- Expect more losses in 2017, experts warn
Diamond Bank Plc and Sterling Bank Plc recorded a drop in Profit After Tax of N8.6billion, collectively, at the end of the 2016 financial year, as revealed by their profit/loss profiles for the year.
Sterling Bank’s PAT dropped by 50 per cent, from N10.2billion, as at December 2015, to N5.1 billion at the end of 2016.
The bank’s customers deposited N584.734 billion in 2016, slightly lower than N590.889 billion deposited in the 2015 financial year. Its total non-performing loans as percentage of gross loans also doubled as it increased from 4.8 per cent to 9.9 per cent.
In the case of Diamond Bank, its PAT fell from N5.65 billion at the end of 2015 to N3.498 billion as at the 2016 year end, representing about 33 per cent decrease in the period under review.
Loans to customers increased by 30.3 per cent, being N995.33 billion in 2016, up from N763.63 billion in the previous year. Loans to other banks also rose by 67 per cent, being N100.3 billion, from N60.1 billion recorded in the previous business year.
Ecobank, on the other hand, recorded an outright loss of N52.6 billion at the end of 2016 as against a PAT of N21.25 billion in 2015. In the same vein, the bank’s operating profit before loss dropped from $735.1 million to $131.3 million, while its total assets declined to $20.5 billion. Loans and advances to customers also dipped by 17 per cent, amounting to $9.3 billion within the period under review.
Other banks in the Deposit Money category made slight or marked increases, in the 2016 financial year, depending on their exposure to bad loans and other factors.
MORE LOSSES IN 2017?
Financial experts, who spoke with The Point, attributed the poor performance of the banks to the challenging macro-economic environment, lack of good operational policies and other financial indicators.
An economist and a Fellow of the Chartered Institute of Bankers of Nigeria, Dr. Alaba Olusemore, said that the factors responsible for the situation might be due to increasing NPL of the institutions and operational fraud.
A lot of banks have huge nonperforming loans due to their exposure to oil firms, which couldn’t pay back on time owing to the crash of crude oil price in the global market
“Losses in banks arise majorly from loans granted that could not be collected on time or not collected at all, which have become bad. Out of the loans that are not performing, they will make provision for them as required by guiding laws from the CBN regulation,” he said.
Olusemore added that the liquidity status of the banks was worse than what was presented. According to him, most of them had bad loans that were written off entirely from their books.
“The last one that was written off from their books affected their profits, balance sheet and income statement. Even some banks that declared profits are only living in the shadows of their old selves as they would incur losses by the end of 2017.
“Ecobank that is supposed to be one of the biggest players in the Nigerian banking sector, recently closed down about 74 of its branches nationwide. It may be that its funds are trapped, which makes the bank to be illiquid, not that it cannot operate. What it means is that it won’t be able to grant as much loans as possible. Whatever loans banks are granting have a link with their liquidity, as long as people are still transacting with them,” he said.
Another financial expert believes that, in spite of the challenging domestic macroeconomic environment, the banks can do better with consistent favourable economic policies.
A professor of financial economics, University of Abuja, Leo Ukpong, said investors expected the banks to perform better than they did, but for certain factors.
He listed the factors to include the exchange rate volatility, policy inconsistency and the persistent fall of crude oil price in the global market.
He said, “A lot of banks have huge non-performing loans due to their exposure to oil firms, which couldn’t pay back on time owing to the crash of crude oil price in the global market.The operation of the Treasury Single Account by the Federal Government also affected their operations, as they were using the money generated as turnover.
“But when the issue of the TSA came up, they had to remit all government funds. Declaring such loss can be discouraging.”
“The results could have been positive but for the disruptive effects of the CBN’s foreign exchange policy, weak fiscal conditions of government at all levels, and prevailing uncertainty in the economic-policy space,” another financial analyst, Dr. David Oyemade, said.
BANKS NOT PROACTIVE – SHAREHOLDERS
Shareholders in the banking sector have blamed the banks’ managements for their losses, which they believe would affect the future of the sector.
According to them, the banks failed to put in place, right operational frameworks and friendly policies to cushion the effects of the economic headwinds that have bedeviled the economy.
National Coordinator, Association of Corporate Investors of Nigeria, Mr. Taiwo Oderinde, noted that one of the factors responsible for the situation was the impact of digital banking on the sector in the country.
According to him, the issue of the digital revolution could also be responsible for losses.
How? “Nigerian banks grow and make more money from the number of branches they have, but with the revolution of the digital system, it is no more like that.
The banks are liable to really have a very strong digital platform or infrastructure, which is capital intensive.
If you are growing your bank via physical structures, you are going to have what we call a linear growth,” he said.
President, Nigeria Shareholders Renaissance Association, Mr. Olufemi Timothy, also explained that any bank incurring losses posed a lot of concern to the investing public, because shareholders would not expect a bank not to have done its homework by making sure that unforeseen economic or environmental changes did not pull them down.
“It means that the banks were not proactive in tackling the foreign exchange crisis and the oil glut, which really affected the economy.
This is because, if a bank is not well positioned amidst economic challenges, it is bound to have problems, as it would be caught in the illiquidity web,” he said.
He added that shareholders were not happy with the state of the banks as they advised the management of the institutions to consider restructuring their business models, to withstand shock waves from adverse economic changes.
Timothy warned that if care was not taken, these impaired loans would bring down the fortunes of the banks, just as the NPL percentage would continue to increase.
“That can lead to a takeover by the Asset Management Corporation of Nigeria, which will discourage shareholders in the long run,” he added.
Commenting on the profit drop saga as it affects Diamond Bank Plc, the bank’s Chief Executive Officer, Mr. Uzoma Dozie, attributed the situation to Diamond’s ongoing operational restructuring, which he said was a key development.
“Following its successful implementation, the emerging model has improved customers’ engagement, strengthened our value chain approach to business and delivered efficiencies across the bank,” he said.
Dozie noted that these measures had helped to improve the bank’s low-cost deposit base from the retail segment, while also facilitating growth in non-interest income and reduction in interest expenses.
According to him, the bank will also continue to deepen its retail strategy to mop up low cost funds, expand its credit creation structure and increase market share in all market segments.
“In the months ahead, the bank will continue to deploy new technologies and digital applications to drive financial inclusion and convenient banking, amidst a decline in the pace of economic activities and weak economic fundamentals,” Dozie said during the bank’s annual general meeting.
