There are fears that the banking sector may witness another liquidity crisis as about 15 celebrated banks face multi-billion naira losses by the end of the second quarter of 2016, investigations by The Point have revealed.
Top sources within the banking sector reliably informed our correspondent, in separate interviews, that many banks were currently grappling with the negative consequences of dwindling profits.
According to them, the banks are battling to develop workable recovery strategies to attract more funds into the system to reduce the negative impact on their declining deposits.
Top executives among the frontline banks told The Point that most of the financial institutions across the sector had many bad assets in their books, which would reflect in their second quarter and full-year financial reports.
This, they said, would not be unconnected with their high level of exposure to foreign exchange, oil and gas, as well as the ongoing economic slow-down among others.
Recently, the Nigerian capital market also recorded five profit/ loss guidance of five quoted companies and four of them are top financial institutions such as First Bank Holding, FCMB group, Diamond Bank and Ecobank Transnational Incorporated. Profit guidance is an expected results issue from a company to shareholders and market watchers on how they envision a near-future profit or loss turning out. While ETI shed over N10 billion in its Q1 result when compared to same period in 2015, Diamond Bank and Unity Bank lost about N2 billion and N3 trillion respectively within the same period.
A staff of Diamond Bank, who pleaded anonymity owing to the sensitivity of the issue, disclosed that the state of the bank’s book was already telling on its profit.
“The years 2015 and 2016 have been challenging for the bank and that is because some of the top executives lost focus and couldn’t control the exposure of the institutions to the forex and the upstream sector that have necessitated a review of nonperforming loans positions,” he said.
Another bank that is on the radar of financial analysts is GT Bank. Though the bank is among a few banks that declared an impressive result at the end of 2015, it may not be business as usual in 2016.
The bank was among the five banks whose profit before loss declined by N17 billion at the end of Q1, 2016 when compared with the corresponding period of 2015.
The bank disclosed at the end of Q1 2016 that 80 per cent of its upstream oil and gas exposure was to indigenous oil and gas companies, while 20 per cent was to international oil companies. Findings revealed that Aiteo, which is one of the indigenous oil and gas companies GTBank offered loans, had shut down its production.
“I don’t know how much the closure of the company would affect our books, but the impact will reflect in the Q3 result. We generally expect the recognition of some impairment by this loan and anticipate higher NPL by the end of the year,” a source in the bank disclosed.
In the case of FBNH, the activities of the Niger Delta Avengers in the region had disrupted the plans of the financial institution after its client and another indigenous oil firm, Atlantic Energy, were forced to shut down production by the militants.
FBNH confirmed in its financial report that about 53 per cent of Atlantic Energy’s exposure to them would be paid by the new investor with the balance restructured over two years. But on the bank’s Q1 2016, its management admitted that though the restructuring process hit a brick wall, they were optimistic that the process would be successful.Financial analysts speak
Financial and investment analysts have warned investors to look before they leap. An economist based in Los Angeles, United States, Ms Bunmi Adeyemi, disclosed that the volatility in foreign exchange market, huge write-offs and NPL emanated from exposure of banks to the oil and gas and power sectors have led to their present state.
Going by her analysis, these had further confirmed the fears among investors and stakeholders that more banks were likely to merge or risk being acquired.
“This had put the investing public on the alert that it is important they look beyond the surface for proper perspective before investing their fortunes. All valuations and forecasts have been reviewed downwards and share value of the institutions has dropped,” she stated.
Another economic analyst and Head, Investment Advisory, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said the declining profit in the financial services sector was a reflection of the challenges facing the Nigerian economy.
He said, “Most of the loans in the banks’ books have not been performing on the back of the sharp decline in oil prices. The recent Gross Domestic Product growth rate figure showed that growth contracted even in the manufacturing sector, real estate, and oil and gas sectors, among others.
“The delay in the choice of monetary and foreign exchange policies, which were later released recently, have all combined to affect the banks’ risk assets.”
The Chief Executive Officer, High- Cap Securities, Mr. David Adonri, said the expected decline in profits could also be traceable to ineffective risk management practice in some of the banks, especially for those that financed elections of politicians.
He said, “Investors need to pay serious attention to facts beyond the figures presented and adopt a more cautious approach to trading in the shares of the financial institutions as it appears that the firms had not disclosed how bad their books were and how they hoped to address same and its implication on their capital base. I am optimistic that some of the banks would either become targets for takeovers or seek fresh capital injections.”
CBN’S POLICIES COUNTERPRODUCTIVE- LCCI
As analysts warn the investing public to look before they leap, industrialists have warned that the present state of the banks may take a toll on the economy. They, however, urged the CBN to intervene and review some of its policies to cushion the effect on the economy.
The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, expressed concerns over the sustained tight monetary policy introduced by the apex bank. “The CBN governor should focus on bringing interest rates down and ensure the banks do same. I understand that he is worried about exchange rate, particularly as he tries to rebuild the external reserves, but he should also look for ways to bring down interest rates if we are determined to diversify the economy. The banks are shocked with the policies and that forced them to look for a short cut to make money as they got stuck in the mire of oil and gas,” he said.
BANKS WITHDRAW HEAVILY FROM THEIR DEPOSITS – CBN
The fragile state of the sector has been made worse by the fact that the financial institutions are forced to borrow from the CBN’s Standing Lending Facility, which has nosedived, according to the apex bank’s statistics. SLF is a tool used by the CBN to smooth out liquidity fluctuations and influence capital costs.
Last week, the CBN Governor, Mr Godwin Emefiele, revealed that the facility had increased by more than 170 per cent as it rose from N102.8 billion to N227.44 billion within the week. The increase represents the third consecutive week rise in CBN’s lending to banks. He admitted that banks were withdrawing heavily from their deposits in CBN as the liquidity pressure bit harder.