… Says NDIC report is routine check on loan portfolio
By CHIMA TITUS NWOKOJI
Following panic that gripped the banking community as a result of the Nigeria Deposit Insurance Corporation’s (NDIC) recently released 2011 report on the health of the banking sector, financial experts have allayed fears; saying that Nigerian banks are healthier today than what they used to be in the past.
The Executive Secretary/ CEO of the Financial Markets Dealers Association (FMDA), Mr. Wale Abe stated in a chat with Daily Sun that there is nothing to worry about the NDIC report, as it is a mere indication of the corporation’s routine check conducted in 2011.
The report which stated that there were only five sound banks out of twenty one in the country, also noted that there were no unsound banks.
But according to Abe, the NDIC in conjunction with the Central Bank on yearly basis go round to conduct checks on the banks. They lay emphasis on the quality of banks’ loan portfolio in relation to depositors’ funds. The report he explained, is just a routine report to provide a kind of bench mark and warning signal to those banks that are increasing their loan books.
“It is not to say that the banks are bad but to warn the banks to watch their loan book exposure. It helps those banks to take appropriate decision in managing loan portfolios going forward. Don’t forget that the report is for 2011 and the banks are improving day by day in their health status. There is nothing to worry about because the banking system is far more stable today than what it used to be in the past.”
The FMDA CEO stated that the central bank on its own uses about 5 to 6 parameters to determine the degree of soundness of a bank; adding that CBN had said only one bank did not met the regulatory minimum Capital Adequacy Ratio (CAR) of 10.0 per cent. He added that CBN has actually introduced a number of measures regarding standards of reporting, accountability, corporate governance among others that helps the banks check their health status.
Also, “In the money market where I play, there is no significant reaction because the report is not about the liquidity of those banks but a mere classification of the 21 commercial banks on the basis of loan quality. It sends signal on loans that have the tendency of going bad so that they will not trade away depositors’ funds. This is also in line with what Fitch ratings had said when it reported in August that there is a tendency towards high quality credit in the banks,” Abe maintained.
Speaking on the impact of the report, Managing Director of Investment-One financial services Limited, formally GTB Asset Management Limited, Nicholas Nyamali said due to recent crisis that engulfed the banking industry, it has become the most regulated industry in the Nigerian economy, such that their health status is in close watch.
“Because you have a large number of regulators including: SEC, CBN, NDIC, NSE, it means that people are always looking into their activities to ensure there are no lapses. We therefore expect things to be better done by operators because of the strict regulation in place. As such, I do not believe that the banks are not strong enough to handle their day-to-day obligations on a consistent basis,” he said.
According to him, Nigerians are now more sensitive to what is going on in the industry today, especially in relation to the strict enforcement of regulatory rules.
It would be recalled that at the inception of the ongoing financial sector reform, Governor of the central bank, Sanusi Lamido Sanusi, did assure Nigerians that the CBN and other regulators will use all machinery at their disposal to stave-off threats of terminal insolvency in the banking industry. This explains why, the apex bank adopted the bridged banking concept to save former Afribank, Bank PHB, and Spring Bank from liquidation when they were transformed into Mainstreet, Keystone Bank and Enterprise Bank respectively. Part of Sanusi’s promise under the emerging dispensation was that no depositor will lose money.
Sanusi’s earlier assurances seem to conform to the bank’s Half Year report released on the 29th November, a day after the NDIC released its own. According to the report, CBN stated that:
“The average Capital Adequacy Ratio (CAR) of the banks in the industry was consistently above the stipulated minimum of 10.0 per cent in the first half of 2012. The industry average CAR stood at 17.7 per cent, compared with 17.9 and 5.0 per cent at end-December 2011 and the corresponding period of 2011, respectively. With the exception of one bank, all the banks met the regulatory minimum CAR of 10.0 per cent with the highest and lowest at 34.1 and a negative 7.8 per cent, respectively.
“All the banks in the industry met the prescribed minimum liquidity ratio (LR) of 30.0 per cent at end-June 2012. Banks’ industry-wide average liquidity ratio stood at 62.7 per cent at end-June 2012, compared with 50.3 per cent at end-June 2011.The industry’s ratio of non-performing loans to total loans declined to 4.3 per cent, from 5.0 per cent at end-December 2011. This was below the maximum threshold of 5.0 per cent set by the CBN. The development was attributed to the acquisition of non-performing loans in the industry by AMCON and improved risk management practices by the DMBs.”
Earlier, the Managing Director/CEO of Access Bank, Aigboje Aig-Imoukhuede said five biggest banks saw growth double this year; adding that their combined profits soared to $1.6billion, four times the $400million they achieved in 2005.
The Access Bank’s boss, who was speaking at a conference on October 4, 2012, days after his bank, presented its first-half report.
“The Nigerian banking system is poised for a new era of competition,” said Aig-Imoukhuede, The top banks have been posting impressive growth thus far in 2012. In a September report on the sector, Lagos-based Cordros Capital noted that the 12 banks it surveyed – including the top five – all posted revenue growth of more than 20 per cent in the first half of 2012.
The measures to tackle the 2008/2009 banking crisis, while very expensive, are widely regarded to have been successful. For instance, an IMF report in July noted, “Financial soundness indicators point to continued improvements in the health of the banking system. NPLs have declined sharply following their purchase by AMCON and credit has stopped declining.”
Analysing the performance of the broader banking sector in the first half, Cordros Capital said that growth in both interest and non-interest income helped boost earnings, while asset quality improved and capital and liquidity positions remained solid, “despite heightened uncertainties in the external environment”. In the first half, banks continued to benefit from the higher pricing of earning assets through recent interest rate increases, as well as from the development of distribution channels such as mobile banking and e-banking to help increase business volumes.
The NDIC during the week revealed that there are only five sound banks in the country, even as it stated there are no unsound banks. It stated that whereas 13 of the banks are satisfactory, two of them are just marginal. In its 2011 Annual Report and Statements of Accounts, NDIC said the Deposit Money Banks (DMBs) were categorised under A to E, which means, A–Very Sound, B–Sound, C–Satisfactory, D–Marginal and E–Unsound, adding that there are no banks in the country that satisfied the condition to be in the category of Very Sound Bank and that there are no unsound banks at the end of 2011 fiscal year.
The NDIC report only listed the banks examined which include; Access Bank Plc, Citibank Nigeria Limited, Diamond Bank Plc, Enterprise Bank, Ecobank Plc, Fidelity Bank, First Bank Plc, First City Monument Bank, Guaranty Trust Bank and Keystone Bank. Also, examined include, Mainstreet Bank, Standard Chartered Bank Nigeria Limited, Skye Bank Plc, Stanbic IBTC Bank Plc, Sterling Bank Plc, United Bank for Africa Plc, Union Bank Plc, Unity Bank Plc, Wema Bank Plc and Zenith Bank Plc.
Some analysts described the report as contradictory as it also stated in page 133 that:
“In 2011, the banking industry recorded significant improvement in the financial condition and performance of DMBs as revealed by all financial indicators compared to the previous year’s position.
“One of the major factors that accounted to the improved performance was the adoption of mergers and acquisition (M and A) strategy by some banks. The banking industry’s total assets grew by 17.2 per cent, capital adequacy ratio increased from 4.0 per cent to 17.71 per cent, assets quality ratio significantly improved as the non-performing loans to total loans ratio declined from 15 per cent to 5.82 per cent.”