By Omoh Gabriel, Business Editor
Despite carrying on as if there are no problems whatsoever, indications emerged yesterday that some Nigerian banks have approached government for a bailout package as the effects of the roiling financial crisis bites harder, just as fresh facts available to Vanguard last night revealed that banks and discount houses borrowed N9.4 trillion from the Central Bank of Nigeria.
Sources close to the Federal Ministry of Finance said that some banks have already signaled interest for government intervention in their operational activities, a pointer to the severity of the liquidity situation the banks are confronted with.
A report done by auditing firm, PriceWaterhouseCoopers (PWC) to the Ministry of Finance indicated that some Nigerian banks might not be as healthy as portrayed by the CBN and the Nigeria Deposit Insurance Corporation (NDIC). PWC said in a statement on the Global Financial Crisis and Implications for Nigeria that some of the banks have already signaled interest for government intervention in their operational activities.
Part of the statement read:
“As at the beginning of February 2009, none of the banks have publicly shown any signs of needing intervention. However, in spite of positive financial statements, some of them have called for the intervention of, or part take over by the government. Various industry commentators have reported that banks are struggling with non-performing facilities in excess of N300 billion to N400 billion,” it said.
The PWC discussion paper, obtained from the Ministry of Finance, said that there had been concerns that the CBN’s assurances that Nigeria’s 23 banks were liquid and operating well might not be entirely accurate.
Vanguard investigations however revealed that some Nigerian banks ran into stormy waters soon after consolidation when in the spirit of competition they jerked up the emoluments of their staff out of tune with industry. The pay rise, it was gathered, was not matched with increased productivity. It was also learnt that the affected banks soon after started setting high targets for their staff, and used inability to met the targets as basis to cut salaries and allowances. As of today almost all of the banks affected have reduced their staff salaries.
Further investigations also revealed that with consolidation, the single obligor limit (the lending ceiling to a particular customer) of banks was raised and some of the banks increased their lending to individuals and corporate bodies on collaterals that were weak. As a result some of the loans are not performing.
According to bank treasurers, most banks during consolidation and the capital market boom that followed gave out loans to their stock brokerage arms and staff to buy shares, using share certificates as collateral. With the market meltdown the certificates are not worth the amount of loans and many of the banks are in liquidity pains.
According to the audit report on banks in the country, the global decline of oil prices have adversely affected many of them as the loans given to oil marketers have gone bad. Some of the banks have changed their oil and gas group heads as a result of this. Further, the audit report indicated that banks also suffered a setback by the sudden devaluation of the naira. All of these have put a hole in the balance sheet of most banks in the country.
“Western governments have taken stakes in banks in order to prevent their collapse. Whilst this has not yet happened in Nigeria, there is speculation that large underlying bad debts accumulated by banks could force government to intervene,” the PWC audit report said.
According to PWC, the Nigerian banks have all but stopped granting loans and credit terms have been cut to mere months and their interest rates are among the highest in the world. In order to avoid government intervention in the event that bank balance sheets weakened, a second round of bank consolidation may still occur, the PWC report added. The audit firm said that Nigeria’s reliance on oil and its falling price in the world market have exposed it to the vagaries of the global financial crisis.
“Oil prices recently fell to their lowest point in four years, having peaked at 147 dollars.”
Apart from dependence on oil, the PWC listed other areas of vulnerability to include reduction in global capital outflows, retrenchment of foreign investors toward familiarity and safety and Nigerians’ reliance on foreign investments. On the capital market, the PWC said that the decreased investment levels caused a 46 per cent fall in the Nigerian All Share Index in 2008, partly driven by foreign divestment and exacerbated by a devaluing Naira.
“A confidence crisis in the Nigerian economy coupled with prohibitive business environment had caused international corporations with Nigerian operations to relocate to more sustainable and friendlier markets,” the PWC said. The devaluation of the Naira over the last quarter, according to PWC, would further limit capital flows into the Nigerian economy.
The PWC said that there was a need for deeper co-operation between the Ministry of Finance and the 21 public institutions that work on the economy. These institutions, it said, include the CBN, the NDIC, SEC and the DMO, adding that they should work in harmony in handling the effects of the crisis.
“Co-operation between key stakeholders is important. However, existing links are highly bureaucratic, informal or inefficient resulting in poor management of the economy and slow response to the crisis,” the PWC said. The health of the commercial banks has been under the spotlight since last year, but the CBN and the NDIC have repeatedly given them clean bills of health.
Banks, discount houses borrow N9.4 trillion from CBN
Reflecting the severity of the liquidity crisis that griped the banking industry in the heat of the global financial crisis, banks and discount houses in the country borrowed N9.4 trillion from the Central Bank of Nigeria (CBN) in the fourth quarter of 2008. This represented more than half of the total assets and liabilities of the industry which stood at N15.88 trillion at the end of the year.
Disclosing this in its economic report for the fourth quarter of 2008, the CBN stated, “The total CBN’s lending facility accessed by deposit money banks and discount houses was N9,366.30
billion. Analysis of the lending transactions indicated that the sums of N4,683.66 billion, N2,658.34 billion and N2,024.30 billion were accessed by market players in the months of October, November and December 2008, respectively. This showed an increase of N3,492.27 billion, compared with N5,874.03 billion in the third quarter, 2008. The lending facility remained open daily and DMBs constantly accessed the facility in-order to even their
positions.”
“Available data indicated that total assets/liabilities of the DMBs amounted to N15,882.9 billion, representing an increase of 6.5 per cent over the level in the preceding quarter. The development was attributed largely to the significant increase in foreign assets, reinforced by the 7.9 per cent rise in unclassified assets. Funds, which were sourced mainly from demand deposits and unclassified liabilities were used mainly for the acquisition of foreign assets and unclassified assets. At N9,230.1 billion, credit to the domestic economy rose by 0.5 per cent over the level in the preceding quarter. The increase in credit during the quarter was attributed largely to the 6.9 per cent rise in claims on the private sector. Reflecting a significant increase in CBN’s overdraft to the DMBs, Central Bank’s credit to the DMBs rose by 1.0 per cent to N132.2 billion in the review quarter. Total specified liquid assets of the DMBs stood at N3,271.3 billion, representing 37.3 per cent of their total current liabilities. At that level, the liquidity ratio rose by 1.3 percentage points over the preceding quarter’s level, but was 2.7 percentage points below the stipulated minimum ratio of 40.0 per cent. The loans-to-deposit ratio rose by 4.1 percentage points to 86.8 per cent over the level in the preceding quarter, and was 6.8 percentage points above the prescribed minimum target of 80.0 per cent.”
