May 29, 2017

FGN Export Fund sucks N25bn from banks’ profits

Stock exchange

Nigerian Stock Exchange

By Nkiruka Nnorom

A WHOPPING N24.98 billion was withdrawn from the profits 14 banks quoted on the Nigerian Stock Exchange, NSE, and transferred to the Central Bank of Nigeria, CBN, Export Stimulation Fund.

This represents contribution made from the banks’ cumulative profit after tax of N499.53 billion for the year ended December 31, 2016.

Financial Vanguard analysis showed that four of the five tier-1 banks namely, Zenith Bank Plc, Guaranty Trust Bank Plc, Access Bank Plc and United Bank for Africa Plc, UBA, accounted for most of the transfers, contributing N20.3 billion or 81.2 per cent of the total.

Other banks that contributed less due to lesser profits include First Bank (FBN Holdings Plc), Diamond Bank Plc, Fidelity Bank Plc, Sterling Bank Plc, Wema Bank Plc, Union Bank of Nigeria Plc, Jaiz Bank Plc, Stanbic IBTC Holdings Plc, FCMB Holdings Plc and Unity Bank Plc.

The Export Fund

The CBN, had in June 2016, launched a N500 billion non-oil Export Stimulation Fund (ESF) to provide concessionary finance to non-oil exporters; provide long-term fund at single digit interest rates to non-oil exporters and aid non-oil export productivity.

The Fund also aimed to increase foreign exchange (forex) earnings, broaden the scope of export financing instrument, as well as create more jobs.

The Fund to be domiciled in the CBN is to be used as equity stakes in agri-businesses and for other sectors that would make a success of the import-substitution programme of the federal government.

A meeting of the Bankers’ Committee, last year had agreed that all Deposit Money Banks (DMBs) in the country are to contribute five per cent of their annual Profit After Tax to the Fund.

Explaining the decision Mr. Ahmad Abdullahi, Director of Banking Supervision of the CBN, said: “The Bankers’ Committee has taken a decision to come up with an initiative in support of the federal government export drive by supporting SMEs and other businesses and so have agreed to contribute five per cent of each bank’s Profit After Tax to a pool of funds that will be kept with the Central Bank of Nigeria and it will be used to finance eligible, bankable projects that are meant for export drive or import substitution.”

He pointed out that each bank would have an equity holding in the Fund based on its annual contribution.
Individual bank’s contribution
Guaranty Trust Bank accounted for N6.6 billion of the total payment, followed by Zenith Bank with N6.5 billion, while UBA, Access Bank and Stanbic IBTC Holdings Plc pooled N3.6 billion, N3.57 billion and N1.43 billion respectively into the Fund.

FCMB Group Plc contributed N717 million; FBN Holdings Plc surrendered N612 million; Fidelity Bank, N487 million; Sterling Bank, N258 million; Wema Bank, N130 million; Unity Bank, N109 million; Union Bank, N77 million and Jaiz Bank, which contributed N155,000.00 (One hundred and fifty five thousand Naira only.)

Shareholders react
Meanwhile, shareholders have kicked against the deductions saying that it undermines their interests in the banks, since it amounts to a significant reduction in the banks’ distributable profit.

They advised the CBN to look at alternative means of supporting the non-oil export businesses instead of creating holes in banks’ vaults that would result in erosion of shareholders’ value.

Mr Patrick Ajudua, National Chairman, New Dimension Shareholders Association, NDSA, and Eric Akinduro, Chairman, Ibadan Zone Shareholders Association, said the directive betrays CBN’s insensitivity to investors’ interest.

“What we are saying is that supporting export business is a good concept, but forcing banks to deduct five per cent of their distributable profit will short-change us in terms of our dividend and return-on-investment.

Therefore, CBN is advised to look elsewhere, particularly into the reserve and restricted funds, which banks have with them. They should access that fund through that means and not deducting five per cent of banks’ profit.”
Commenting, Akinduro argued that the action is disincentive to investment in the capital market and urged the CBN to withdraw the policy.

“When you look at the capital market, shareholders are being short-changed. Whenever you get your dividend, withholding tax of 10 per cent is deducted. Not only that, when you look at other markets like the bond market, recently, the Federal Government introduced savings bond for minority investors and that bond is tax free. So, when you are taking 10 per cent withholding tax from shareholders and still come back to take five per cent from the net of the profit, definitely they are not encouraging people to go into the capital market.”