…paid directors N4.05bn in one year
With the economy officially in recession and many other economic indices yet on the downward trend, the fortunes of most Nigerian banks have continued to dip, with eight of the top banks recording huge impairment losses on assets in the first half of 2016.
The eight tier-one Deposit Money Banks reported losses amounting to N167billion as impairment losses on financial assets between January and June this year.
The banks include First Bank, Union Bank, Zenith Bank and First City Monument Banks. Others are Ecobank Transnational, Diamond Bank, Sterling Bank and Fidelity Bank Plc.
This said loss represents an increase of N92 billion or 120 per cent when compared to N75 billion losses on financial assets recorded in the comparative period of 2015.
By the losses, the tier-one banks on the list may have successfully joined the small and struggling banks, with a long history of losses over time.
An impaired asset is a company’s asset with a market price less than the value listed on the company’s balance sheet.
Although, certain economic fundamentals like provisions for nonperforming loans and other known losses may have triggered the loss in the bank’s half-year results, analysts and economists, who spoke with our correspondent, opined that the issue of directors’ high remuneration is another contributing factor.
According to them, in the face of decreasing bottom-line of the banks, it may be difficult to separate the poor performances from the effects of the high remuneration and allowances being drawn by bank directors, as it will also continue to hinder growth.
A renowned stockbroker, Mr. Emeka Madubuike, also gave a fresh insight, saying that much as earnings of bank directors could have great effect on their balance sheet in terms of losses, the remunerations are even quite insignificant compared to the total expenses of the banks, most of which are often on causes ambivalent to banking activities.
According to an asset management analyst, Mr Oluwasina Olubu, even if the directors think they deserve whatever they are earning, the situation of the economy and the financial state of the banks have made the need for a downward review of their salaries a moral burden.
He said, “Most of the directors would say that they have huge amount of shares in the company, therefore they are into business and must reap from what they invested, regardless of whether the banks are going down or growing.
“But when you put sustainability first, then you can easily justify the need for cutting down cost. Some of the directors sometimes feel if shareholders can be paid dividend, why would they not collect theirs. It is all about morals and integrity as I earlier pointed out.”
The Point had, in the cover story of its last edition, reported that shareholder groups and industry analysts were worried over the dwindling financial health status of most banks, against the backdrop of revelations that 12 out of the 24 banks in the country paid 161 directors a total of N11.23 billion in remuneration and other allowances in the 2015 financial year alone.
This was aside from several other allowances that catered to such services as domestic staff, which were uncaptured. The banks listed as affected in the story were First City Monument Bank, Skye Bank, First Bank, Guaranty Trust Bank, Access Bank and Union Bank. Others include Diamond Bank, Fidelity Bank, Wema Bank and Sterling Bank, among others.
Some directors of the affected banks include First Bank Chairman, Mrs. Ibukun Awosika; Mr. Dauda Lawal and Dr. Remi Oni (both Executive Directors); Diamond Bank MD, Uzoma Dozie and Executive Director, Mr. Oladele Akinyemi; Skye Bank MD, Tokunbo Abiru and EDs, Mr. Bayo Sanni and Mr. Idris Yakubu; and WEMA Bank’s Chairman, Mr. Adeyemi Asekun, MD, Segun Oloketuyi and EDs, Mr. Ademola Adebisi and Mr. Moruf Oseni.
Others were GTB Chairman, Mrs. Osaretin Demuren, MD, Segun Agbaje and EDs, Mr. Wale Oyedeji and Mr. Demola Odeyemi; Sterling Bank’s MD, Adeyemi Adeola, and EDs, Lanre Adesanya and Kayode Lawal; and Access Bank’s Chairman, Mosun Bello-Olusoga, MD, Herbert Wigwe; and EDs Victor Etuokwu and Ojinika Olaghere, among others.
Interestingly, however, seven of the eight banks that already have asset losses in the first half of this year, were part of the 12 banks The Point reported last week to have paid their directors a total of N11.23bn in remuneration.
The seven banks paid the sum of N 4.05bn to their directors as remuneration and other allowances.
Findings by The Point revealed that Union Bank Plc recorded impairment losses of over 190 per cent as it increased from N2.97 billion in the first half of 2015 to N8.78 billion recorded in the 2016 financial year.
For the period under review, Zenith recorded about 100 per cent increase in its impairment loss, up from N7.2 billion in 2015 to N14 billion at the end of June 2016.
While Ecobank Transnational Incorporated’s impairment loss moved from N17.8 billion to N32.9 billion in the first half of 2016, FCMB recorded about N13.5 billion in 2016, an increase of 260 per cent on impairment loss, compared to the N3.7 billion it recorded in the first half of 2015.
In his reaction, the Group Managing Director of FCMB, Mr. Ladi Balogun, said it was the provisions for non-performing loans and other known losses that dampened the group’s half-year results.
He, however, explained that, despite the disappointing financial performance, the bank’s business strategy of building a retail-led commercial bank remained on course, as illustrated by its strong growth in personal banking revenue in 2015.
FBNH recorded N69.9 billion, which represents a 209.6 per cent rise in impairment charge from N22.58 billion recorded in the half year ended June 30, 2015.First Bank was among those that had sent profit warnings to the stock market community, saying its earnings would be materially below 2015 levels as a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within the commercial banking business.
The Group Managing Director of FBN Holdings, Urum Kalu Eke, said this had been a very difficult time in the history of the institution.
He attributed the 209.6 per cent growth in impairment losses to the impact of naira devaluation and the global financial crisis, real estate and general economic destabilisation.
“We have continued to revamp our credit and risk management processes towards generating high quality assets and have begun to see improvements in this process operationally,” he said.
Zenith Bank and Ecobank Transnational Incorporated reported impairment losses of 97.6 per cent and 84.8 per cent respectively.
Apart from the Tier 1 banks, some Tier 2 banks also recorded significant growth on impairment charges. Fidelity Bank and Diamond Bank Plc, for example, took a charge of 52.8 per cent and 45.6 per cent respectively.
Fidelity Bank reported that its impairment charges on financial assets moved from N3.1 billion to N4.8 billion while Diamond Bank announced N18.99 billion in H1 2016 as against N13 billion posted in H1 2015.
The management of Diamond Bank said the growth reflected the bank’s continuous prudent provisioning, aimed at strengthening performance in the years ahead.
Further investigations by our correspondent showed that Sterling Bank Plc was the only bank whose impairment charges dropped by 16.8 per cent to N3.7 billion in the first half of 2016, from N4.4 billion in H1 2015.
Shareholders, analysts react
Worried by this development, some shareholders, financial analysts and market operators said a combination of factors was affecting the nation’s economy, besides the global market, which had not been favourable.
According to them, the persistent rise in inflation had impacted negatively on banks’ loans, further plunging them into impairment losses on assets.
The President of the Progressive Shareholders’ Association of Nigeria, Mr. Boniface Okezie, said that the gloomy pictures of banks’ impairment losses showed that the second half of the year was not going to be rosy, adding that shareholders usually expect better returns on investment at the end of every financial year.
“The banks have huge non-performing loans. What they should be doing now is loan recovery, and then they can make profit, which will also help to boost their shareholders funds,” he said.
Commenting on the development, Head, Investment and Research, Sterling Capital, Ms. Sewa Wusu, said, “We have seen reactions in the financial markets generally. They are headwinds that investors would naturally react to because of the fear of eroding the value of their investment. Most investors are just exiting to preserve their capital and wait for the tide to clear. This is because they cannot just make investment decisions when there is no clarity in the macroeconomic space.” Wusu noted that the impairment losses on assets incurred by these banks were also as a result of the Naira devaluation. “Local currency continued to depreciate against the dollar within the year due to many factors, key among which was the consistent fall in the price of crude oil,” she said. The issue of forex devaluation, she added, was another major contributory factor.
“If you have some credit currency from abroad, and the Naira is devalued, it will definitely affect growth in banks’ assets. It will also affect those that have dollar loans when the currency is devalued,” Wusu argued.
An investment analyst, Mr. Adeniran Adeleke, said the first and second quarters of the year were always marred with harsh economic conditions due to low expectations within the period, which culminated in low patronage by both local and foreign investors.
He, however, attributed the losses to persistent challenges of the macroeconomy and volatility in the business environment, worsened by the devaluation of the naira and the fall in the global oil price.
The Director-General, Lagos Chamber of Commerce and Industry, LCCI, Mr. Muda Lawal, on his part, said that the current lull in the Nigerian economy had affected every institution, including the banks and the manufacturing industries.
He regretted the inability of the Federal Government to regain the confidence of investors, both local and foreign, which had resulted in uncertainty in the foreign exchange market.
The LCCI boss, who spoke on the state of the economy, said, “Regrettably, the instability and inconsistency in the foreign exchange management policy have been complicating matters.
“The economy has a major structural defect of being heavily import-dependent. This cannot be fixed in the short term. Therefore, the shocks arising from the collapse of oil price and the corresponding depreciation in exchange rate of the naira were inevitable. But the policy responses could make a whole lot of difference in the profundity of the impacts of these shocks on the economy and the citizens.”
He explained that it was right to penalise banks for proven infractions, but this should be done in a way to minimise collateral effects on investors and the larger economy, given the high sensitivity of the economy to developments in the foreign exchange market.
“This is even more so at a time when the economy is grappling with a major confidence issue in the forex market. There should be more creative and less disruptive ways of imposing such sanctions,” he said.