Against the general belief in many quarters that the Nigerian financial system has stabilised, the reverse may be the case as a reliable source divulged to The Daily Times at the weekend that more banks in the country may collapse soon no thanks to huge non performing loans, and difficult operating environment among other factors.
The scenario calls for urgent action by the regulatory authorities to fashion out more protective devices for depositors and investors in such banks, while the Federal Government’s constructive policies aimed at enhancing operating environment for the financial institutions, may arrest the ugly trend.
At present, many commercial banks in the country are increasingly finding it challenging to cope with the difficult operating environment in the country, following exposures, such as huge unpaid loans; infrastructure, recession, among others factors.
A reliable source at a recent financial market event revealed that the Nigerian financial system, irrespective of the establishment of Asset Management Company of Nigeria (AMCON), has not fared better as more toxic loans continue to challenge the strong foundation of Nigerian financial institutions. Speaking on condition of anonymity, the source said:
“I don’t think that we are better off now than when AMCON was founded. More non-performing loans are being created; and the banks are not helping matters in building none performing loans”.
While calling on shareholders and depositors in deposit money banks to always hold the regulators accountable for the bad behaviour in the banking sector, the source said that banks in some cases deliberately breach rules and pay the requisite fines, hence such unethical practice gives them mileage, adding that toxic debt is gradually eating up more banks, than expected.
According to the source, irrespective of the fact that the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, had earlier assured that no bank in the country would fail, the ongoing trend in the sector points to the contrary if concerted effort is not put in place to avoid imminent failure of some deposit money banks.
“It is a huge burden to keep to the promise that no bank will fail, excess of 50 per cent of banks are epileptic,” the source disclosed.
Indeed, Nigeria’s current economic hardships, especially induced by recession, was believed to be responsible for the rising bad loans in no fewer than 13 commercial banks.
Consequently, unpaid debt by the banks’ customers accounted for the N230.6 billion Non- Performing Loans (NPLs) in the first six month of 2017.
However, latest Fitch ratings has, however, affirmed Nigeria’s sovereign ratings at B+; negative outlook; and it says Africa’s largest economy rating is supported by large, diversified economy, significant oil reserves, net external creditor position, among other factors.
But a look at commercial banks’ N230.6bn bad loans in half year (H1) 2017 showed that the amount was higher than N76.5bn or 3.4 per cent from N222.9 bn provided by these 13 banks for bad loans in H1 2016 and confirms macro economy challenges and banks’ prudential provision for 9mobile, the mobile operator, formerly known as Etisalat Nigeria.
Findings, revealed that Zenith Bank led other 12 banks in loan loss provision, followed by Stanbic IBTC Holdings Plc. According to information gathered by our correspondent, both lenders made huge provisions for the troubled 9mobile, which went bad, and it reflected in their half year results.
Specifically, Zenith Bank’s loan loss provision increased by 198 per cent to N42.9bn in H1 2017, from N14.23bn in H1 2016. The Managing Director/CEO of Zenith Bank Plc, Mr. Peter Amangbo, had revealed that his bank made a provision on 30 per cent on its loan to the network operator.
Stanbic IBTC Holding loan loss provision increased by 65.1 per cent from N8.45bn in H1 2016 to N13.95bn in H1 2017; while Ecobank Nigeria’s loan loss provision rose by 62.4 per cent to N42bn ($138 million) from N25.99bn ($85m) in H1 2016. Wema Bank’s loans loss provision in H1 2017 increased significantly by 43.7 per cent to N88m from N61m in H1 2016.
In a statement, the Chief Executive Officer, Wema Bank, Mr. Segun Oloketuyi, said: “In the first half of the year, the bank operated in an uncertain and challenging domestic economic environment.
“While we recorded notable improvements in the second quarter of the year, especially around foreign currency management, the execution of fiscal policies and the continued tight monetary policy impacted on consumers’ disposable income and invariably on banking sector performance.”
He said the bank commenced the second half of the year with cautious optimism, especially around the implementation of the needed economic reforms and execution of the 2017 budget to ensure stimulation of economic growth.
“The expectation is that the country will exit recession in the 2018 financial year, but this will be dependent on a diligent execution of the reform programme,” he said.
UBA’s loan loss provision also increased significantly by 38.4 per cent to N9.4bn from N6.8bn in H1 2016. The lender recently said it has made a prudential provision on loans made to Etisalat Nigeria.
But the lender did not give details of the provision; but said it had a N38bn ($125m) exposure to 9mobile.
Sterling Bank’s provision gained 11.4 per cent to N4bn, as against N3.6bn recorded in H1 2016; while Diamond Bank’s provision for bad loans closed the H1 2017 at N20bn, an increase of seven per cent over N18.9bn in H1 2016.
Also, Diamond Bank’s loan loss provision rose by 6.9per cent to N20.3bn, from N18.99bn in H1 2016. Both, FCMB and Union Bank of Nigeria’s provision for bad loans dropped by 26.1 per cent and 38.8 per cent to N9.97bn and N5.4bn in H1 2017, respectively.
First Bank of Nigeria Holdings’ loan loss dropped by 13.6 per cent to N60.4bn from N69.9bn in the corresponding period. It is against this backdrop that the Managing Director, Highcap Securities Limited, Mr. David Adonri, while commenting on these exposures, explained that the country’s present recession has negatively impacted on loans provided by banks.
He said: “Nigerian economy is in recession. Any economy that experiences negative Gross Domestic Product (GDP) is in recession.
It means that Nigeria is having economic crisis; and it is expected to impact negatively on bank loans as well. “As a result of the ongoing recession; this year, bad loans in the banking sector have increased, because companies that borrowed those loans have failed to pay back. Banks are doing the right thing by making provision for these bad loans.
“Since those loans are non- performing; and it is doubted if those loans can be recovered, banks are forced to charge the losses from their profit. If those loans are recovered in future, they will be written back as profit.
“The rate at which loans have become delinquent is much higher now because of the negative effects of recession on enterprises’ earnings that have borrowed from banks.”
He added that as economy moves out of recession, some of those delinquent loans would start performing; and it is expected by banks to rewrite them into their profit.
However, further investigation showed that GTBank’s loan loss provision dropped significantly by 81 per cent to N7.2bn from N37.5bn in H1 2016.
It would be recalled that the Central Bank of Nigeria (CBN, after the global macro economy had espoused some critical indices, had set out prudential guidelines to provide guidance on recognition and measurement of loans, establishment of loan loss allowances, credit risk disclosure and related matters.
Meanwhile, Fitch’s negative outlook reflects downside risks from rising government indebtedness, possibility of a reversal of improvements in foreign currency liquidity.
It added that Nigeria’s ratings also are supported by low external debt service ratio, large domestic debt market, among other issues. In a bid to rejig the economy, President Muhammadu Buhari-led Federal Government has since enunciated an economic policy-Economic Recovery Growth Plan (ERGP) for the nation.
The new policy seeks to breathe life into the various sectors of the economy, including agriculture, road infrastructure, power, solid minerals, banking, among others.
Observers say that when the positives of this policy begin manifesting, capital accumulation, especially private sector players, would wrought positively on loans’ re-payment, among other things.
