The Nation Newspaper

Tag: Banks

  • CBN orders banks to review foreign currency loans

    CBN orders banks to review foreign currency loans

    •Naira falls to N334.50 on interbank

    The Central Bank of Nigeria (CBN) has directed banks to review and provision for non-performing loans denominated in foreign currencies.

    CBN Director, Banking Supervision, Mrs. Tokunbo Martins, who made this known in a letter to all the banks titled: Provisioning for foreign currency loans, said the exercise was in continuation of the regulator’s efforts to enhance efficiency, facilitate liquidity and transparency in the foreign exchange market.

    This is happening as the naira yesterday weakened to an all-time low of N334.50 against the dollar on the interbank market, a day after the CBN hiked interest rates to lure foreign investors back into local assets, traders said.

    The naira fell by 5.8 per cent from its opening rate, and $10 million was traded at the new record low. Traders said investors were pushing the currency lower to test the limit of how far it can fall, given a spread of almost 12 per cent between the official and black market naira rates.

    At the parallel market, the naira was, however, exchanging at N376 to dollar.

    “If we have more people trying to buy the naira then it should strengthen. I think we will keep seeing the trickles … I don’t think we will see large inflows until the fundamentals of the economy improves,” one trader told Reuters.

    On the foreign currency loans, Martins explained that the CBN issued the Revised Guidelines for the Operations of the Nigerian Inter-bank Foreign Exchange Market meant to liberalise the foreign exchange market and increase balances on foreign currency-denominated loans and advances in the books of banks.

    The target loans also include those that had been fully provided for under the previous exchange rate regime, but were yet to be written off, per our extant regulation under Section 3.21(a) of the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.

  • Banks fail to meet CBN’s forex terms

    Banks fail to meet CBN’s forex terms

    The Central Bank of Nigeria (CBN) is set to cancel the Foreign Exchange Primary Dealers (FXPDs) status of some of the 15 FXPDs banks for recording low forex volumes of transactions against set guidelines, The Nation has learnt.

    Some of the FXDPs banks include FirstBank, Zenith Bank, United Bank for Africa (UBA), Access Bank, GTBank, Stanbic IBTC and Ecobank Nigeria.

    The CBN appointed the FXDPs lenders to boost dollar liquidity in the forex market but their performance in achieving the set target has not met the CBN’s expectations, given the continued dollar scarcity and poor liquidity in the market.

    The FXDPs lenders met a minimum of N400 billion in total foreign currency assets; minimum shareholders’ fund unimpaired by losses of at least N200 billion and minimum liquidity ratio of 40 per cent set by the regulator.

    Besides, the lenders operating as FXPDs were expected to have strong forex trading capacity to deploy all FMDQ Thomson Reuters FX trading Systems or any other systems approved by the CBN.

    The CBN expects FXPDs banks to act as professional counterparties and market participants in their overall conduct and support of market efficiency and liquidity. The participants are also required to resell a minimum of 70 per cent of any dollar uptake from the CBN in the inter-bank market on the day of purchase.

    They are to participate in the market on a daily basis or such period as may be required by the CBN. “FXPDs that record low volumes of FX transactions with the CBN during the evaluation period, that repeatedly provide bids and offers that are not reasonably competitive, or that fail to provide useful market information and commentary, shall be deemed not to have met the expectations of the CBN,” the guidelines stipulated.

    “Furthermore, while the main responsibilities of the FXDPs shall be to foster liquidity of forex purchases, CBN may trade on their offers. FXDPs that constantly give uncompetitive quotes risk the CBN trading on their offers. In such circumstances, the CBN may limit  FXDP’s participation in any or all operations, approved products and may suspend or terminate the authorised dealer’s status of FXDP if it continues to fail to meet these aforementioned expectations,” it added.

    But since the appointment of the FXDPs lenders in June, the CBN has consistently been intervening in the market, with little or no inputs from the lenders because of poor dollar liquidity. The CBN intervened via the Special Secondary Market Intervention Sales (SMIS) – Retail (End-users) and the Interbank FX market to clear a total forex backlog of $4.02 billion in the early days of the policy.

    When contacted, CBN Acting Director, Corporate Communications, Isaac Okorafor, said the FXDPs policy is still in force. He said the apex bank, like every other participant, intervenes in the market only when the need arises.

    But Currencies Analyst and Head Treasury at Ecobank Nigeria, Olakunle Ezun, said the CBN still remains the major supplier of dollar to the market despite the appointment of the FXDPs banks.

    “So far, it appears the Central Bank of Nigeria (CBN) still remains the major supplier of dollars, with over 95 per cent of market volume. The CBN has supplied around $1 billion spot and $3.5 billion forward to Authorised Dealers (Banks) and direct to end-users since Monday, June 20 2016. Trading in the interbank foreign-exchange market is yet to pick up, partly because there is too little foreign-exchange liquidity in the market. The interbank average turnover is barely about $40 million a day, compared to weekly volumes of around $1 billion about three years ago,” he said.

    Ezun admitted that forex liquidity remains a challenge despite CBN and FMDQ efforts to support interbank forex market with Forwards and Over-the-Counter (OTC) Forex Futures/Naira Settled Forwards transactions.

    “The CBN’s ability to meet its matured obligations as at when due is not in doubt, but recent development as per frequency and volume of CBN’s forex sales to the Foreign Exchange Primary Dealers (FXPDs) have questioned CBN capacity to support the market as growing import and investment demand are not being settled,” Ezun added.

    The guidelines insist the nature of the relationship with the FXPDs is primarily a counterparty relationship and require that the FXPDs qualified lenders register as authorized dealers designated to deal with the CBN on large trade sizes on a two-way dollar quote basis. They serve as the bulk traders dealing directly with the CBN on forex matters.

  • ‘How banks hide bad debts’

    ‘How banks hide bad debts’

    Local and foreign investors rely on the integrity of financial statements to make decisions. To the Financial Reporting Council of Nigeria (FRC), only a financial statement that meets the International Financial Reporting Standards (IFRS) will inspire them to invest in a company.  FRC’s Chief Executive Officer Jim Obazee said this and more in an interview with SIMEON EBULU and COLLINS NWEZE during his visit to The Nation.

    How has Financial Reporting Council streamlined financial reporting by companies?

    The FRC was established by the FRC Act 6, of 2011. Prior to this, there was the Nigerian Accounting Standards Board (NASB). The NASB in itself had some histories. Prior to the indigenisation, there were different companies, coming from different countries into Nigeria. And when they come, the rules that govern who they report their income and expense; assets and liabilities, were provided for by the standards issued by their home countries.

    So, you have companies from the United Kingdom (UK) reporting UK’s standards, and those from the United States, reporting based on US standards.

    We had a lot of mix ups. You can actually report fair results following those standards, but when you report, people who are interested in investing in your company, may be relying on very faulting foundation if both were given the same rules.

    How?

    For instance, a very smart managing director that is making loses will likely want to adjust the figures. Don’t forget that in some companies, the Managing Director’s emoluments are tied to percentage of the profit of the company. So, such MD is not interested in losses. So, he could gather smart guys in the office and say, gentlemen, our numbers are not looking right, what can we do? So, they are no longer discussing the business concept, they are discussing earnings management.

    It is actually fraudulent financing reporting. So, he would say, gentlemen give me some ideas, we cannot show our shareholders this result. He is not telling them the major problem which is the fact that he is not happy because he cannot get good salary. So, somebody needs to create the opportunity for him.

    Then a young man, would raise up his hands and say, you know the car we bought for N100,000 and the policy of this organisation is that the estimated useful life of the car is for four years. So, every year, we write off 25 per cent against profit. So, we write off 25 per cent of N100,000 which is N25,000. So, let’s change the policy to say the car will last for 10 years.

    So, if we are going to rely on 10 years, instead of writing N25,000 this year, we should write off N10,000. By adopting that structure, the company beefs up its profit by N15,000. This will now change the bottom line to look very healthy, even when there is no value underlining the result.

    What does that mean for investors?

    The investors will rely on the result to their own detriment. But don’t forget that the N15,000 brought into the profits, the Managing Director is entitled to a percentage of it. It was at that point that organisations in Nigeria decided to establish a new standards reporting setting body.

    So, eight organisations led  by the Central Bank of Nigeria, Securities and Exchange Commission, Institute of Chartered Accountants of Nigeria, among others, came together and formed the NASB on September 9, 1982. They were churning out standards which lacked legal backing. The institutions were simply persuading companies to comply. Prior to that time, there were the Companies and Allied Matters Act, 1990.

    The promoters of NASB went to those putting together the CAMA, brought in Section 335 sub-section 1 of CAMA Decree 1990, which stipulates that financial statements prepared in Nigeria, must comply from time to time, with the statement of accounting standards issued by the NASB to be constituted by the Minister of Trade and Industry.

    So, they got legal backing by which the minister would constitute the board. The Minister of Trade and Industry constituted the NASB to become a parastatal of the Federal Government of Nigeria, reporting to the Minister of Trade and Industry in 1992.

    How was FRC formed?

    It was under the former President Olusegun Obasanjo that there were all forms of attempts to form the FRC, but it did not see the light of the day. When I was appointed the CEO of NASB, I made the formation of FRC my priority. Before then, the World Bank came and promised to assist Nigeria, provided there is a Financial Reporting Council, where you can have an all embracing structure.

    Firstly, I was the chairman of a committee on the adoption of IFRS in Nigeria and we needed to deal with the law. Before the 2005 banking consolidation, I said that only seven banks were healthy. My view came after I analysed the results of the banks and discovered that there was a problem. I needed to deal with what I saw then, which was institutional weaknesses.

    Tell us about those institutional weaknesses?

    Many of the banks had started opening up insurance companies to hide their bad loans. If a bank is owed N1 billion and the customer is not able to pay, the CBN would check the bank’s account and ask if it has been fully provided for. The bank would be asked to take the bad loan off its assets and profit and that would constitute a big problem on its balance sheets.

    What the banks did was to set up  insurance companies and, for instance, factor the N1 billion to the insurance company, and subsequently claim that the insurance company had bought the N1 billion bad debt. The insurance company buys the bad loan at N900 million, with the understanding that when it recovers the debt, it will make N100 million gain. So, the N900 million will now be quoted in the bank’s books, so that when the CBN comes for checks, the bank will be applauded as doing very well.

    The CBN is inspecting banks, not insurance companies, while the National Insurance Commission that inspects the insurance companies, do not check the books of the banks. You see, when I said banks should not own insurance companies, you can now understand why.

    What impact has the FRC Act had on companies’ reporting formats?

    The establishment of the FRC Act has brought sanity to companies’ reporting of their financial statements, and made it difficult for them to manipulate their earnings, as all accounts are now reported using the International Financial Reporting Standards (IFRS). With the new reporting format, the practice where companies that are supposed to make losses, manipulate the result to post huge profits, would be difficult. Prior to the coming of the FRC Act, regulatory agencies, including the CBN, never took financial reporting seriously. No Nigerian demanded for the CBN account, let alone analysing what is inside. Because if you pick the financial statement of the CBN, and you have eagle eyes, you will raise several questions that they will beg you not to ask the questions. The law empowered FRC on some broad areas. First, financial reporting generally, which includes valuation of standards, auditing accounting standard both private and public, and then actuarial standard. It also empowered us to develop and co-ordinate corporate governance. Hitherto, there was no law governing the corporate governance in Nigeria. Now, it is only in the FRC Act that you see corporate governance. The FRC Act also says we are responsible for Corporate Governance Code in both public and private sector. Finally, FRC Act gave us power to check audit quality.

    What’s the impact so far?

    The FRC is committed to making Nigeria corporate reporting investment friendly. The FRC Act and its implementation is providing protection for investors. That is why you are seeing a lot of the fight. The judges themselves, when people started taking us to court, did not understand the type of organistion we are. Overtime, when they started understanding what we are doing, they started to embrace and know that we are bringing sanity.

    Does the National Assembly need to legislate on the National Code of Corporate Governance?

    It is not something you can legislate upon. It is a Code of Corporate Governance. It is like legislating on integrity.  We want to know, what are the roles of people that are entrusted with the direction, control and supervision of an entity? That is what Corporate Governance is all about. It is not an issue meant for the National Assembly. The Code of Corporate Governance for the public sector is talking about boards. All the boards of Ministries, Departments and Agencies of government, are already captured within the enabling laws of these institutions.

    Since they are already captured, it means you cannot bring a code that can override that law. Instead, it has to go to the Federal Executive Council through the Minister of Trade and Investment, so that a guideline, saying that the structure and composition of the board should defer to that of the national code. That is what we want to do. The reason is not far-fetched. Firstly, the code is talking about international best practices, and  reviewing the laws will take a lot of time.

    Tell us about the Code of Corporate Governance for Not-For-Profit organisations?

    The code of corporate governance for Not-For-Profit organisations has received very heated debates. Not-for-profit people are saying they are not ready yet. The reason is that the code will require them to be accountable. They must have financial statements before having a corporate structure. They are not happy with the committee structure because we are insisting there must be three committees.

    What about the extended audit report that FRC is canvassing?

    Very soon, we shall be inviting six big firms to a meeting. We want to talk to them on extended audit report. It will focus on key audit matters. The audit report will look at observations. We need to protect stakeholders, protect minorities and also grow the market.

    We have three major challenges. We have board concentration. All your board members are all friends. This leads to group thinking, where everybody thinks alike, nobody thinks at all. So, in board concentration, there is no healthy debate. We are campaigning that after one has served as Managing Director of a company for 10 years, such person should not immediately transmute as the Chairman. There should be a cooling off period. Immediately you transmute as the Chairman, you will become Managing Director one, the new Managing Director will become Managing Director two.

    We also have what we call ownership concentration. In the Nigeria capital market, we have just 20 per cent free float. We also have audit concentration. The four big firms are the ones auditing the companies.

    Are you having challenges with shareholders’ associations?

    Shareholders associations are also challenging us, saying we have brought out a rule, saying for you to be a Chairman of audit committee, you must be a professional accountant. Our reason for that remains that audit committee members should understand accounting.

    In our registration, we said one cannot sign a financial statement as a Chief Financial Officer unless the person is a member of the ICAN or the Association of National Accountants of Nigeria (ANAN). The moment foreign investors know that the companies are being policed; they will come and invest in our country. The first direction in fighting corruption is to ensure there are financial statements. Tell all government agencies to prepare their accounts, you will see there is a problem. Government agencies should have accounts.

    Are you still receiving 2015 financial accounts from banks?

    Yes, but Section 8 of the FRC Act says that public entities are to file their financial statements with the FRC not more than 60 days after approval by the board. So, they still have a two-month window. They are submitting their accounts and we are receiving them. But if the accounts are qualified, you cannot announce that account until we have looked at them. These are the things people worry about, saying – why is the FRC policing us. You need to be policed. The moment foreign investors know that the companies are being policed, they will come and invest in our country.

  • Senate seeks peaceful resolution of labour, banks’ feud

    Senate seeks peaceful resolution of labour, banks’ feud

    •Ngige: unionism is every worker’s right

    The National Assembly has called for peaceful resolution of the disagreement between labour and banks over retrenchment.

    It also praised the Minister of Labour and Employment, Sen. Chris Ngige, for his intervention in the matter.

    The NASS agreed with  the minister on dialoguing with all social partners to resolve the disagreement peacefully.

    At a public hearing on the emerging issues in the financial sector, Chairman, Senate Committee on Banking and Finance, Senator Rafiu Ibrahim, said: “We sincerely commend the Federal Government for being willing to work with the banks to find a common solution to this issue of retrenchment, which affects almost every family in Nigeria.

    “I am grateful that all of us have  agreed to dialogue and I implore you to do justice to all issues before the stakeholders’ summit coming up. I, therefore, appeal to everybody to be humble and be open in our different positions at the talks.”

    Ibrahim said the NASS was happy with the explanation by Ngige that he did not threaten that the Federal Government would withdraw licences from banks that continue to retrench workers; that it was a case of misrepresentation.

    According to Ibrahim, Ngige’s explanation made room for a convivial atmosphere for social partners to dialogue and peacefully resolve all issues.

    Ngige said steps taken by him on the issue were in defence of the Constitution, the labour laws and to safeguard the interests of parties, ensure peaceful industrial milieu for enhanced productivity in the sector.

    “The Constitution is the supreme law of the land. The Constitution is aware that we are in a society where all of us will not be equal and that everybody must be protected – big and small. That is why in Sections 14, 15 and 16 and even 17, the Constitution protects the employer, the economy and the workers,” he said.

    Ngige said it was from these provisions that the NASS enacted the labour laws on how to deal with issues of employment. ”So, all that my ministry has done is to execute and protect these laws from infractions. I acted in good faith to protect the interest of all,” he said.

    He cited petitions from unions in the financial sector, which border on unwholesome practices, the height of which was mindless retrenchment as the reason for his intervention.

    He directed the parties – the bank employers and the unions – to maintain the status quo ante-bellum through a press release on June 5, 2016, pending the resolution of the disputes.

    “We intervened in the spirit of collective bargaining. We got petitions from National Union of Banks, Insurance and Financial Institutions employees (NUBIFE) on casualisation, contract staffing, poor remunerations, which are not in conformity with equal work, equal pay in our constitution, as well as ill-human conditions of service,” he explained.

    Ngige added that the ministry also received petitions on sacks without due compensation and resistant to unionisation contrary to Section 40 of the Constitution, which the ministry investigated and found them true in some banks.

    “We invited the concerned banks; they gave excuses on why they won’t honour the invitation while they continued with retrenchments. I know my rights as Minister of Labour and I will exercise those rights for the benefits of Nigerians, high and low. It is within my power to declare a truce in any industrial crisis. That was why I asked the banks don’t retrench further and the unions; don’t picket the banks so we can sit down to resolve the issues,” he said.

    According to Ngige, the labour law on redundancy says in Article 20 that if an employer negotiates redundancy and a party is dissatisfied, the Minister has the right to intervene.

    He said the law provides for the employer to disengage a worker if he cannot actually run his enterprise efficiently and effectively with a large number of staff, in which case, he will declare redundancy. It states clearly the process for doing this.

    “It says you must engage the labour unions in that industry and if it gets out of hand, the local unions will report to their national union. If they can’t resolve this, the parties, unions or the banks will refer it to the Minister of Labour for conciliation,” he said.

    The Minister corrected the impression that the Federal Government was interfering in the running of private businesses.

    Speaking on unionisation in the banks, the Minister added that the only institution in the financial sector where staff members are exempted from unionisation is the Central Bank and that no other bank in the country had the right to prevent its staff from forming a union.

    “Unionisation, according to the constitution and labour laws, is the right of workers. There are exemptions and the institutions that are exempted are clearly listed. Here, it is only Central Bank that is exempted in the banking sector.

    “And the law says again that the Minister of Labour in his wisdom can grant a waiver to any institution. I have not granted waver to any bank and I will not grant such,” Ngige added.

  • Banks remain safe, says CBN

    Banks remain safe, says CBN

    The Central Bank of Nigeria (CBN) yesterday assured bank customers that none of the 22 commercial banks in the country is in distress.

    CBN Acting Director of Communication, Isaac Okoroafor, said in a statement issued yesterday that  the infusion of a new Board and Management for Skye Bank Plc remains a proactive regulatory action meant to ensure that the lender does not continue to fail in its relevant prudential ratios.

    “Neither Skye Bank nor any other bank in the industry is in distress. Therefore, the CBN would like to request the general public to ignore speculations or rumours to the contrary as they could only be the handiwork of mischief makers who do not mean well for the Nigerian banking system and its economy,” he said.

    He explained that as the regulator of the industry, the CBN reassures the banking and general public that their deposits remain safe in any Nigerian bank and that there is, therefore, no need for panic withdrawals from any bank.

    He said by both the CBN’s examination reports as well as analysis from market watchers, International Credit Rating Agencies, and Development Finance Institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices. “We therefore urge the banking public to remain calm and go about their normal businesses without panic. It is important that we do not create problems when none exists,” he said.

  • Ngige: why we asked banks not to sack workers

    Ngige: why we asked banks not to sack workers

    Minister of Labour and Employment Chris Ngige has said the government directed the banks to stop terminating the appointment of their staff to ensure industrial peace in the sector.

    The minister dismissed the impression that the government was interfering in the running of private businesses in the country, adding that the nation’s constitution and labour laws allow the him to intervene in such disputes to ensure harmony in the system.

    Speaking at a public hearing organised by the Senate Committee on Banking and Finance, the minister said denied claims that he threatened to withdraw the licenses of banks, pointing out that what he only did was to direct all parties in the emerging disputes to maintain statuesque, while opting for dialogue.

    He said the government was in receipt of petitions from the unions in the Financial sector which border on unwholesome practices, the height of which was mindless retrenchment as the immediate reason for his intervention, directing all the parties; the bank employers and the unions to maintain the statuesque ante-bellum.

    He said: “We are not interfering in their business. They are there to make money and protect their investments and nobody is against this. But don’t forget that individual Nigerians are also investors in these banks. So they are not the only investors. I have my own shares in these banks and they pay me dividends, which I am pleased with.

    “However, I will not be party to drawing dividends on the blood of helpless Nigerians. The banks can save some of these low cadre jobs by re-adjusting the heavy perks at its top management cadre. We pleaded same with the major oil companies and it worked.

    “We intervened in the spirit of collective bargaining. We got petitions from NUBIFE on casualization, contract staffing, poor remunerations which is not in conformity with equal work, equal pay in our constitution, ill human conditions of service, rampant termination without due compensation and resistance to unionization contrary to section 40 of the constitution.

    “We investigated these claims and found them to be true in some banks. We invited the concerned banks; they gave excuses on why they won’t honour the invitation while they continued with retrenchments.

    “I know my rights as Minister of labour and I will exercise those rights for the benefits of Nigerians, high and low. It is within my power to declare a truce in any industrial crisis. That was why I asked the banks; don’t retrench further and the unions; don’t picket the banks so we can sit down to resolve the issues. The labour law on redundancy says in article 20 that if you negotiate redundancy and a party is dissatisfied, the Minister has the right to intervene.

    “The law makes provision for the employer to disengage a worker if he cannot actually run his enterprise efficiently and effectively with a big load of staff in which case, he will declare redundancy.

    “But it also states clearly the process for doing this. It says you must engage the labour unions in that industry and if it gets out of hand, the local unions will report to their national union. If they can’t resolve this, the parties, unions or the banks will refer it to the Minister of labour for conciliation.”

    He said the constitution and the labour laws as well as to safeguard the interests of all parties while ensuring peaceful industrial milieu for enhanced productivity in the sector.

    “The constitution is the supreme law of the land. The constitution is aware that we are in a society where all of us will not be equal and that everybody must be protected – big and small. That is why in sections 14, 15 and 16 and even 17, it protects the employer, the economy and the workers.

    “It is from these provisions that the National Assembly enacted the labour laws to guide all of us on how to deal with the issues of employment. So, all that my ministry has done is to execute and protect these laws from infractions. I acted in good faith to protect the interest of all.”

    Speaking on unionization in the banks, the Minister said the only institution in the Financial sector where staff are exempted from unionization is the Central Bank and that no other bank in the country had the right to prevent its staff from forming a union.

    “Unionization according to the constitution and labour laws is the right of workers. There are exemptions and the institutions that are exempted are clearly listed. Here, it is only the Central Bank that is exempted in the banking sector. And the law says again that the Minister of labour in his wisdom can grant a waiver to any institution. I have not granted waver to any bank and I will not grant such”.

    The Chairman of the Senate Committee on Banking and Finance, Senator Rafiu Ibrahim, hailed the minister for his proactive intervention and gave firm support to his decision on dialogue with all social partners as the only option to the peaceful resolution of the industrial disagreement in the sector.

    “I sincerely commend the federal government for being willing to work with the banks to find a common solution to this issue of retrenchment, which affects almost every family in Nigeria. I am grateful that all of us have all agreed to dialogue and I implore you to do justice to all issues before the stakeholders’ summit is convened in July. I therefore appeal to everybody to be humble and to be open in our different positions at the talks”.

    “I am happy with the explanation of the Hon. Minister on the issue of bank licences, that he did not threaten that the Federal Government would withdraw their licenses; that it was a case of misrepresentation. That gives a convivial atmosphere for all the social partners to freely dialogue and peacefully resolve all issues.”

  • Fitch rates Nigerian banks well on devaluation effect

    Fitch rates Nigerian banks well on devaluation effect

    Nigerian banks are sufficiently well capitalised to absorb the impact of the 40 per cent effective devaluation of the Naira against the US dollar, Fitch Ratings stated in a release on Thursday.

    The Central Bank of Nigeria (CBN) on Monday started the implementation of its new flexible foreign exchange (forex), leaving the Naira to float freely with market forces.

    Fitch explained that currency devaluation affects banks’ capital ratios largely because total risk-weighted assets are inflated when foreign currency (FC) assets are translated back into naira, while capital is denominated in local currency.

    The global rating agency assigned ratings to 10 Nigerian banks and its assessment was that, with a 40 per cent effective devaluation, the majority will not face an immediate breach of regulatory capital adequacy ratios (CARs).

    However, if the naira continues to weaken, buffers between minimum and reported CARs may decline to a level which heightens ratings sensitivity.

    Fitch-rated banks report CARs ranging from 14 per cent to 21 per cent. The devaluation will impact ratios in different ways across rated banks, depending on the level of their FC risk-weighted assets and the size of their net open FC positions. On average, 45 per cent of net lending in the Nigerian banking sector is extended in FC, almost entirely US dollars. Balance sheets tend to be reasonably well-hedged, although CARs are primarily affected by the revaluation of their FC risk-weighted assets into Naira.

    “In our view, the immediate impact of effective devaluation on CARs reported by Fitch-rated banks will be a two per cent average reduction. Any erosion of capital ratios may be short-lived because banks are profitable despite the unfavourable operating environment. Rated banks reported a 14 per cent average return on equity in first quarter of the year. Expectation is that dividend pay-outs will probably be conservative in 2016, while internal capital generation is expected to remain healthy,” Fitch stated.

    The report however noted that banks’ ability to continue to generate solid performance indicators will largely depend on developments in asset quality and loan impairment trends, pointing out that impaired loans represented an average of 5.5 per cent of gross loans across our portfolio of rated banks at the end of first quarter 2016, which is reasonable considering the tough operating environment.

    “Loan loss cover is adequate for most banks, but it expect impaired loan ratios to rise in the wake of the naira devaluation. This is because some Nigerian corporates are not adequately hedged by FC income streams and may find it more difficult to service their FC loans. Most major Nigerian corporates are well hedged,” Fitch stated.

    According to Fitch, the success of the forex move in attracting portfolio inflows and foreign direct investment has yet to be tested but if successful, and FC supply rises, FC liquidity for banks will ease which would allow them to meet FC demand, and meet their internal and external FC obligations.

  • Nigerian banks are strong, says Fitch

    Nigerian banks are strong, says Fitch

    •Downgrades economy to ‘B+’

    Fitch Ratings has said Nigerian banks are well capitalised to absorb the impact of the 40 per cent effective devaluation of the naira against the dollar. It said currency devaluation affects banks’ capital ratios largely because total risk-weighted assets are inflated when foreign currency (FC) assets are translated back into naira, while capital is denominated in local currency.

    It assigned ratings to 10 Nigerian banks and its assessment is that, with a 40 per cent effective devaluation, the majority will not face an immediate breach of regulatory capital adequacy ratios (CARs). However, if the naira continues to weaken, buffers between minimum and reported CARs may decline to a level which heightens ratings sensitivity.

    Fitch-rated banks report CARs ranging from 14 per cent to 21 per cent. The devaluation will impact ratios in different ways across rated banks, depending on the level of their FC risk-weighted assets and the size of their net open FC positions. On average, 45 per cent of net lending in the Nigerian banking sector is extended in FC. Balance sheets tend to be reasonably well-hedged, although CARs are primarily affected by the revaluation of their FC risk-weighted assets into naira. “In our view, the immediate impact of effective devaluation on CARs reported by Fitch-rated banks will be a two per cent average reduction,” Fitch said.

    Meanwhile, Fitch Ratings has downgraded Nigeria’s Long-term foreign currency Issuer Default Rating (IDR) to ‘B+’ from ‘BB-’ and Long-term local currency IDR to ‘BB-’ from ‘BB’. The outlooks are stable. The issue ratings on Nigeria’s senior unsecured foreign-currency bonds have also been downgraded to ‘B+’ from ‘BB-’.

    The Country Ceiling has been revised down to ‘B+’ from ‘BB-’ and the Short-Term Foreign-Currency IDR affirmed at ‘B’. It said the downgrade of Nigeria’s IDRs reflects the following key rating drivers: Nigeria’s fiscal and external vulnerability has worsened due to a sharp fall in oil revenue and fiscal and monetary adjustments that were slow to take shape and insufficient to mitigate the impact of low global oil prices.

    Renewed insurgency in the Niger Delta in first half of this year has lowered oil production, magnifying pressures on export revenues and limiting the inflow of hard currency. Fitch forecasts Nigeria’s general government fiscal deficit to grow to 4.2 per cent in 2016, after averaging 1.5 per cent in 2011 to 2015, before beginning to narrow in 2017.

  • IPMAN frets over banks’ threat

    • NNPC ‘tying down its N60b’ 

    The Independent Petroleum Marketers Association of Nigeria (IPMAN) yesterday raised the alarm over moves by some commercial banks to take over their petrol stations following their loan repayment defaults.

    Its Vice President, Alhaji Abubakar Maigandi Dankigari, who spoke to The Nation in Abuja, said the marketers could not service their loans because the Nigerian National Petroleum Corporation (NNPC) has refused to supply their over N60 billion petrol tickets since two years ago.

    He lamented that instead of loading whatever volume of petrol the over N60 billion could buy at the new pump price, the NNPC was asking them to pay the balance before providing the products.

  • Between Ngige and the banks

    “Even if you are going to lay off, there is a way to declare redundancy, there is a process. Section 20 of the labour act says it. You must call the unions and discuss with them. You don’t just treat them as slaves in their own country and you want us to keep quiet.”- Dr Chris Ngige. 

    To the banks have been laying off staff in droves. Inevitable and predictable, one would say. Any attempt to clean up the financial system drunk on illicit funds, even at the macro level, and keep Nigeria to the narrow path will definitely rebound on a banking system whose substructure lies in quicksand. That is inevitable. Yet, we are only scratching the surface. Underneath, the rot lies much deeper.  Predictably too, the cowboys, who lay claim to ownership  of the banks have taken to the path of least resistance – send home staff whose wages, when added up, barely make any impact on the cooked bottom-line of these institutions.

    In many of the banks, Directors’ remuneration alone, not to mention other benefits and loans to entities in which they have interest, is more than the combined salaries and wages of all the staff. You would think that banks that are sincerely keen on cutting cost will look at curbing the waste at the top, and not in pushing out the already marginalized people at the bottom. But that will be where the banks care for anyone and anything but their own insatiable greed.

    Understandably, the Minister of Labour and Employment, Dr. Chris Ngige, last week intervened in a bid to keep the process of retrenchment, in line with the laws of the land. He was reported to have threatened a revocation of licences of the banks for violating directives he had issued. He is right, but also wrong. He is right to be concerned but is wrong to issue a threat that holds no water. If he had been properly informed, he would have realized that the rules he is throwing at the banks hardly apply to most of them. He would have realized the futility of his threat as most of the banks in question do not have in-house unions and are not bound by those rules.  Indeed, that is the problem. That is what should be of concern to the minister. For without tracking back to the point where the rain started beating us, we would only labour in vain, in the present.

    Banking has almost, always, been borderline criminality. To put it mildly, what transpires in many of the banks, pretending to be legitimate enterprise, is bare-faced criminality.  Indeed, it did not start today but it was never as blatant as it has been in the last two decades or thereabout. In the last week, in chronicling the sterling football career of the enigmatic Stephen Keshi, copious reference has been made to his football career with ACB and NNB. For those who might not know, ACB and NNB were banks – African Continental Bank and New Nigerian Bank. Those banks might have engaged in the elementary form of robbing in the name of banking, but those banks operated in an era where banks were more grounded and there was a stronger umbilical cord between them and the society in which they were operating. Corporate Social Responsibility might not have been well defined then, but the banks had a bit of understanding and concern which led them into sponsorship of football clubs.

    No doubt that ACB and NNB were public sector investment vehicles, but even banks owned by the private sector – First Bank, Union Bank and others also had football clubs playing in the national football league. That was a different era, as even NEPA, the power utility company, Water Corporation, Nigerian Telecommunications Company (NITEL) and other public institutions had their own football clubs, as well, while the banks and other institutions actively funded and supported other sports. That was when the banks still cared or pretended to care.

    Fast forward to the late 1980s and early 90s with the liberalisation regime of General Babangida and the open-house banking system that came courtesy of the new-generation banks, things changed. With all the good brought into the system by virtue of competition and massive adoption of technology, there were downsides to new-generation banking. Apart from the institutionalisation of greed as official creed in banking, it ushered in the era of complete disregard for labour laws. All the banks set up from the late 80s ensured that employees were not allowed to form trade unions. Efforts made by staff members to come together to form labour unions, as provided for in the laws of the land, were fiercely resisted, with the movers blackmailed or forced out of the system. I was once accused of plotting a coup for calling a meeting of a certain category of staff to discuss the state and future of a bank. So fiercely was any effort to come together as a pressure group resisted in our banks.

    That is how we got to where we are today. That is how we ended up with banks who became laws unto themselves, in labour matters. That is how we ended up with banks, lacking in creativity and willingness to connect with the needs of the banking public, took to institutionalised prostitution as a tool of marketing. That is how we ended up with banks, in disregard of security concerns and the welfare of staff, institutionalised casualisation and outsourced staffing to third-party agencies, to enable them fire at will, and without commitment to terminal benefits. That is how we ended up with banks running with employees with no allegiance to the institutions, as they can be forced to resign at any time or forced out without benefits.

    Yet, while the banks became more ingenious with means of short-changing employees and customers, ‘owner- managers’ perfected the means of rigging the system. In connivance with outsiders, a carefully-designed culture of insider abuse was designed to milk the system dry in the name of deals carefully packaged to go bad. In the early days, customers and gullible, petty investors were sold a lie, through an equally rigged capital market, to absorb the loss. Later, toxic ‘assets’ were passed on to publicly-owned AMCON to wrestle with while cowboys smiled away on their yachts.

    So, in telling the banks to follow due process, the Labour Minister might be right. Only that he is very late to the party, the train left the station way back. Too late in the day to be issuing directives to banks that had carefully guaranteed an emasculation of the workforce. What operates in terms of labour practice in many of the banks is barely different from what it was like in the sugarcane plantations of old. It is only another face of the legalised robbery pretending to be banking in Nigeria, where profits, so-claimed, are privatised and losses, so-declared, are socialised – passed on to the rest of us, so the big boys can continue to luxuriate, while fashioning new means at legitimising rogue banking. The staff are simply pawns, housed in a concentration camp, let out into the rain at will, anytime those at the top are caught with more fingers than legally allowed in the cookie jar. A million directives will not make a difference to a system rotten from the substructure. The banks simply don’t care about staff, customers, investors or the public. They only care about the books and how to cook them. Perhaps, soon, someone will make them care about what should really matter.

     

    • Olorunfemi works for a communications consultancy outfit.