Just as Nigerians are beginning to pick their pieces together from the ashes of the 2008 global financial melt down and the subsequent turmoil in the Nigerian capital market, Fitch Rating Agency to which banks submit themselves for evaluation in order to get attention has raised a fresh alarm over growing loan portfolio in the banks that can trigger off another round of non performing loans crisis.
But CBN Governor, Sanusi Lamido Sanusi has dismissed the alert saying “I am not worried by the recent report from ratings agency-Fitch that Nigerian banks’ asset quality was at risk from recent rapid credit growth. He said banks should be increasing their lending to small and medium-term enterprises. In my job, I have more information on the banks than Fitch has, and I don’t have the concerns that Fitch has.” Sanusi’s comment is expected of a regulator whose primary duty is to protect the industry and the economy. Beyond the official comment of the Governor, there is cause for concern as Fitch is not just any other agency. Banks use its verdict or rating for marketing.
As a regulator, the CBN should be more concerned that a rating agency to which the banks often willingly submitted themselves for external examination has come up with an independent opinion. Whatever it is, CBN should be humble enough to accept the external verdict on the banks. If it were a positive report, it would have claimed the credit with paid advertorial and a blitz of media publicity
Denzil De Bie, a Director in Fitch’s Financial Institutions team, said in the special report on Nigeria that there was a marked improvement in banks’ asset quality during 2011 following the sale of problem loans to the Asset Management Corporation of Nigeria. “However, rapid underlying credit growth of 30%-66% was evident in most of the Fitch-rated banks in 2011 which the agency considers will be a negative credit driver if it continues”. The special report highlights some of the key rating drivers for Nigerian banks in the context of their mostly ‘b’ range Viability Ratings.
Nigeria banks appear not to be learning any lessons from the past. Already some are selling performing loans to AMCON at a loss. It is either that there is lack of executive capacity to manage Nigerian banks or the business terrain has become so problematic that the banks are not in any position to do anything about it. The crop of managers in the banks especially in the older breed had executive capacity problem.
In the 70s and 80s Nigerian banks were not employing individuals with grade one certificate from WASCE; the banks then will reject you on the grounds that the individual will soon leave. Over time, until recently, most top bankers rose through the rank without proper exposure to modern management practice. That may have changed over the years but a culture of this is how banking is done was established. A check through those who have emerged in the past as president of the chartered institute of bankers of Nigeria will bear witness to the fact that three of their past presidents have run aground some banks in the country. When these traditional bankers employed graduates, they passed their culture of non performance to them. That Fitch Ratings has raised fresh alert on the growing loan facilities in the Nigerian Banking sector that might lead to another round of non-performing loan crisis. This should give every Nigerian cause for concern.
Fitch has raised the issue that internal capital generation in Nigeria banks needs to be addressed as the generous dividend policies demanded by investors are not condusive to sustainable loan book growth in the medium-term. It also raised the point that many Nigerian banks have thin levels of Fitch Core Capital, which are lower than is appropriate for Nigeria’s difficult operating environment. It further said that “Cost to income ratios are relatively weak across the sector, with most banks reporting ratios of 60-75 per cent during 2011. It said that the Nigerian banks are primarily funded by customer deposits which make up at least 80 per cent of most banks’ funding profiles. Deposits are short-term, with 80-95 per cent of deposits maturing within three months. What Sanusi should tell Nigerians is if these observations made by the agency are right or wrong. If deposits in banks are short term, how will they lend long term?