By David Bamise
FINANCIAL experts have raised fresh concerns over the declining assets of Nigerian banks, urging better approach at strengthening the fundamentals of banks in the critical areas of assets and capital planning, adequacy and generation.
Central Bank of Nigeria, (CBN), Financial System Stability (FSS) report on the commercial banking industry released recently showed that the total assets and liabilities of the deposit money banks (DMBs) in the country declined to N32.1trillion,down from N32.29trn in January 2016.
The loss in value amounts to N172.2bn.According tothe report, the decline in the assets of the banks is attributed to the economic recession, increasing non-performing loans (NPLs) and declining capital the adequacy.
An economic analyst and senior lecturer of private and public law, Babcock University, Ogun State, Dr. Tayo Bello, told Daily Asset that besides the CBN report, funds sourced by the banks were largely not used to extend credit to the real sector operators in the economy, but for the patronage of the Federal Government’s securities at higher yields. He lamented that while depositors earn “peanuts” on their deposits, the banks rip off their customers with high interest rates.
He also said the banks’ NPLs have been increasing steadily in recent years. ‘‘For instance, the total NPLs in 2016 was put at N2.08trn in the CBN FSS report.
Also, in the Nigeria Deposit Insurance Corporation (NDIC) Annual Report 2015, banks’ NPLs increased to N648.8bn from N354.34bn in 2014, an astonishing increase of 82.87 per cent.
As a result, some banks last year reported losses of between 239 percent and 449 percent,’’ he said.
This development, according to investigation by this newspaper, has been affecting the banking. Sources within the apex bank revealed that at least six commercial banks are facing daunting financial challenges that could slide them into distress ’in the nearest possible future based on what he described as “unfortunate” fiscal policies of the federal government. The source lamented that on the inside, most of the banks are only in business for survival, saying that the government’s fiscal policies need to be reviewed.
Managing Director of the NDIC, Umaru Ibrahim, had advised banks to beef their capital in order for them to ease the challenges threatening their business.
“The banks are facing liquidity issues; unemployment also affecting us globally, dwindling revenues and profits, high expectations of quality services from depositors and high expectations from investors, Alhaji Ibrahim said while addressing financial journalists in Kaduna last month.
He added that many of “the banks also need to recapitalize.” Also, OkeyInuegbu, former president of Chartered Institute of Bankers, said the implications of the development for the banking sector and the general economy is daunting.
Hes aid, “Some banks may move from being national banks to regional banks. Some might go for the option of merger with other banks, while others may go to foreign banks for bailout in form of investments or even taken over by foreign banks and I see it happening very, very soon.” The opinion is that the increasing pressure on the banks, with the falling value of the Naira depleting their capital base, will increase cases of non- performing loans amid high operational cost that has also forced many banks to cut staff, close branches in the face of low profit output.
Another financial expert, Umar Mohammed, said the problems highlighted could lead to massive job cuts which would have a huge multiplier effect on the economy and the Gross Domestic Product (GDP), by extension.
“The pressure on the banks will result in mal-administration because the people within the banking sector will begin to look for a way out for survival against the eminent pressure. Once that happens, it will continue to damage the economy,” he said. Despite efforts by the authorities to bridge the gap between the exchange rate of the Dollar to Naira, the price of commodities are still determined by cost of the Dollar at the black market, that is over 59 per cent higher than the official rate of 305.Bello said: “The money outside the banking sector (financial intermediation) is higher than what is in the sector,” a situation he blamed on the authorities not using the right monetary tool and a self-inflicted problem whereby the government goes after anybody that makes much cash deposit with the presumption that such a person is either a thief or acting as a surrogate for somebody. The experts said some banks are experiencing serious cash trap to the extent that they don’t even have envelops and nylon bags to bag physical cash for customers. Loans to various sectors of the economy including aviation, construction and oil and gas are usually major sources of finance to the banks, but liquidity problem, scarce Dollar in an economy on its complete recession year has forced the interest rate up and by extension, discouraging prospective investors from borrowing from the banks.
Meanwhile, findings have revealed that despite the dwindling global oil Prices, five commercial Banks exposure to the oil & gas sector hits N2.2 trillion in2016, reflecting an increased investment at the detriment of Non-Performing Loans and skyrocket loan loss provision in the banking sector.
The same Banks exposure to Oil & Gas sector in 2015 was at N1.4 trillion, representing an increase of 54.2 per cent or N758.8 million over that of 2015. Investigationrevealed that most of the Tier-1 Banks (Zenith Bank Plc, Access Bank Plc, Guaranty Trust Bank Plc and United Bank for Africa Plc) in 2016 increased theirexposure to the Oil & Gas sector.
Guaranty Trust Bank exposure to the Oil & Gas sector in 2016 gained nearly 37 percent to N576 billion from N421.35 billion in 2015.
Zenith Bank exposure moved from N362 billion to N654.96 billion while Access Bank credit tothe sector gained 45 per cent to N498.68 billion from N344.6 billion recorded in 2015. Furthermore, United Bank for Africa investment in that sector increased by 77.6per cent fromN204.5
billion to N363 billion in 2016.Access Bank particularly invested in all the Oil & Gas sector that include Downstream, upstream, midstream and Crude oil refining. Stanbic IBTCHoldings Plc, the only Tier-2 considered, thus recorded 2.6 per cent declinetotal exposure to the oil and gas sector, including mining industry exposure atN65.6 billion in 2016 from N67.35billion in 2015.
An energy expert, founder and Lead Analyst at EnergyDatar, Mr. Chijioke Mama, said some areas in the Oil & Gas industry are still lucrative.