Business environment to be defined by weak growth in 2016 – Diamond Bank

…expects CBN to review forex policy

By Odunewu Segun

Diamond Bank has said the business operating environment in 2016 would be defined by weak global growth, which the bank estimated to be at about 3.6 per cent.

In a 10-page report titled: “The Year Aheah-2016”, released by the bank recently, it said flat economic growth outlook is estimated to be around 4 per cent while it predicted a further depreciation of the naira to around 15 per cent.

“We expect the apex bank to review a number of its forex policy in the first monetary policy committee meeting of the year. Emphasis will be placed on the trade impact of forex shortages and its inherent sovereign risks. Further, the ripple effect of increasing non-performing loans (NPLs) and capital inadequacy issues amidst exchange rate exposures might push the CBN to undertake another stress test in the first half of 2016,” it added.

Meanwhile, it forecasted another stress test for the banking industry in the first quarter of 2016 should oil price and economic/business outlook remain depressed. . It also predicted that interest income from investment securities would be muted year-on-year, stating that emerging markets’ capital markets would remain bearish in 2016.

Furthermore, the report said that competition for retail deposits among commercial banks in the country is going to be intensified in 2016 as competitive frontier shifts to efficiency and margin. It said banks will compete aggressively in the retail front in 2016 in a bid to optimise net interest margin with cheaper retail deposits. “The integration of Bank Verification Number with other databases, coupled with the expected asset registry infrastructure should stimulate appetite for retail lending across the banking industry,” the report stated.

Also it stated that the performance of the equities market in 2016 would be determined by a number of factors amongst which it listed to include: health of the domestic economy, interest rate direction in the US and the UK, the bottoming of crude oil price, direction of the exchange rate, and impact of economic policies on businesses. These factors, according to the report are expected to impact on the operating environment of quoted companies in 2016. Banking stocks, Consumer goods and Industrial goods stocks remain our top picks for the year.