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Report Raises Concerns over Health of Nigerian Banks

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A number of banks in Nigeria are living on borrowed time as they struggle to recover sticky assets and pare down their loan loss provisions, according to Business Hallmark.

 

The report said that the banks are buried in a heap of poor quality loan assets in the guise of high none performing loans (NPL’s) and that all may not be as well with the banks as the domestic regulator, Central Bank of Nigeria (CBN), would have many believe.

 

Indeed, recently the international credit rating agency, Fitch, marked a down grade in the credit ratings of virtually all Nigerian banks as the agency pointed to the worsening condition of their credits.

 

Within the year Fitch’s analysts downgraded the outlook for four Nigerian banks from stable to negative; the banks were Zenith Bank, GT Bank, First Bank and Diamond Bank.

 

The problems with the banks downgraded were attributed to, ‘heightened vulnerability of capital due to downside asset quality risks’ which in simpler terms meant that these banks were finding it increasingly difficult to get back the monies that they lent to customers.

 

Third quarter 2017 results for nearly all the banks have been dyed in rose colour. Nine months’ results for the banks have shown profit figures glide up as the economy edges out of recession. But how real are the numbers?

 

Truth be told with discussions with a fair number of bankers who did not want their names put in print, the profit tally for most of the banks, ‘where beautiful Picasso replicas, as brilliant as they were; they were all fake’ said a senior manager of one of the banks with headquarters in Victoria Island, Lagos.

 

The banker insisted that, ‘you cannot make omelets without breaking eggs, with interest rates at double  digits and manufacturers rolling in escalating debt as retailers groan in agony, how the heck does a bank make money with customers hung over a barrel?’, he asked pensively.

 

When it was pointed out that banks had stopped granting credit and had actually become more comfortable simply buying treasury instruments at double digit yields he agreed but noted that, ‘banks may have been able to turn a trick or two by buying treasuries over the last two years, but that is not core retail banking; it is more of an investment banking function and it still does not address the problem of proper loan loss charges against risk assets that have already been created.’

 

In other words most banks have made inadequate provisions for loan impairments or bad credits and have simply engaged in a number of clever accounting rouses to restructure bad loans to make them appear hale and perhaps hearty.

It is obviously difficult to establish how bad Nigerian commercial bank loan portfolios precisely are, especially as even the Central Bank of Nigeria (CBN), the sector’s chief regulator, and the Nigerian Deposit Insurance Company (NDIC) often get caught on the wrong foot as bank examiners serially underestimate impairment charges required by banks to cover their deteriorating loan assets.

 

This has led to independent observers classifying bank loans as a mixture of financial fact, fiction and something one analyst recently called ‘faction’, a grey area between reality and outright falsehood.

 

Peering through reams of recently published financial data is not likely to shed very much light on the warm matter of bank assets and capital adequacy.

 

The problem of poor bank loan books is not just that of the smart reclassification of bank loans by managers form non-performing to performing but also the accounting convention of using historical valuation of bank assets rather than adjustment of the assets on the books by marking to market which means that if interest rates go up the value of banks assets simultaneously go down and vice versa.

 

It would also mean that the increasing riskiness of bank loans when interest rates rise would be better captured on bank books when loan quality is measured as weaker when rates go up; in other words as interest rates go up bank loan quality comes down.

 

As lending rates have hovered between 25 and 28 per cent over the last two years, bank asset quality has taken a turn for the worse.

 

The CBN estimates that delinquent loans as a proportion of loans outstanding on average industry wide is about 12 per cent as against the regulatory rate of 5 per cent. But even the twelve per cent claim is disputable.

 

Investigations suggest a more accurate rate of double that number putting real average loan impairment ratio closer to 25 per cent or a quarter of all loans outstanding.  This clearly indicates that banks would have to recapitalize operations to reduce leverage (debt to equity ratio) and build greater strength in balance sheets.

 

In a telephone conversion with Business Hallmark, Chidi Ajaegbu, former President Institute of Chartered Accountants of Nigeria (ICAN), noted that the challenge of bank credit assets and their current levels of equity was not dire enough to cause major worry, ‘I don’t think we have an immediate systemic problem but something must be done to ensure that we do not slide into systemic distress’. He was of the opinion that banks may need to raise their capital base in 2018 by either rights issue or Initial Public Offers (IPO’s).

 

Also commenting on the issue, Dr. Afolabi Olowokere of Financial Derivatives Company Limited (FDC) said it is a known fact that the relatively low capital base of banks could constitute a serious problem for such institutions anywhere in the world. ‘It is normal that the capitalisation of banks will be eroded at a time like this if you consider the huge non-performing loans which they have to provide for. I hope the banks do not suffer any shocks because they have links with one another, poor management of one could set off a contagion that hurts all’’, he said.

 

In his own observations Dr. Adi Bongo, economist and faculty member, Lagos Business School was of the view that the recent Fitch downgrades of local bank was a fallout of the poor macroeconomic management that started last year, adding that the banking industry suffered huge capital flight as portfolio investments that were plugged into banks during the consolidation period, began to pull out on concerns over macroeconomic direction.

 

He further explained that, ‘Nigeria has been performing poorly in capital importation. As money began to leave the system, banks where many portfolio investors had plunked capital, started having liquidity challenges.’ Noting that, ‘…because of the state of the economy, non-performing loans in banks have increased geometrically. The combination of these two issues has caused banks to face serious challenges, except those that have strong equity bases.’

 

With calls for bank assets to be marked to market or at least made compliant with International Accounting Standards Board’s (IASB’s) IFRS 9 rules, the days of bankers running rings around regulators in regards to the quality of their balance sheets is slowly fading into distant memory or at least that is the hope

 

 


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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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E-Financial

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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