Microeconomic pressure occasioned by COVID-19 and volatility in the economy have impacted negatively on the bottom-line of NPF Microfinance Bank Plc., writes CHRIS UGWU
Microfinance Policy Regulatory and Supervisory Framework (MPRSF) was launched in 2005 and the objective, among others, was to address the prolonged non-performance of community banks.
This lack of performance has been attributed to incompetent management, weak internal controls and high cost of transactions.
Other objectives to be addressed by MPRSF are poor corporate governance, lack of well-defined operations, restrictive regulatory/ supervisory requirements and weak capital base of existing institutions. Indeed, a huge gap exists in the provision of financial services to a large number of active but poor and low income groups, especially in the rural areas as a result of rigidity deployed in formal financial institutions in Nigeria.
However, in spite of the efforts, the problem of funding has remained a major factor militating against the effectiveness of microfinance banks in Nigeria. This is because the Nigerian economy has continued to face major headwinds, from substantial decline in international crude oil prices to significant constraints to business activities in the north eastern part of the country owing to activities of insurgents.
The fall in crude prices heightened pressure on the nation’s foreign reserves and the domestic currency leading to the volatility in exchange rate and a dip in foreign reserves. These microeconomic pressures and unrelenting regulatory adjustments have, to a large extent, constrained the margins of financial institutions in the country.
NPF Microfinance Bank Plc, which had sustained considerable growth in bottom line, has also been affected by the harsh operating milieu. The MFB, which began to show positive outlook earnings in 2019, dropped sharply in 2020 with a 22.85 per cent drop in profit after tax. When the closing bell rang last Friday, the shares of the company stood at N1.90 per share.
In 2019, NPF Microfinance Bank Plc’s gross earnings improved by 12.59 per cent from N3.9 billion in 2018 to N4.4 billion in 2019. The bank recorded a profit before tax of N1.0 billion reflecting a growth of 251.03 per cent over N287 million recorded in the corresponding year ended December 2018.
The total asset stood at N19.5 billion representing 11.29 per cent increase over N17.5 billion recorded in 2018 while loans and advances grew by 30.05 per cent to close at N13.7 billion from N10.5 billion in 2018. Despite the rising cost of living, customers deposit improved slightly by 8.24 per cent from N10.4 billion in 2018 to N11.3 billion in 2019.
The company noted that the overall performance underscores its commitment to the continued execution of its strategy in order to generate sustainable economic returns, while maximising shareholders’ value.
However, for the first quarter of 2020, NPF MFB posted a 2.86 per cent decline in profit and after tax for the quarter ended March 31, 2020.
The microfinance bank, in a report obtained from the Nigerian Stock Exchange (NSE), showed a profit after tax of N141.581 million in Q1’20 as against N145.751 million reported in 2019, representing a drop of 2.86 per cent. Profit before tax equally dropped by 2.86 per cent from N194.335 million in 2019 to N188.775 million in 2020.
However, gross earnings grew by 6.58 per cent to N1.036 billion from N972.075 million in 2019. NPF Microfinance Bank posted a 0.6 per cent decline in profit after tax for the third quarter ended September 30, 2020.
The microfinance institution in the report, showed a profit after tax of N546.673 million in Q3’20 as against N550,009 million reported in 2019, representing a drop of 0.6 per cent. Profit before tax equally dropped by 0.6 per cent from N733.346 million in 2019 to N728.89 million in 2020. Gross earnings also dropped by 1.58 per cent to N3.240 billion form N3.292 million in 2019.
The microfinance institution finished the financial year ended December 31, 2020 with a 22.85 per cent drop in profit after tax to N614.417 million in 2020 from N796.425 million in 2019.
Profit before tax stood at N867.012 million in 2020 from N1.007 billion in 2019 representing a drop of 13.90 Per cent. However, gross earnings increased by 4.74 per cent to N4.658 billion in 2020 from N4.447 billion in 2019.
Profit deflators/way forward
Azubuko Joel Udah (DIG rtd), Chairman, Board of Directors, said at the bank’s 26th Annual General Meeting that “as the country struggles to contain the spread of COVID-19 virus, this is expected to put more pressure on inflation numbers going forward as cost of local production goes up. “The economy, as at date, is being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices. “Nigeria’s vulnerabilities to the impact of these external shocks can be adduced to increased dependencies on global economies for fiscal revenues, foreign exchange inflows, fiscal deficit funding and capital flows required to sustain the nation’s economic activities.
“The twin shocks are expected to impact the economy through three channels: supply, demand and financial. Despite the treat to growth, the bank will take advantage of opportunities presented in this financial year, in order to sustain earnings and profitability, improve asset quality and deliver competitive returns to our esteemed shareholders. We will also continue to build strong, value adding relationship with our customers and stakeholders.
“The bank, during the year, experienced improved performance on her core banking software (T24), which was deployed in 2018 under the CBN NAMBUIT Project. In line with our strategic plan, technology will continue to play a big part in the bank’s operations in 2020.
“In furtherance to this objective, the bank has intensified efforts to invest and deploy electronic and digital channels, which offers services such as electronic fund transfers using USSD while a banking application for internet banking is being developed.
“Also, agent banking is in the pipeline to improve financial inclusion. The deployment of these channels means customers will be able to carry out baking transactions with convenience, speed and safety in a constantly changing world. With these investments, it is expected that the bank’s customer base will increase significantly in line with our strategic plan.”
Agusto & Co., Nigeria’s research and credit rating agency, had said that the two phased increase in the minimum capital requirements for all categories of microfinance banks would bring down the number of operators.
The rating agency expects the microfinance industry to fare better in 2021 supported by the global roll-out of COVID-19 vaccines, accelerated digital transformation of microfinance banks and businesses in general, renewed focus on essential sectors and government support for MSME busi-
nesses. The Industry, however, continues to have a high level of susceptibility to macroeconomic challenges as was witnessed in 2020.
The agency noted that the doubling of non-performing loans witnessed by the Nigerian microfinance industry in 2020 was exceptional in the light of the pandemic, thus many operators had to provide some forbearance and also restructure loans for clients with difficulty repaying as restrictions were gradually lifted.
“One of the primary strategies adopted by operators in the Industry to drive recoveries in 2020 was to promise customers who met all outstanding obligations access to new loans. Subsequent to the six-week lockdown, many microfinance banks shifted focus to providers of essential goods and services and also existing customers to drive disbursements.
“The growth in the industry’s loan book was, however, depressed with the portfolio remaining flat as operators adopted a more cautious approach given the heighten credit risk of MSMEs in key sectors such as education, supply of non-essential goods and services, transportation and hospitality.
“Agusto & Co. expects to see improvements in the microfinance industry in 2021 as the global and domestic economies rebound and operators adjust to the new realities with a five per cent growth in the loan book and a 400-basis point drop in the non-performing loan ratio from an average of 12.6 per cent for major operators. “Microfinance banks in Nigeria have been given a loud wakeup call by COVID-19 to accelerate investment in digital channels for loan disbursement and collection.
“Many operators have since developed web portals for loan applications and are actively exploring the use of payment services such as Remita, Paystack and ultimately mobile money for collections.
“The efficacy of such channels in Nigeria may, however, be limited by the low digital literacy of the unbanked, underbanked and low-income target market of the Microfinance Industry. “Having a strong physical presence in various geographical locations remains the major driver of success in the microfinance industry in Nigeria.
“The largest microfinance banks have branches spread across the country and are easily identifiable to the target market of low-income earners and MSMEs operating in the surrounding area,” the agency said.
For microfinance sector to experience positive times, the industry should embrace changes in business environment, which presents uncommon opportunities to deepen penetration of the market through creativity and ingenuity