to higher loan impairment charges.

This will continue to impair the valuation of banks listed on the Nigerian Stock Exchange.”

According to him many Nigerians are likely to lose their purchasing power and will buy less of foreign goods as focus will be turned on essentials goods to survive, as the realities of COVID 19 sink in.

In 2019, Agusto said Nigerians imported goods worth $49 billion, that figure will drop significantly to $25 billion.

The financial analyst projected a drop in the importation of goods from $49 billion in 2019, to $25 billion in 2020, adding that the focus of imports was likely going to be on necessaries, while import duties on such items may be at concessionary rates.

According to Agusto, currency depreciation would boost naira equivalent of import duties.

He said“We estimate federal government revenue of N3.2 trillion.

We also estimate that the federal government will borrow about N4 trillion, some in foreign currency and others in local currency.”

The federal government has never borrowed so much to finance a budget deficit, he said

“Historically, the level of borrowing that they have been able to raise historically has been about N3 trillion yearly.

So, we are even pushing it further a bit to say that they are going to borrow N4 trillion.

So, we expect an aggregate spending of N7.3 trillion. Let’s note that the government has always promised large amount of spending, but they have been able to finance between 60 and 70 per cent of it historically. So, this year is not going to be different,” he said.

A large portion of the borrowing will be used for debt servicing and other loan repayment obligations, he stated.

Agusto said “But what would they be spending money on? There are some obligatory payments that the government has to make. What are these payments?

They pay interest on their loans, salaries and pensions of their workers and statutory transfers, that is, what they are obliged by law to transfer to other tiers of government.”

The federal government, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said has applied for $7 billion from the International Monetary Fund, IMF and the World Bank, to fight the virus.

The magazine learnt that the President Muhammadu Buhari – administration is likely to approach other international partners for more loans and aids due to the fall of crude oil prices in the international market, which analysts say has reduced drastically revenues accruing to the federal government.