The Nation Newspaper

Tag: Banks

  • ‘ Nigerian banks are grossly undervalued’

    Nigerian banks are grossly undervalued and currently present good opportunities for large strategic and minority investors to buy undervalued assets, Exotix, a major global finance and investment company has said.

    In its latest valuation report on the Nigerian banking system, Exotix indicated that the market value of the Nigerian banking system is substantially below the intrinsic value of the banks. The report was coordinated by Kato Mukuru, Partner and Head of Equity Research at Exotix Partners LLP and Ronak Ghadia, a chartered financial analyst.

    Exotix is a major global finance and investment company with considerable imprints in world and Africa’s commercial centres. It coordinates its global operations through five major offices in London, New York, Lagos, Dubai and Nairobi.

    According to the report, Nigerian banking assets should end this year at around $155 billion, some 29 per cent of nation’s Gross Domestic Products (GDP) and subsequently grow to $212 billion, some 34 per cent of GDP, by 2019.

    With this backdrop, the question we ask is how much would you pay today for US$212bn of banking assets in Nigeria by 2019?

    “Whilst most equity investors are rarely gifted with the benefit of time and have passive mandates, surely the current structure of the value split in Nigeria has opened up a very rare opportunity for strategic investors or other global and regional banks to buy controlling shareholdings in some of the $74 billion of banking assets that are currently being valued at $6.7 billion. To this end, we have seen some smart money come in recently, but there is much more on the sidelines,” the report stated.

    Analysts noted that fair value estimate of the Nigerian banking system is 46 per cent higher than the current market value of the banking system at $17.4 billion.

    Analysts outlined that what is interesting about this conclusion is not only that fair value estimate is 46 per cent higher, but how this valuation is currently being split.

    “The market is telling us that: the $36 billion of Guaranty  Trust Bank and Zenith Bank assets are worth $7.9 billion, the$45 billion of First Bank and United Bank for Africa assets are worth $2.8 billion and the $74 billion of all other banking assets are worth $6.7 billion,” the report stated.

    Analysts indicated that the valuations appeared to suggest that the market is not ready to believe in the convergence of asset shares with profit shares.

    “This value gap shows that the equity market is clearly not ready to pay up for this transfer of value and hence its decision to back the two leading franchises. This is the reason why valuations in Nigeria between GTB and  Zenith and the rest of the banks have not converged, even when the outlook is more positive. The market is telling us that a more positive outlook for Nigeria does not mean a change in the profit contributions, just more for the better banks. And since the last crisis, the market has been broadly correct,” Exotix noted.

  • Banks rush to achieve 40% BVN target

    The Central Bank of Nigeria (CBN) directive to Deposit Money Banks (DMBs) to enrol 40 per cent of their customers on the Bank Verification Number (BVN) platform by December 31, and 70 per cent by March 30, next year has prompted lenders to pay more attention to the policy.

    The exercise involves capturing of customers’ physiological or behavioral attributes – fingerprint, signature among others has commenced in some banks’ headquarters and branches across the country.

    The Nation’s findings showed that bankshas raised their communication and enlightenment programmes concerning the BVN, advising their customers to comply.

    An emailed note by Diamond Bank to its customers read: “We are pleased to inform you that you can now register for your Bank Verification Number (BVN) at Diamond Bank as directed by Central Bank of Nigeria (CBN). This involves the issuance of a series of numbers (BVN) that uniquely identifies each customer in the Nigerian banking industry. The purpose of this exercise is to further improve financial service delivery by protecting you against identity theft, minimising your exposure to fraudulent transactions and increasing your accessibility to credit facilities and other financial services”.

    The lender went on to list branches where customers can be enrolled.

    Similar message also came from GTBank to its customers. the bank explained that BVN is an initiative of the CBN to give customers a unique number that can be verified across the banking industry. It went on to explain the enrolment process.

    CBN Director, Banking and Payments Unit, ‘Dipo Fatokun said the apex bank will monitor lenders to ensure compliance. He explained that where an existing customer wishes to register the BVN with his/her bank, capturing his  signature and photo identification document may not be necessary, as the bank is expected to have those records during account opening.

    Also, where a customer wants to do a change of name, after his/her enrolment, on BVN, due diligence should be exercised and appropriate legal documents obtained, before the change is effected.

    Fatokun said the new directive is aimed at fast-tracking the enrolment, adding that banks are to give more attention to the enrolment of their customers.

    The CBN had set June 2015 deadline for bank customers to enrol on the BVN platform. The BVN enrolment, which involves capturing of customers’ physiological or behavioral attributes – fingerprint, signature among others, is ongoing in some banks’ headquarters in Lagos.

    The exercise is a continuation of the $50 million biometrics project involving the CBN, the Bankers’ Committee, Dermalog and Charms Plc. It was meant to assign unique number to every bank customer for enhanced security of transactions.

     

  • Banks may raise N400b to boost capital base

    BANKS may raise some N400 billion in the current capital raising phase to strengthen their capital base in view of the impending implementation of the Basel II.

    The Basel II is the second global standards of capital adequacy issued by the Basel Committee on Banking Supervision under the auspices of the Basel, Switzerland-based Bank for International Settlements (BIS), the oldest international financial organisation that coordinates central banks and standards for the international financial markets.

    The Basel Committee has issued three sets of the global standards including Basel I, Basel II and Basel III, which increased stricter capital risks and exposure management requirements from one level to another.

    Basel II seeks to strengthen banks’ risk and capital management through three main areas, otherwise known as pillars. The first pillar deals with minimum capital requirements, the second pillar deals with supervisory review process while the third pillar deals with processes relating to market discipline. The pillars generally ensure that the greater the risk to which a bank is exposed, the greater the amount of capital and required supervisory framework.

    After initial delay, Nigeria has set October 31, as the cut-over date for the implementation of Basel II.

    Investment banking sources said many banks have started the process of raising funds, a new level of activities that is expected to increase the momentum of the current phase of fund raising, which gathered pace in 2013.

    Several pundits in the know of undercurrents in the capital market indicated that banks might raise some N400 billion to boost their capital base and strengthen their compliance level in view of the stricter requirements under Basel II.

    According to the sources, although the average capital adequacy ratio in the banking industry is high and most banks are above regulatory benchmark, banks might need to support their adequacy ratios, which are expected to fall after the cut-over.

    The sources indicated that banks might combine debt and quasi-equity instruments with outright equity issues with focus on both tier I and tier II capital.

    Market sources, some of who are involved in the capital raising processes, said the upwardly performance at the stock market should encourage banks to float supplementary capital issues.

    Many banks, including Sterling Bank, Skye Bank, Diamond Bank, Unity Bank, Wema Bank and Zenith Bank have already completed initial phase of capital raising and have outlined further plans to raise more funds.

    Several analysts’ reviews on the banking sector have outlined capital raising as a major theme for the banking sector citing new regulations and emerging business opportunities.

    Banks, under the auspices of the Bankers Committee, had decided to increase lending to the power sector.

    The strategic funding plan is focused on aligning the banking system to provide adequate financing to meet the peculiarities of the power sector.

    Nigeria is estimated to need more than $35 billion to meet its target of 40,000 megawatts by 2020.

  • ‘Quoted banks’ may miss N529b yearly profit mark’

    Quoted banks’ earnings, which stood at N529 billion last year, may not be achieved this year, analysts have predicted.

    The tough regulatory policies of the Central Bank of Nigeria (CBN), including Commission on Turnover cut, raise in Cash Reserve Ratio (CRR), among others, were to blame.

    A report by Financial Derivatives Company Limited said the banking sector recovery had seen profitability back to above pre-crisis levels, with profit of all banks listed on the Nigeria Stock Exchange (NSE), achieving a combined Profit before Tax (PBT) of N529 billion last year.

    A bank is quoted if its shares can be bought or sold on the NSE. FDC Economic report obtained by The Nation said the lenders’ PBT were at N550 billion in 2012.

    These feats, it said, were possible because the Asset Management Corporation of Nigeria (AMCON) strengthened the financial sector, especially the lenders, preventing the collapse of the banks. The report said the coming of AMCON has also addressed the potential bank runs and the negative implications this would have had on the depositors.

    Nigeria bank export services outside the country, remain market leaders in the African banking sector.

    AMCON had last month, announced its operating results, with a loss of N635.88 billion – more than last year’s fiscal budgets of seven states.

    It also revealed that it has run up a cumulative negative net-worth of N3.46 trillion since inception in 2010, about 69.7 per cent of the national budget.

    These numbers, the report said, would make any rational investor or orthodox analyst stagger, describing it as an unprecedented financial calamity. But these numbers becloud the economic reality of economic success, the report added.

    However, Managing Director, Afrinvest West Africa Plc, Ike Chioke, said a review of CBN’s last year’s balance sheet showed that the regulator was bugged by AMCON bonds, intervention funds and development finance loans.

    He said these ‘unmarketable asset portfolios’constitute over 40 per cent of the CBN’s balance sheet.

    Chioke, who spoke at the launch of the Banking Sector Report, explained that the assets are long term investments without a clear exit time frame other than the eventual performance of the loan portfolio.

     

  • Banks uncooperative, says Ekiti police chief

    Ekiti State Commissioner of Police Taiwo Lakanu has described banks operating in the state as “uncooperative” in their relations with the police.

    Lakanu, who addressed reporters in Ado-Ekiti, the state capital, through the command’s spokesperson, Victor Babayemi, accused top bank officials of being frugal in offering clues to assist the police in investigating bank robberies.

    The banks yesterday threatened to close shop owing to “insecurity”.

    They said some of their branches in Ikere and Ifaki had, in the last two months, lost cash and other valuables to marauders.

    In Ado Ekiti, the state capital, many banks were closed yesterday.Many customers were stranded.

    Babayemi said: “The banks have been displaying taciturn behaviour. They have not, either individually or collectively, reported any threat to the police.

    “They just closed shop, forgetting the consequences. The commissioner was dismayed that they could close shop without informing him.”

    The police chief said it was essential for the banks and residents to help the police with hints.

    Babayemi said Lakanu on October 22 met with bank managers at a ‘Bankers Forum’ at the police headquarters.

    “At that meeting, they were given security tips, which the banks have declined to comply with.

    “All that people continue to seek is what the police would do for them and never what they would do to assist the police. We have advised bank officials to offer us clues on those workers known to live above their means.

    “They have refused to do anything about it. However, our men have been deployed in strategic areas around the capital.”

  • Banks’ chronic debtors

    Banks’ chronic debtors

    •It’s still the same story of no lesson taught; no lesson learnt

    IN an industry that has done little else than “name and shame” chronic and pathological debtors, the report last week that the Bank of Industry (BOI) has inducted 10 indigenous companies into its Hall of Fame must be seen in two parts. The first is to see it as welcome – an affirmation of the Nigerian spirit of honesty and enterprise despite widespread claims to the contrary. The other is to rekindle the debate as to whether the financial services industry has learnt anything of significance, in the aftermath of the 2008/9 toxic assets crisis from which the entire sector has barely recovered, on the basis of which it can hope to chart a pathway to a stable future.

    The main substance of the report is that the companies “obtained long-term credit facilities from BOI at least twice and fully repaid the loans as and when due”.  In the words of BOI’s Managing Director and Chief Executive, Rasheed Olaoluwa, the companies “have proven that integrity is not a function of size or of the business environment. They have shown considerable honour and character that we commend and applaud”. The 10 companies are, Supercor Industries, Bauchi; Rumbus Sacks, Kano; Ammasco International, Kano; Cement Company of Northern Nigeria, Sokoto and Cobet International, Port Harcourt. Others are Happinex Foam, Benin; Innoson Enugu, Nigerian Aluminium Extrusion Ltd, Lagos;, Nigerian Foundries, Lagos and Paul B Limited, Enugu.

    The obverse side of the same story is that another set of companies – 24 in number  – made the bank’s blacklist for their failure to repay their loans and for showing “a high level of dishonesty and lack of integrity”.

    In an industry where bad moral hazards have become the rule rather than exception, the exemplary performance of the 10 companies obviously deserves to be showcased. And while there must be thousands of such entities and individuals operating in the financial sector, doing good business with the banks while fulfilling their obligations promptly, the fact that more than twice the number, for whatever reasons, have neglected to fulfil their obligations would seem to indicate a more fundamental problem in the industry. In this particular instance, the BOI would merely serve as a miniature – a window into an industry of which the value of non-performing loans has continued to soar in spite of the strict guidelines said to have been put in place by the apex bank. If ever any evidence was needed for this, it must be the quantum jump by 16 percent in the value of non-performing loans in the 12 months spanning August 2013 to August 2014, from N344.26billion to N400.57billion.

    Beyond its symbolism, there is little else that the idea of a Hall of Fame would achieve in practical terms – the same way that the tactic of “name and shame” has not proven to be effective deterrent to loan abusers. If we are any wise to the efficacy of the regulatory reforms promised by the Central Bank of Nigeria (CBN) in the wake of the banking crisis, it is their falling short of what was expected. A measure of the result is the latest finding by the apex bank that two banks have their capital adequacy ratio (CAR) below the 10 percent prudential minimum stipulated under the Basel 1 and 2 frameworks.

    While it cannot be denied that the Assets Management Corporation of Nigeria (AMCON) has largely succeeded in cleaning up the banks’ toxic assets, there are however, as yet, no proofs that the practices which necessitated the coming of AMCON have disappeared. This apparently is the context to explain the latest diversionary debate as to whether AMCON, a child of necessity, should operate in perpetuity as against its original design to wind up after 10 years. If we are worried by the curious provision for the sinking fund for AMCON which appears to have thrown entire cost of the resolution of the crisis to the banks, we are even more worried by the seeming reluctance of AMCON to embark on the process of winding down. Of course, we find the idea of the CBN committing N50 billion annually into the sinking fund as inexplicable, hence our relief when the National Assembly rejected the provision in the proposed amendment to the AMCON Act.

    The point is – the banking sector has never been lacking in worthwhile suggestions on how to deal with the hordes of delinquent debtors. The easiest one is to shut the debtors out of the financial system – something that has proven, time and again, to be easier said than done. In the situation that the frustratingly slow pace of the judicial process has hardly helped matters – the debtors are simply allowed to enjoy the fruits of their unwholesome behaviour even while preying on the system in the absence of a functional credit bureau.

    Most certainly, there is a lot that the banks can do to improve on their credit decisions through the instrumentality of the credit bureau. Then is the issue of corruption which also needs to be tackled frontally, particularly at the level of the judiciary.  The greater challenge of course, is to prevent the abuse in the first place through the banks whose responsibility it is to strengthen their internal controls; and the apex bank in the area of enforcing the relevant guidelines. While these may not necessarily provide fool-proof mechanism to insulate the banks from bad or non-performing loans, they would no doubt go a long way to bring the loans to the barest minimum.

  • Banks’ shareholders seek compensation

    Shareholders of defunct Afribank Plc,Bank PHB Plc and Springbank Plc have urged the Court of Appeal in Lagos to order their compensation following the revocation of the banks’ licences by the Central Bank of Nigeria (CBN) in 1999.

    They are praying the court to overrule a Federal High Court judgment by Justice Charles Archibong (as he then was) which dismissed their originating summons.

    According to them, the defunct banks’ assets can not be transferred free of charge to another entity without compensation to the shareholders.

    CBN, Nigeria Deposit Insurance Corporation (NDIC), Asset Management Corporation of Nigeria (AMCON), Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) are the respondents.

    Also joined in the appeal are Mainstreet Bank (formerly Afribank), Keystone Bank Limited (formerly Bank PHB) and Enterprise Bank Limited (formerly Spring Bank).

    The appellants, represented by Boniface Okezie, Adeyemi Kehinde and Adebowale Bolanle, said Justice Archibong was misconceived when he validated the respondents’ action.

    They said the respondents revoked the banks’ licences, transfered their assets free of charge to Mainstreet, Keystone and Enterprise banks, and de-listed their shares from the exchange.

    These acts, the shareholders said, were in breach of the law, motivated by malice and were based on inconsistent reasons not based on law.

    They are seeking damages, while urging the appeal court to uphold their appeal.

    “The court is respectfully urged to allow the appeal and grant the reliefs sought on the originating summons.

    “Damages should be assessed at the rate of the difference between the value of shares of the 9th (Afribank), 10th (PHB) and 11th (Spring) respondents on the stock exchange at the time of the intervention of the CBN governor in the banks in 2009 and their nominal value of N1 per share which is all that the respondents would have left to their shareholders by their unlawful and malicious action should the appeal succeed,” the appellants said.

    The shareholders said no compensation of any sort was paid to them following the banks’ takeover.

    According to them, SEC and the Exchange, which ought to protect their investments, succumbed to the CBN governor’s will and publicly approved the actions, going ahead to de-list the banks’ shares from the stock exchange without pursuing any form of compensation for their shareholders.

    However, CBN and SEC are urging  the appellate court to dismiss the appeal as lacking in merit and with substantial cost.

    They said the Appeal court cannot hear the originating summons because it was not heard at the lower court.

    Besides, Justice Archibong, they added, had dismissed the originating summons because it is “unsustainable” after the respondents filed preliminary objections against it.

    “We submit that, having regard to the fact of the case and in all the circumstances of this case, the Court of Appeal has no jurisdiction in the circumstances to consider the appeallants’ originating summons which has not been argued at all at the lower court as urged by the appellants and there being no appealable decision thereon,” CBN and SEC said.

    The appellants’ lawyer, Deacon Paul C. Ananaba (SAN), who led Mr Chuks Nwachukwu, said two of the banks are about to be sold while the appeal is pending.  “They’re proceeding to sell two of those banks,” he said.

    The presiding justice, Amina Augie, said, referring to AMCON: “Don’t sell anything.”

    AMCON is expected to respond to the amended notice of appeal.

    Justice Augie adjourned till January 21 next year for mention because other parties indicated that they would file cross-appeals.

     

     

  • Air Peace to partner banks, others as retreat begins

    As part of strategies to promote safety culture among its  200 personnel new entrant Air Peace has announced plans to partner commercial banks , hotels, retail outlets , travel agencies and other businesses as it begins a three-day retreat to prepare for its inaugural flight this month.

    The partnership with many financial institutions and other players is to drive home the vision of the carrier for enhanced collaboration, its chairman, Mr Allen  Onyema said .

    The retreat, according to  Onyema will provide a platform for the workers to plan ahead on how to run an airline that is expected to change the face of air travel, even as it wil have zero tolerance for accident and cutting of corners.

    Onyema  said the retreat beginning today at the Eko Tourist Resort will provide opportunity to inculcate in the airline personnel the need to pursue safety both on  ground and in the sky.

    He said the event will also provide a platform for both technical and non technical workers of the airline to plan how to use technology and other offline platform to leverage the carrier, which is expected to run like  South West Airline of the United States of America (U.S.A.).

    Onyema said with five aircraft already on ground, Air Peace is expected to take delivery of the sixth aircraft preparatory to inaugural flight.

    He said the retreat will also provide an opportunity to educate the personnel of the airline on the need to imbibe zero tolerance for accident .

    He said:”Air Peace will begin its three-day retreat for staff ahead of planned operations which would be announced this month.

    “The retreat is for our over 200 personnel including technical and non technical staff.

    “It is important for us to drive home the point that the staff must understand the vision of this airline.

    “Though this would be at huge costs, it will help to start on a good note with everybody understanding the vision of the airline .

    “It is to herald the start of operations very soon. Our strategy is on time departure .

    “We can assure that everything is on ground for our inaugural flight .

    “We will educate our staff on how to make the difference as an airline by pursuing customer service .

    “We will ensure we educate our staff on the need not to cut corners  and have respect for all passengers’’.

     

    “We shall also pursue how to use

  • Workers urge CBN to sanction banks over ‘fraud’

    Workers urge CBN to sanction banks over ‘fraud’

    The Senior Staff Association of Electricity and Allied Companies (SSAEAC) has urged the Central Bank of Nigeria(CBN) to probe the activities of  four banks (nams withheld) for allegedly mismanaging its accounts.

    Its President- General, Bede Opara, said two of the banks are first generation banks, while the other two are second generation.

    Opara said the development became necessary, following fraudulent transactions discovered in the accounts of the union.

    He said some senior officials of the association, had in 2003 opened account in their names in one of the banks, instead of the union’s name to warehouse the two per cent deduction from the severance package of the workers of the defunct Power Holding Company of Nigeria (PHCN).

    He said the development made the union to suspend the affected workers, adding that the association was later informed of the incident through a letter from the bank.

    He said: ‘’Immediately we received the letter, the secretary-general of the union and I went to the bank to open another account to negate the one opened by the suspended worker.

    The National Executive Council (NEC) at its meeting on February 21, this year constituted an Ad-Hoc Disciplinary Committee to probe allegation of financial misconducts of the workers. But before the committee could take off, the workers have gone to court to stop the investigation and further prevent the banks from cancelling the transaction.”

    He said the National Industrial Court sitting in Lagos had on July 9, this year dismissed the suit filed by the aggrieved members.

    Opara said the banks, in spite of the ruling, have neither effected changes on the accounts or honour transactions made by the association.

    According to him, the development informed the union’s decision to call on CBN to investigate the banks and sanction those that are culpable of the offence.

  • CRR: 10 banks keep N2.3tr with CBN

    CRR: 10 banks keep N2.3tr with CBN

    Ten lenders have contributed N2.3 trillion to the Central Bank of Nigeria (CBN) in line with the Cash Reserve Requirement (CRR) policy of the regulator, Renaissance Capital (RenCap), an investment and research firm has said.

    CRR is a portion of banks’ deposits kept with the CBN as reserves.

    In a research report titled: Nigerian banks: The cost of Macro Stability, the firm explained that looking at the reported first half numbers for the 10 banks under its coverage, they have N2.3 trillion in cash reserve at the CBN earning zero interest.

    This, it said, represents an average CRR of 22 per cent for these banks, ranging from 18 per cent at First Bank of Nigeria Holding Company (FBNH) to 27 per cent at Zenith and Fidelity banks.

    This is up from an average of 11 per cent in 2012 and 16 per cent last year. In computing the implied CRR per bank, RenCap used the reported restricted deposits as a percentage of each bank’s naira deposits in the country.

    On average, it said restricted deposits have grown by 127 per cent between 2012 and June 2014, ranging from 72 per cent at Skye to 186 per cent at Diamond banks.

    “We believe the significantly tighter banking regulations explain the relatively low returns of the Nigerian banks versus sub Saharan Africa (SSA) peers; but on the flipside, they explain the country’s relatively stable macro conditions. Our view therefore is that for the Nigerian banks’ returns to improve sustainably over time, some loosening of monetary policy front will be necessary, particularly on the CRR,” it said.

    Continuing, it said last year was the year to take the pain, this year to stabilise and next year when lenders are expected to start seeing early signs of recovery. It said any loosening of monetary policy is unlikely until after the elections in December next year.

    It said: “We expect the Systematically Important Banks (SIB) rules in Nigeria to indicate a minimum CAR of 15 per cent for SIBs, with tier 2 capital capped at 25 per cent of total qualifying capital.

    “Above the 15 per cent, SIBs will be required to maintain a one per cent capital buffer that comprises entirely of tier 1 capital, which will raise the minimum CAR for SIBs to 16 per cent.”

    It said significantly tighter banking regulations explain the relatively low returns of the Nigerian banks against SSA peers; but on the flipside, they explain the country’s relatively stable macro conditions. “Our view therefore is that for the Nigerian banks’ returns to improve sustainably over time, some loosening of monetary policy front will be necessary, particularly on the CRR.

    “We would like to see Nigerian banks deliver returns comparable with those of their SSA peers, but we believe the operating and regulatory environment in Nigeria is significantly tougher than in other key SSA markets. Sector earnings have been broadly resilient, but some banks stand out, and these are our top picks in the space: Zenith, Access, Stanbic and FCMB banks,” it said.

    At sector level, we estimate the Nigerian banking sector now has a blended cash reserve ratio (CRR) of about 31 per cent, against 11 per cent in Ghana, 5.25 per cent in Kenya and five per cent in Rwanda.