Mixed reactions have greeted the Nigeria Deposit Insurance Corporation (NDIC) last year’s Annual Report & Statement of Accounts, which ranked 10 banks sound, nine satisfactory and one marginal. While some analysts see it as an indication of a poor performance despite the huge funds committed to the reforms in the sector, others see it as a clarion call on regulators to be alive to their responsibilites, writes COLLINS NWEZE.
The disclosure by the Nigeria Deposit Insurance Corporation (NDIC) in its last year’s Annual Report & Statement of Accounts, that only 10 out of 20 Deposit Money Banks (DMBs) in the country are sound shows that regulators of the financial system have failed, analysts have said.
They said given the amount of money sunk into the reforms by the Federal Government and the ongoing contributions from banks to the Asset Management Corporation of Nigeria (AMCON), having only sound 10 banks, is a poor outing. The result represents a 50 per cent score. The regulators were adjudged as having performed poorly considering the volume of money committed to the reforms. The report, however, gave nine banks satisfactory rating while one lender was rated as marginal.
The Central Bank of Nigeria (CBN) had in 2009 injected N620 billion into eight banks to keep them afloat. In August 2011, AMCON spent N679 billion to acquire the bridged banks- former Afribank (Mainstreet Bank), Bank PHB (Keystone Bank) and Springbank (Enterprise Bank).
The capital provided by AMCON through shares subscription was meant to strengthen the banks’ liquidity to enable them to carry on business and meet all their obligations. The fund was to enable them to meet the minimum capital base of N25 billion and the minimum capital adequacy ratio of 15 per cent.
Former Executive Director, Bank PHB, Richard Obire, said the fact that only 50 per cent of the banks are sound means that Nigerians have not got value for their money.
He said any performance that is below 80 per cent is unacceptable, and should be improved on by both the CBN and NDIC.
“Nigerians should demand 80 per cent result because of the huge sums of money spent on the reforms. Tax payers’ money went into the funding of the AMCON and banks are still funding the corporation,” he said.
He further said many thought that AMCON would be a quick resolution mechanism, but has been foot dragging with banks contributing 0.5 per cent of their total assets into its operation, which is also indirectly passed to banks’customers as fees. “Remember that whatever the banks are contributing to AMCON is also passed to their customers as fees. So, in all, the banking public are not getting value for their money,” he said.
Banking assets Vs loans
According to the NDIC report, the total industry’s assets of N24.58 trillion, out of which total loans and advances of N8.15 trillion, represent over 33 per cent (or one-third).
The report further noted that of the industry’s total loans, N4.48 trillion or 54.97 per cent was extended to the real sector of the economy in 2012 compared to N3.88 trillion or 53.37 per cent and N3.51 trillion or 48.95 per cent in 2011 and 2010.
Obire said 33 per cent loan advances is poor. Noting that the primary responsibility of a bank is to offer loans to the real sector of the economy, the banks should strive to achieve between 60 and 70 per cent of their assets as loans. He advised banks to strengthen their risk management to enable them to lend more to customers. “Banks should be able to deploy loans to those who need them at the right time,” he said.
But the NDIC said the report gave it a pat in the discharge of its mandate in payment guarantee, supervision, failure resolution and liquidation. “The achievements attained in 2012 were due to many factors, which include the deployment of a robust performance management system, enhancement of the enterprise risk management system as well as enhanced capacity building in risk-based supervision (RBS) and other areas of operations, among others,” it said.
Also, the Managing Director, Financial Nigeria International Jide Akintunde said the reforms have not performed badly, given that the 10 sound banks may hold 70 per cent of the sector’s assets.
This does not suggest that the banking reforms have not worked, urging the regulators to be alert to ensure that any anomaly on the part of banks is corrected.
He said the 33 per cent loans by banks is not a bad for the lenders, adding that majority of them are being more careful in advancing credits. “The 33 per cent loan position is not a bad outing. But many of them are looking at environmental factors and are also being more careful to avoid repeat of past mistakes when they created bad loans,” he said.
Akintunde also said banks are still conservative; in some cases, they lack the expertise to handle some specialised loans.
Microfinance banks
Last year, the NDIC conducted routine examination of 246 microfinance banks (MfBs); six were found to have closed shop. It also conducted risk-based exam of 40 primary mortgage banks (PMBs); three were found to have voluntarily closed shop.
A total of 302 MfBs had capital adequacy ratio of more than 10 per cent. The remaining 555 did not render returns and this has continued to be a source of concern to NDIC as it was impossible to assess their financial condition and performance on continuously during review.
An operator in the MfB sector, who asked not to be named, said though the CBN is planning to launch the Microfinance Development Fund (MDF) next month, it is even coming too late. He said the fund would have been provided four years ago, to enable operators to use it in enhancing their operations. The MDF is expected to provide funding for the sector.
The source said many of the MfBs lack working capital, adding that there is no way such operators could lend to the economy. He added that it is only MfBs with foreign financial bulwark that are doing well.
Also, Managing Director, CRC Credit Bureau Limited, Tunde Popoola said the MfB subsector, is agging behind and that less than 10 per cent of them has access to credit bureau services. He said many of the MfBs lack the infrastructure to key into some services.
Popoola said many of the MfBs do not have software that can take information like date of birth and sex of the customer, making it difficult for them to make progress.
According to Afrinvest West Africa, DMB’s last year’s profitability report showed that all Tier-1 banks recorded gross earnings in excess of N200 billion compared to Tier-2 banks’ N102 billion average. The Tier-1 banks are First Bank of Nigeria Limited, GT Bank, Zenith Bank, United Bank for Africa and Access Bank.
It said last year, banks’ management tried to beat high earnings expectations, causing them to focus on fixed income securities like treasury bills because of their high yield capabilities. The report projected that the “treasury focused” investment strategy would moderate in the year as outlook on yields and fee income decline.
The report listed key pillars of the reforms to include enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring the financial sector contributes to the real economy.
The Afrinvest report said the future of the banking space will rest on ancillary banking services such as merchant banking and primary mortgage institutions. There are also renewed hopes in retail banking and Small and Medium Scale Enterprises (SMEs) banking. The industry, it claimed, is confronted with the reality of declining fee incomes, mobile money and dollar denominated capital sourcing.
It predicted that in the next five years, outlook on yields and fee income will remain downwards, necessitating the need for banks to focus on lending to the real sector. Also, banks are expected to develop and grow the depth of their core retail banking businesses to retain and amplify cheap deposits.
Banks-in-liquidation
The NDIC continued to pay depositors of banks-in-liquidation during the review. It paid N6.82 billion to 528,212 insured depositors of closed banks by December 31, last year as against N6.68 billion paid to 527,942 insured depositors the previous year. That feat was achieved in spite of the long closure of the banks and the unwillingness of many depositors to file for their claims.
Risk-based-examination
The report said NDIC, in collaboration with the CBN, conducted Risk-Based Examination of 16 deposit money banks (DMBs) during the year. The NDIC led the examination of six of the banks while the CBN led in 10. Beside, the two institutions conducted a maiden examination of Keystone Bank, Mainstreet Bank and Enterprise Bank during the year.
While the CBN led the examination of Mainstreet Bank and Enterprise Bank, NDIC led the examination of Keystone Bank. The corporation in collaboration with the CBN also conducted the maiden examination of Jaiz Bank Plc and the Stanbic-IBTC Non-Interest window during the year under review.
Capital adequacy ratio
Furthermore, the banking industry was adequately capitalised in the year with capital adequacy ratio of 18.07 per cent compared to 17.71 per cent recorded in 2011. All the DMBs also met the minimum liquidity threshold of 30 per cent.
The asset quality improved during the year as the ratio of non-performing loans to total loans decreased from 4.95 per cent in 2011 to 3.51 per cent last year. The improvement in the industry’s asset quality was because of the purchase of the non-performing loans of DMBs by AMCON and the enhanced credit risk management by DMBs.
Fraud
The DMBs reported 3,380 fraud cases involving N17.97 billion with expected/contingent loss of about N4.52 billion. The expected/contingent loss had increased by N455 million about 10.9 per cent, as against N4.072 billion reported in 2011.
Notwithstanding the 43.7 per cent increase in the number of reported fraud cases from 2,352 in 2011 to 3,380 last year, it decreased by 36.4 per cent from N28.40 billion in 2011 to N18.04 billion in 2012.
PMBs
The licences of 24 PMBs, which closed shop and were unable to meet obligations to their depositors and creditors were revoked by the CBN and NDIC was subsequently appointed as liquidator.
As at December last year, 310 out of the 323 MFBs that rendered returns had met the minimum paid-up capital of N20 million.
