Market News

As bank, insurance recapitalisation, govt borrowing moderate inflation

Written by Zaka Khaliq, Chika Izuora, Bukola Aro-Lambo and Olushola Bello

Financial analysts and economic experts are optimistic of a stronger value of the Naira to the US dollar as well as lower premium motor spirit (PMS)/petrol prices in Nigeria in 2025, driven by improved foreign exchange inflows and reduced fuel imports.

Analysts anticipate that increased oil production and domestic refining capabilities will ease pressure on the currency, potentially stabilising PMS prices.

This optimistic outlook is hinged on successful economic reforms and global market conditions.

This is as banks are expected to heighten their recapitalisation exercise in a move to beat the March 2026 deadline imposed by the Central Bank of Nigeria (CBN), with the same exercise to commence in the insurance industry next year after the Consolidated Insurance Bill is passed into law,

LEADERSHIP can exclusively reveal that, coupled with expected increased borrowing by the federal government to reduce the 2025 budget deficit, hopes are high that these developments will positively influence the inflation rate and reshape the economy.

President Bola Ahmed Tinubu’s proposed budget aims to lower inflation from 34.6 per cent to 15 per cent and enhance the naira’s value from approximately N1,700 to N1,500 per dollar.

With a record budget of N47.9 trillion that is hinged on a deficit of over N13 trillion in a year that banks are shoring up capital, analysts said they expect the government to borrow more than it envisaged as it is anticipated that inflation and pressure at the foreign exchange market are expected to wane in 2025.

Banks will, by next year, put finishing touches to the capitalisation process some of them started in 2024 while those still at the preliminary stage of fund raising will heighten the process in the new year in a bid to meet the deadline.

Similarly, the recent apex bank’s intervention in the Foreign Exchange (Forex) market seems to be bearing good fruits as the nation’s currency has gathered strength in recent times, a development market observers expect will continue next year.

In the energy sector, the recent drop in fuel pump prices is expected to continue next year, as the Petroleum Motor Spirit (PMS) continues to reflect market price, following the pattern of the global oil price. At the same time, the government is expected to address the constant grid collapse that plagued the power subsector of the energy industry in 2024.

All these earlier-mentioned initiatives are expected to ease the operating environment for players in the manufacturing sector and Small and Medium Enterprises (SMEs), while Nigerians will begin to feel their impacts on the pricing of goods and services across the country.

LEADERSHIP had earlier reported that, by 2025, the insurance industry would undergo a fresh recapitalisation exercise after the Senate passed the Consolidated Insurance Bill into law, specifying N10 billion for life insurance firms, N15 billion for non-life business and N35 billion for reinsurance companies in the country.

Although the bill will now be transmitted to the House of Representatives for concurrence, and if the lower House concurs with the provisions, it will then be transmitted to the country’s president for assent before becoming a law, there are indications that the bill will scale through the remaining processes to become law, possibly, when the House returns early next year.

Although the federal government envisages strengthening the naira to N1,500 in 2025, the chief executive of Financial Derivatives Company, Bismarck Rewane, said the Naira misalignment is expected to reduce.

In an emailed note, he said, “We believe the Naira will appreciate mildly in 2025, starting in February and reaching N1,550 per dollar in the first quarter.

“The exchange rate is the price of the dollar in Naira terms (N1,650 per dollar).It is the factor that brings the domestic and external economies into equilibrium. Our projections and estimates are based on the following: crude oil price at $70pb, oil production at 1.4mbpd, gradual but limited policy reform efforts, and modest FDI inflows, amongst others.”

He noted that will be a challenge with economic growth in 2025 but is expected to be better than in 2024.

“The Economist Intelligence Unit (EIU) posits that real GDP growth will strengthen in 2025-26 as the Dangote oil refinery ramps up production.

“This development is expected to displace fuel imports and boost exports. In line with this, disinflation, anticipated to begin in Q2 2025, along with interest-rate cuts and greater exchange rate stability, is likely to foster improved consumer and business confidence. Hence, we project GDP growth of 3.6 per cent in 2025 and 3.5 per cent in 2026.

“In 2025, the Nigerian economy will be marked by fiscal and monetary policy efforts to reduce food prices. We expect an extension of the import duty waiver and possible data changes like a GDP rebasing and inflation basket reconstitution,” he said.

For the banking industry, Rewane says the outlook is largely positive as banks are expected to make significant progress from recapitalisation exercise which would lead to positive investors’ sentiment in the sector, supported by a much stable regulatory environment.

According to analysts at Afrinvest West Africa, the CBN is expected to begin to cut back on its hawkish stance as it is anticipated that the current inflationary pressure will peak in the first quarter of 2025, owing to the combined effect of a high-base year, waning foreign exchange and energy goods price volatility.

Pointing out that the government plans to raise  N7.4 trillion and N1.8 trillion at the domestic and foreign markets to plug a budget deficit of N13.1 trillion in 2025, the analysts say they “estimate that domestic borrowing could exceed target, requiring net issuances of N13.7 trillion minimum in 2025. Overall, we estimated inflows of N28.5 trillion from maturing bills and coupon payment against outflows via gross paper supply of N37.5 trillion. We also do not rule out the possibility of Eurobonds market outing in 2025.

“Consequently, we expect significant pressure in the domestic market to intensify, even as Banks would gear-up recapitalisation. Thus, we anticipate a strain on the system liquidity level in the year.”

For his part, the director/CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf expressed hope of better outlook for 2025.

“There are indications that the exchange rate situation is beginning to stabilise; the rates have appreciated marginally and the frequency of CBN intervention has increased. And the foreign reserves is also looking positive.”

“We are hoping that with the progress being made with the reforms in the forex trading system, with the import substitution effect of the Dangote Refinery, with the improvement of inflows through International Money Transfer Operators (IMTOs) and other autonomous sources, we are likely to see an improvement in the foreign exchange situation in 2025.

“This will give us some relief, hopefully; then, the outlook for the energy prices is also looking a bit positive. At the close of the year, we are seeing some slight reduction in PMS prices; we hope that will be sustained. There is also the issue of the electric traffic, which is not clear, but we hope in 2025 there should be an improvement.”

He pointed out that if the government could ensure a reduction in energy prices and an improvement in the exchange rate, this would greatly relieve the Nigerian manufacturing sector.

The director-general of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said a vibrant manufacturing sector was essential for driving economic growth and prosperity; however, the sector faces numerous challenges, including multiple taxation, limited access to credit, an unstable foreign exchange market, infrastructure deficits, and energy insecurity in 2024.

“To address these challenges and unlock the potential of the manufacturing sector, the government must take decisive action,” he said.

MAN recommended special windows for providing single-digit interest rates to productive sectors and relaxing stringent conditions for SMEs to access funding; recapitalise the Bank of Industry (BOI) to meet the growing credit demand of industries; enhance credit information systems and broaden the scope of assets for collateral; implement the recommendations of the Presidential Fiscal Policy and Tax Reforms Committee; and reducing the excessive increase in Environmental Impact Assessment (EIA) and Effluent Discharge (EMP) fees imposed by NESREA.

Ajayi-Kadir also called for prioritisation of budgetary allocation for infrastructure development, especially along strategic economic hubs, and encouragement of public-private partnerships for infrastructure development, including roads, railways, and port access roads.

He insisted that the Nigerian Electricity Regulatory Commission (NERC) review the excessive increase in electricity tariffs for Band A customers, prioritise domestic gas supply to manufacturers, enforce Naira-denominated pricing, ensure transparency in electricity tariff charges, invest in infrastructure and efficiency improvements by distribution companies, and introduce outage compensation mechanisms.

For the insurance sector, the executive secretary/CEO, Nigerian Council of Registered Insurance Brokers (NCRIB), Tope Adaramola, at the recent forum in Lagos, noted that the industry is not isolated from events in the overall economy.

He expressed belief that next year would be better as various federal government reform initiatives begin to impact the overall economy and increase Nigerians’ disposable income so that people can prioritise insurance coverage.

On her part, the chairman, Insurance Industry Consultative Council (IICC), Yetunde Ilori, is optimistic that the Consolidated Insurance Bill will change the landscape of insurance sector.

He expressed belief that the bill, having secured Senate approval, will easily pass through the remaining processes and become law in the early part of next year.

Ilori, who is also the president of the Chartered Insurance Institute of Nigeria (CIIN), noted that the operators, brokers and all other arms of the sector were working with the industry regulator, that is, the National Insurance Commission (NAICOM) to ensure smooth passage of the Consolidated Insurance Bill into Law as soon as possible.

”We are giving the bill the needed push and support to ensure it becomes a reality because we believe it will revolutionise the industry and deepen insurance penetration in the country, especially in the new year,” she said.

Meanwhile, key energy industry players have advocated concentrating energy on the Compressed Natural Gas (CNG) expansion, which will lower the cost of transportation even with the rise in the pump price of petrol.

The national president of the National Association of Road Transport Owners (NARTO), Yusuf Lawal Othman, said CNG is providing the needed alternative to petrol as it is highly cost-effective and has low carbon emissions.

Othman said the association has seen major reductions in transportation costs after it took delivery of 25 buses provided by the Presidential CNG task force.

He said that since the deployment of the buses, operators had reduced fares by 50 per cent, operating from Lagos to Akure, Abuja, Ekiti, and other parts of southwestern states.

“We urge government and private sector operators to invest in refilling infrastructure to boost the initiative next year, and also, the provision of conversion kits at affordable prices will make more impact”, he said.

While speaking to LEADERSHIP, Ibrahim Yahaya, general secretary of the Petroleum Dealers Association of Nigeria (PEDAN), said that with deregulation, the price of petrol is expected to stabilise.

Yahaya advised that the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) should secure appropriate pricing that is fair to citizens. The NMDPRA has the regulatory function of ensuring supply by monitoring the market, giving approval to import when there’s a perceived shortage, and making local producers’ products available. It also has the mandate of approving imports and licensing new refineries.

On his part, the publicity secretary of Crude Oil Refinery-owners Association of Nigeria (CORAN), Eche Idoko commended the positive impact of naira for crude swap deal on the Nigerian economy, which has led to reduction in prices of petroleum products in the country.

Idoko said sustaining the deal in the coming year and extending it to other operating refineries will help drive down the price of petrol in 2025.

In September, the Federal Executive Council (FEC) approved the sale of crude to local refineries in Naira and the corresponding purchase of petroleum products in Naira. The move, which commenced on October 1, reduced pressure on the dollar and ensured the stability of the local currency, a development that stakeholders commended.