Nigerian manufacturing companies are swimming in profits thanks to cheap central bank intervention loans granted over the past two years. A cross section of the financial statements of companies reviewed by Nairametrics reveals massive savings on interest payments paid during the year through loans received by companies.
The Central Bank of Nigeria has deployed massive development interventions in critical areas such as agriculture, manufacturing and SMEs. Some of the CBN’s initiatives include the Real Sector Support Facility, the SME Credit Guarantee Scheme (SMECGS); Micro, Small and Medium Enterprise Development Fund (MSMEDF); and Youth Entrepreneurship Development Program (YEDP).
Others are the Agribusiness / Small and Medium Enterprise Investment Program (AGSMEIS); Creative Industries Funding Initiative (CIFI); Targeted Credit Facility (TCF) and Nigeria Youth Investment Fund (NYIF).
As of December 2020, the central bank had disbursed more than 4.2 trillion naira in several intervention and development finance activities across the country. According to our records, there are 23 major intervention programs underway for which 4.23 trillion naira has been disbursed by the CBN through 3 million projects covering almost all economic sectors.
For example, the agriculture sector received 1.47 trillion naira, the electricity sector received 1.06 trillion na while SMEs (in manufacturing, trade and transport) received 1 , 15 billion na. No data has been published this year by the CBN on its response activities. The CBN also recently extended its forbearance from intervention loans for businesses by maintaining an interest rate of 5% for one year, down from 9% previously. The loans are also long term with a moratorium on principal repayments of at least one year.
Recipients report massive profits
Flour mills one of Nigeria, a consumer goods company and one of the largest recipients of intervention loans, reported a record profit of N25.7 billion in 2020, compared to N11.3 billion a year earlier. The financial cost of the company has fallen from N17.5 billion at the end of its fiscal year 2020 to N15 billion in its fiscal year ended 2021. Meanwhile, the company’s total loans in March 2021 rose from 109.5 billion naira to 132.6 billion naira. Its loan balance includes around 54.7 billion naira of CBN intervention loans, all at around 5%. As of June 30, 2021, when its first quarter results were released, intervention loans had climbed to N 6.14 billion. First-quarter profits also climbed to 5.4 billion naira from 4.9 billion naira.
Okomu oil, another major recipient of CBN intervention loans has remained one of the best performing stocks over the past year, with its share price rising 57% last year. The company’s share price performance is also the result of strong earnings in 2020 which also continued into the first half of 2021.
In its latest interim results, the company reported pre-tax profit of 12.4 billion naira compared to 5.5 billion naira a year earlier. The financial cost of the company also fell from 305 million naira to 77 million naira. Okomu Oil’s loan balance of 10.7 billion naira in June 2021 corresponds to all intervention funds.
Presco, another agro-allied company that competes with Okomu Oil has about 4.5 billion naira in intervention loans out of its total loan portfolio of 16 billion naira. The company also declared a massive increase in profits in the first half of 2021.
The health sector was not left out either. Two of the biggest health-related companies, May & Baker and Fidson, also reported massive increases in profits during the year. May & Baker saw its pre-tax profits for the first half of 2021 climb to 817 million naira from 645 million naira a year earlier.
Loans have also grown from around 1.39 billion naira in the first half of 2020 to over 4 billion naira this year. According to the company, “A Central Bank of Nigeria (CBN) intervention fund to manufacturers in the amount of 1 billion naira and 2.5 billion naira was received in February and July 2020 respectively at an interest rate of 5. % to 9% per year. The CBN 2.5 billion naira intervention facility is in two parts, namely 2 billion naira and 500 million naira in working capital.
For Fidson, a rival pharmaceutical company, about 6 billion naira of its loan balance of 7.1 billion naira as of June 30, 2021 were all intervention loans. According to the company, it said its most recent loan, an FCMB loan of around N2.5 billion is a Central Bank of Nigeria (CBN) Real Sector Support Facility – Differentiated cash reserve requirement granted to Fidson Healthcare PLC for 84 months. ”
The company also specifies that “Principal and interest will be in twenty equal installments and interest will be 9% per annum, but the CBN prime rate of 5% will apply until February 28, 2021. However, the moratorium period for repayment of principal has been extended for one year until 2022. “
BUA cement, one of Nigeria’s largest cement companies also reported receiving more than N40 billion from the Central Bank’s Real Sector Support Facility. “Government subsidies were estimated from the N40 billion Real Sector Support Fund provided by the Central Bank of Nigeria through commercial banks listed at a rate between 5% and 9%.”
He said in his 2021 biannual report that the loans also helped push profits from 39 billion naira in the first 6 months through June 2020 to 49.7 billion naira for the same period this year. As expected, interest on loans collapsed from N 1.7 billion to N 931 million.
Several other financial statements reviewed by the Nairametrics analyst team reveal a similar pattern of lower financial costs and higher pre-tax profits. Government policies to support local manufacturers are another key factor that has helped increase profits. For example, the cement, agriculture, healthcare, and brewing industries have all reported increases in their gross revenues and pre-tax profits from some of these loans.
Our analysis also does not cover the billions of naira extended to any publicly traded company, such as those in the power sector, aviation industry and other manufacturers. Our sources indicate that intervention funds have also increased their results.
Repayment of intervention funds
Nairametrics analysis suggests that some of the loans are not being repaid at the moment, possibly due to the central bank’s forbearance extended this year. In a recent report by Nairametrics, more than 3 trillion naira of the 4.2 trillion naira of intervention funds disbursed by the Central Bank of Nigeria (CBN) were unpaid as of December 31, 2020. Despite this, the central bank has pledged that it would increase its development finance interventions to further support start-ups and small and medium-sized enterprises (SMEs) in the country. Thus, we expect more loans to be disbursed during the year. Meanwhile, a recent World Bank report indicates that the central bank’s monetary policy initiatives and development finance activities have helped prevent a severe credit crunch in the private sector.
The CBN relaxed the terms of its development finance interventions, and the new terms were extended until March 2022; it also launched a series of new development finance initiatives at subsidized interest rates to mitigate the impact of COVID-19 on households and SMEs. It is also helping pharmaceutical companies, healthcare professionals and SMEs respond to the pandemic by injecting up to 400 billion naira in loanable funds. The new financing is equivalent to about 2% of private sector bank credit.