By Omoh Gabriel,Business Editor
Shareholders and financial analysts have expressed lack of confidence on the ability of the Central Bank of Nigeria (CBN)’s rescued (troubled) banks to make genuine profits after seven months they made billions of loan loss provision.
They further dismiss the hope of foreign investors buying over Nigerian banks given the recent rating by Standard & Poor’s (S&P ) that Nigeria banks are highly risky and unviable.
Recently, virtually all the seven troubled banks have turned out positive first quarter 2010 result, a development that have generated heated criticisms.
A financial analyst, who called Vanguard on phone from London said, ” I don‚Äôt hope that any foreign investor would come to Nigeria and buy over Nigerian banks especially now that S&P has described the banks in Nigeria as highly risky and unviable. The foreign investors have said that the only way they can come to buy Nigerian banks is when there is government guarantee.
So, he then ruled out the possibility of any responsible and accountable government using public fund to guarantee private business.
According to him, ” the owners of these banks should be given back to their owners while a time frame be given to them to recapitalise.”
In an interview with Vanguard, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Bonoiface Okezie said “these trouble banks are not making any profit from its core business. The profits they are declaring is just from some of the debt recovered. How can they say they are making profit when they are not lending. The primary responsibility of any bank is to lend. When they lend they are able to make money through interest payment.
In fact, the Central Bank of Nigeria (CBN) is just deceiving the public, these banks are not really making any profit. The profit they said the made is what the CBN wants them to declare. The CBN should be very careful with the running of these banks. We cannot even see the reason why the CBN intervene in these banks since they cannot order them to publish details of their results.”
Continuing, he said, “In fact, we the shareholders will want the CBN to ask these banks to come out with the details of how they made their profit. At least when a company makes profit there must be expenditure. It is when the income is greater than expenditure we can say there is profit. Nigerian shareholders would want to know how the profit came about.
I am very much convinced that the banks are not making fresh profit. They made billions of loan loss provisions, how can they recover soonest when they are not lending to the real sector who will now use these funds for further production that would generate profit from where they can now repay the principal and interest.
“The foreign investors are not ready to patronise Nigerian banks because when the Governor Lamido Sanusi went abroad to expose these banks in the name of reforms he thought he was doing the country good. Now it has backfired as the recent rating by S&P had shown that Nigerian banks are the most risky institution to invest in.
So if these banks want to make profit they should start lending to the real sector that has the potentials to repay. As it is now the economy is not moving. It is in standstill and something should be done.
I think this is the time for President Goodluck Jonathan to intervene and call the CBN to order otherwise the economy will not move. In a situation where there is no credit available for people to borrow to engage in economic activity, then such economy will never advance.
Mr. Adebayo Adeleke, Secretary General of Independent Shareholders Association of Nigeria (ISAN)
said , the trouble banks are not making any profit because they are not lending to the investing public. For a bank to make any meaningful profit it must be able to lend. The Cost of Transaction (COT) can not be enough to take care of the expenses and still declare profit. What has happened is that they are bringing in some of the repaid loans to the book.
In fact, the implication of not lending means that there wont be any meaningful economic growth and development. Many people are no longer interested to keep their money with banks since they are not lending to other people.
If the trouble banks are really making profit let them show us what deposit have they attracted since the CBN intervened to rescue them”.
Continuing he said, “the balance sheet of these banks will not grow if they continue to make provision for loans without lending fresh money. For the fact that some people among 140 million Nigerian are insolvent must not rubbish the majority of Nigerians that are credit worthy.
The CBN approach to the banking reforms is very faulty and should be reviewed in order to move the economy”
Financial experts are of the view that the profits declared by the troubled banks are mere illusion, as majority of the profits are from debt recovery activities and not from the core banking activities such as lending to businesses and the real sector.
Wema Bank Plc, in its first quarter financial statement for the year 2010 released recently, recorded a profit before tax of N795 million from a loss of N2.03 billion in the comparable period of 2009, while its gross earnings shot up slightly to N8.43 billion from N8.08 billion recorded in 2009.
Afribank, in first quarter 2010 financial statement, recorded a pre-tax profit of N1.99 billion compared to a loss of N39.9 billion in similar period in 2009, while its gross earnings stood at N25.1 billion compared to N93.59 billion recorded in 2009.
FinBank Plc posted a profit of N1.165 billion from N2.64 billion recorded in the comparable period of 2009, its gross earnings stood at N12.5 billion dropping from N17.3 billion in 2009.
Oceanic Bank International Plc recorded a profit of N2.56 billion from a loss of N14.83 billion in the comparable period of 2009 and a gross earnings of N30.35 billion from N29.33 billion recorded in 2009.
Spring Bank Plc recorded gross earnings of N5.98 billion from N6.53 billion in the comparable period of 2009, while its profit before tax stood at N635 million compared to a loss of N1.73 billion in 2009.
Union Bank of Nigeria Plc’s pre-tax profit stood at N3.6 billion compared to a loss of N938 million in similar period in 2009, its gross earnings dropped to N34.2 billion compared to N51.26 billion in 2009.
The experts are of the view that most of the figures are illusory as they have not had any underlying growth.
Afribank, Finbank, Oceanic Bank, Spring Bank, Union Bank and Wema Bank: are among the banks to have swung back to profit months after deep losses and huge writedowns. The central bank wants new investors to recapitalise the nine institutions it rescued and Governor Lamido Sanusi told Reuters this month that a number of foreign banks and private equity investors were still interested.
However, the underlying business of Nigeria’s banks has improved little since the bailout. Growth in bank credit to the private sector was still stuck at 0.35 percent in the first quarter compared to 25 percent growth in the same period of 2008.
Analysts have said the rescued banks’ first_quarter profits are due to last year’s high levels of provisioning rather than growth in lending, which have failed to lift stock prices in the banking sector .
“I don’t think what we’ve seen from the first quarter is a result of their direct intermediation or improvement in their core business. The results represent some recoveries and provisions no longer required,” said Anthony Orororo, head of research at Lagos_based Future View Financial Services.
“The results have failed to lift market sentiment. I don’t see any of these rescued banks delivering 10 to 15 per cent upside (returns) between now and the third quarter,” he said. The nine rescued banks made provisions for loan losses totalling more than 2.2 trillion naira ($15 billion) after the bailout last August and October, wiping out their shareholders’ funds and throwing them deep into the red.
Two senior bankers, names withheld said the profits could be explained by the “big bath” accounting technique, in which firms write off massive amounts of certain assets from their balance sheets in a single year and show increased future net income.
“The rescued banks were forced to provide massively for every loan they had and the ones they were not sure of. This is the big bath technique, you take a big hit last year and this year any loan recovery is a profit,” one of the bankers said. Concerns over the slow pace at which the underlying health of Nigeria’s financial sector is improving has caused a rally on the stock market to falter.
Banks account for 60 per cent of market capitalisation and the index has retreated to three_month lows in the wake of the banks’ first quarter results, although it is still up more than 20 per cent since the start of the year. Analysts had predicted a 40 percent rally over the year as a whole, driven by the quick resolution of banking reforms.
The creation of an asset management company (AMCON) to soak up non_performing loans and get banks lending again has taken longer than hoped. Parliament has passed a bill to form AMCON ,but it is still awaiting presidential approval.”
S & P said recently that Nigeria’s banking system remained “very high risk”, with banks in the single B category, and there was “still a long way to go” with regulatory reforms.
The central bank has announced recently that it has granted a three_month extension to a recapitalisation deadline for two banks, Unity and Wema, Bank because of delays to the formation of AMCON.
