Nigerian Bankers are very angry and has condemned in totality the publication by The Africa Report, a bi-monthly published by Paris-based Groupe Jeune Afrique classifying Nigerian Banks into an “unknown and unacceptable” ratings. The Africa Report proclaimed that after wowing the world with their recapitalisation exercise, Nigerian banks quickly fell into bad habits and a stock market bubble swiftly followed. Here is the Africa Report rating:-
Strong (Thriving, may be in a position to profit from the crisis):
Guaranty Trust Bank (GTBank)
Satisfactory (Some have margin lending issues but all will survive):
Equitorial Trust Bank (ETB)
Platinum Habib Bank (Bank PHB)
Standard Chartered Nigeria Bank
United Bank of Africa (UBA)
Shaken (Serious governance issues need urgent attention):
First City Monument Bank (FCMB)
Stressed (On the ropes, will either sink or be swallowed):
First Inland Bank
Spring Bank (pending takeover appeal)
The oft-quoted veteran investor Warren Buffet once said: “It’s only when the tide goes out that you learn who’s been swimming naked.” In the Nigerian banking community, and even at the Central Bank of Nigeria (CBN), there should certainly be some embarrassment now. Some hold the CBN governor, Charles Soludo, responsible for allowing a host of bad banking practices to go unchecked. Fortunately, a growing number of banks are beginning to equate more transparency with better returns. Nigerian banks have had a rough ride. The Nigerian Stock Exchange (NSE) has lost over 65% of its value since March 2008 and an estimated N8trn ($54bn) has been wiped off bank stocks, which represent two-thirds of total market capitalisation. The CBN believes that the sector could face up to N1trn of bad loans and has talked of setting up an asset management company onto which banks can offload their toxic assets.
Some banks are badly exposed. Wema Bank has not presented audited accounts since 2007. Unity Bank has not even released its 2007 accounts. For Latyr Diop of Afrinvest West Africa, the reasons are clear: “Most of the banks have over-leveraged their balance sheets during the boom cycle and are stuck with trillions of naira worth of bad debts without disclosing it to investors. Nigeria’s minimum reporting standards only demand the quarterly publication of gross earnings, pre-tax profit, and net profit, making it difficult for investors to estimate future trends.”
The overhaul of the banking system was an uncontested triumph of former President Olusegun Obasanjo’s second term (2003-2007). New minimum capital requirements in 2005 caused a quickfire round of mergers and aquisitions, with 24 banks left standing out of 89. In 2007, with the economy booming alongside a buoyant oil price, and a sovereign credit-rating upgrade, the remaining banks found it easy to access capital markets. Several of the top-tier banks started to expand into the sub-region. The bubble was perhaps inevitable. Lending was particularly strong to government and the oil and telecom sectors. Though telecoms seem to be holding up, the other two pose greater problems. The fall in the price of oil has put several energy-related companies out of business, with repercussions for those banking them. Source- The Africa Report
The Association of Corporate Affairs Manager of Banks (ACAMB) has condemned in totality the publication by The Africa Report, a bi-monthly published by Paris-based Groupe Jeune Afrique which was quoted by The Punch, a Nigerian daily tabloid, classifying Nigerian Banks into an unknown and unacceptable ratings.
The Association questioned the source of the information of the publication, noting that the only acceptable and recognized authorities in this regard remain the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) which have the facts and figures on the state of health of the industry.
ACAMB also pooh-poohed the rating on a number of grounds which bothered on ethical issues, professional competencies and historical antecedents.
A statement issued in Lagos yesterday by the Association said that earlier ratings by international and reputable organizations/agencies gave credence to the viability and healthy state of Nigerian Banks.
ACAMB noted that early this year, Forbes, a leading global magazine listed selected Nigerian Banks among the list of 2000 biggest companies in the world; attributing the success story to the outcome of the reform and consolidation in the industry.
In the same vein, African Business Research Limited, a research- oriented consultancy, specializing on Africa financials corroborated the position of Forbes, explaining that the Nigerian Banking industry was stable, vibrant and capable of meeting its financial obligations to all stakeholders.
“Various Fitch Ratings, an equally reputable international agency, as well as the respected international Banker Magazine, have equally accredited the Nigerian Banks healthy, showing strong presence in the global ratings of Banks”, ACAMB asserted. Source, Vanguard
Meanwhile the Tribune reports that Panic withdrawals hit banks – Over controversial TAR rating – Nigerian banking sector under pressure – Fitch – External reserves drop to $44.8bn:-
AS a result of the crisis of confidence that has enveloped the banking industry of late, customers have started massive withdrawals of funds, particularly from banks that were termed ‘shaken’ or ‘stressed’ by a bi-monthly Paris-based Groupe Jeune Afrique, which published The Africa Report.
Investigation by the Nigerian Tribune showed that as soon as the report was published by a leading Nigerian newspaper, the various banks said to have problems were besieged by customers asking for their money.
A bank manager in one of the ‘stressed’ banks, who pleaded anonymity, told the Nigerian Tribune in Lagos that his branch had been inundated with enquiries on the actual state of the bank, stressing that they had witnessed massive withdrawals of funds.
According to him, if the trend of withdrawals continued, it would snowball into a run, adding that the report had dealt a big blow to his bank in particular.
A freight operator, Mr. Afolabi Komolafe, had it rough in one of the ‘shaken’ banks in Ikeja, where he had gone to transact business. He told the Nigerian Tribune that efforts to make a withdrawal almost proved abortive, as the bank refused to honour cheques.
He noted that he was only able to make a withdrawal after he had threatened to stop doing business with the bank, adding that despite his closeness to the manager of the bank, he was not treated preferentially.
Komolafe noted that he was surprised to see the huge crowd that had come to withdraw money that morning, adding that the report was making it difficult for customers that had genuine reasons to make withdrawals for business purposes.
The situation was the same in all the banks that were rated poorly in The Africa Report. In his reaction, the former National President, Association of National Accountants of Nigeria (ANAN), Dr. Samuel Nzekwe, said the series of events and unguarded comments on the banking sector were highly regrettable.
According to him, the industry could not thrive without having the confidence of customers, regretting that the regulators, including the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC), had not done much to assist the sector.
He regretted that some unguarded remarks by the regulators fuelled the latest reports, stressing that it would take time to restore stakeholders’ confidence.
Nzekwe advised customers not to cause a run on the banks, stressing that the regulators had maintained that they would not allow any bank to become distressed.
On his part, a financial analyst and Chief Operating Officer, Landmark Investments, Mr. Okechukwu Amadi, noted that it was unfortunate that the industry upon which the economy rested was being attacked unjustly, stating that it was a calculated attempt to put the industry in disarray by those who did not mean well for the nation’s economy.
Amadi noted that it was high time all stakeholders in the industry came together and sought ways to move the industry forward.
He was particularly irked by the comments of the CBN governor on the banks and the banks’ chief executive officers, stating that he should do more consultations with operators before coming to the public.
It will be recalled that the CBN governor, the World Bank and lately, The Africa Report, had made some uncomplimentary statements on the banking industry leading to the present developments.
Meanwhile, coming on the heels of The Africa Report which categorised some Nigerian banks as not too sound, another report released at the weekend stated that the Nigerian banking sector was under intense pressure.
The report, released under the Fitch Ratings, also disclosed that the country’s external reserves had dropped significantly to US$44.8 billion.
Fitch’s assessment of the banking sector revealed that Nigeria’s banking system, unlike other countries’ in the region, had been under pressure due to margin loan exposures, to the sharp fall in equity prices with impact on liquidity position.
On a national level, the Fitch Ratings gave the Federal Government’s long term foreign and local currency Issuer Default Ratings (IDR) as ‘BB and BB’ respectively, thus portraying a stable outlook.
At the same time, Fitch rated the short-term foreign currency IDR at ‘B’ and the country calling at ‘BB-’.
According to a statement from Fitch’s Sovereign Department, Nigeria’s balance sheet still stood out amongst its rating peers.
“Nigeria’s strong sovereign balance sheet is the main support to its ratings. Despite a reduction in reserves to USD44.8 billion in May 2009, since the peak of USD62.1 billion in September 2008, low foreign liabilities of both the public and private sectors mean that Nigeria’s external balance sheet remains robust and is still one of the strongest in the ‘BB’ category,” the Fitch Ratings affirmed.
The rating agency stated that the banking sector consolidation had resulted in a well-capitalised banking system. “This factor, together with Nigeria’s strong overall and public net external creditor position and low government debt, has helped to “cushion the economy against the collapse in oil prices, the global recession, a reversal of capital flows and the banking sector’s exposure to a sharp fall in equity prices,” the report stated.
Fitch also commended government’s economic foresight and swift move to base the 2009 budget on a lower benchmark oil price of USD45/barrel (the oil price is currently around USD70/barrel).
Nevertheless, the ratings said oil production fell below the budgeted 2.3 million b/d and would still present some revenue challenges. “Obviously, this will be offset by the use of Excess Crude Account (ECA) and domestic debt market. Fitch forecasts small budget deficits at the FG and consolidated government levels and continuing low public debt of 12 per cent of GDP in 2009, well below the ‘BB’ median,” the report added.
Fitch also considered the Naira to be currently at a more realistic rate consistent with lower oil prices and that controls had begun to be eased, stressing that the recent increase in oil prices, if sustained, should further enhance foreign reserves portfolio.
Impressed by the ratings, the Federal Government said the positive rating by Fitch showed the successful efforts it was making in establishing a sound institutional framework for economic management in response to the downturn in the global economy.
To maintain these ratings and even improve on them, the government said it had inaugurated a Presidential Steering Committee on Global Economic Crisis, supported by a reinvigorated and reconstituted National Economic Management Team.
“Major coordinated efforts in this regard have focused on macroeconomic stability, financial sector soundness, improved public expenditure management and economic growth and diversification,” the government said. Source, Nigerian Tribune