Banks’ crisis deepens as mkt cap slides by 40%


There are strong indications that the Nigerian banking industry may be facing deeper problems than envisaged as investigations reveal a huge 40 per cent drop in market capitalisation and share prices of Nigerian banks. From January 1, 2015 to March 12, 2016, the total market capitalisation of the banking sub-sector had nosedived by 30 per cent, dropping from N3.22 trillion to N2.52 trillion during the period. The Nigerian Stock Exchange’s Banking Index also emerged the worst performing sectoral index at the end of 2015, and maintained the record in the first quarter of 2016, as it fell from 351.4 to 268.5, representinga 25 per cent slide within the same period.
The index, which is designed to provide an investable benchmark to capture the performance of the sector, comprises the 10 most capitalised and liquid companies in the banking sector. Despite the recent traces of upward movement of some equities on the floor of the stock exchange between January 2015 and March 12, 2016, the index still depreciated by 27 per cent. Findings revealed that most of the banks’ stocks were currently at their two-year lows in terms of value. Between January 2015 and March 12, 2016, the share prices of about 10 out of the 15 quoted financial institutions had dropped by 100 per cent or more.
For instance, First Bank of Nigeria Plc fell from N8.30 to N3.00, which
represents about 200 per cent decrease within same period, while the share prices of Access Bank Plc, Union Bank of Nigeria Plc, Diamond Bank Plc and Skye Bank Plc also dropped from N7.00, N9.00, N5.18 and N2.41 to N3.50, N5.50, N1.48 and 60 kobo respectively. Others are Stanbic IBTC, which dropped by about 100 per cent, Sterling Bank (over 100 per cent) and Unity Bank, hovering around 50 kobo and 60 kobo, the least value for any stock.

Uba Group

Economic experts have, however, expressed dissatisfaction over the state and performance of the banks. They faulted the management of the banks for the drop in their market value, saying that the performance of the stocks on the floor of the stock
exchange was a reflection of the true state of the banks because the capital market was driven by information.
A former Managing Director, Mutual Alliance Investments and Securities, Dr. Olakunle Ologun, faulted the banks for not paying attention to core banking operations. He told The Point that most of them were involved in political activities and other projects that originally were out of the industry’s portfolio. “Some of the banks were used to channel funds before the 2015 general elections and others actually gave funds to some political parties without having the necessary collateral and that was based on the assumption that the immediate past President would win the election. Officials of the last administration met with the bankers to assure them of reelection and solicit for their financial assistance,” he alleged. Another economist, Dr. Kehinde Ajayeoba, argued that the level of experience among bank staff was very poor. According to her, most of the banks employ young graduates for jobs that are supposed to be handled by experienced hands.
“A friend of my younger sister that has about three years’ experience heads the risk department of one of the tier one banks that has its headquarters in Victoria Island and I asked myself if three years were enough to understand the rudiments of such a sensitive job. What is the experience of a 28-year-old who graduated a few years back? What managerial value in terms of risk control is she bringing on board? Today, that bank is among the banks with the highest Non-Performing Loans,” she said.

While economic and capital market experts urged the banks to go back to the drawing board and restrategise on core banking operations and human capital, forensic experts are anxious about the implications of the development on the industry.
Some of them told The Point that a number of the banks had closed some of their branches across the country and many more would still shutdown. A forensic accountant, Mr. Ori Adeyemo, alleged that most of the banks had been publishing cosmetic profit before now and that the introduction of the Treasury Single Account, which compelled them to refund all government’s funds, made matters worse.                       According to him, some of the banks depend largely on excess charges they impose on their customers. “I have over 400 cases on illegal charges worth over N1 trillion that were deducted from my clients’ accounts. There are many accountants in court battling similar cases with the banks and we will not be tired till we get justice. Most of them are like walking corpses. It is just a matter of time for AMCON to buy their toxic assets,” he said.

However, the shareholders of banks have also threatened to sue the Central Bank of Nigeria should any of the banks fail. Most of them expressed concerns over the huge impact of the financial deductions made from the banks by the various regulatory authorities, which they argued, ate deep into the institutions’ profitability.
An investment analyst, Mrs. Bisi Bakare, said some of the banks risked being acquired, noting also that policies such as the N50 stamp duty on every N1,000 deposited in accounts constituted uneccessry burden. “This policy and others scare people from the sector and they indirectly affect the financial status of the banks. If any of the banks is declared insolvent, all shareholders will join hands to sue the CBN,” she said. The National Co-ordinator, Independent Shareholders Association, Sir Sunny Nwosu, alleged that the CBN, AMCON, Nigeria Deposit Insurance Corporation and Securities and Exchange Commission, among others, constituted what he called ‘vindictive regulators’.
According to him, the levies and other charges imposed on banks and other financial institutions by these bodies constitute a heavy burden on them and deplete their profit, thereby impacting negatively on shareholders’ funds.

“FCMB alone was charged N10.94 billion as premium and levies to NDIC, AMCON and “others” for the 2014 financial year. This could have severe effects on the financials of the companies. We will partner the banks in applying pressure on the “vindictive regulators” whose policies constitute heavy drain from the asset of the companies and we expect the management of the banks to ensure that greater care is taken to avoid falling victim to regulatory sanctions,” he added.

The Managing Director, Diamond Bank, Mr. Uzoma Dozie, agreed that the industry was faced with macroeconomic challenges but was optimistic that his bank would rebound. “In the light of these deteriorating conditions, and subsequent review of Diamond Bank Plc’s management accounts for the financial year ended December 31, 2015, preliminary indications are that earnings will be lower than in 2014,” he said. He, however, explained that the bank had deployed considerable resources in building a dependable risk management framework, and that the quality of its loan portfolio in general, remained high. Similarly, the Company Secretary, First Bank Holding Company, Mr. Tijani Borodo, explained that the bank had introduced prudent measures to ensure that its reduced earnings did not reccur at the end of 2016. “This reassessment was driven by the challenging macro-economic environment, coupled with fiscal and monetary headwinds, which have resulted in marked reduction in domestic output. This is a prudent measure being taken while the bank has commenced active remedial action on the specific impaired accounts. The group remains strong and resilient,”
Borodo added.