Home News INVESTIGATION: BANKS LOSE 80% PROFIT

INVESTIGATION: BANKS LOSE 80% PROFIT

INVESTIGATION: BANKS LOSE 80% PROFIT
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Nigerian-banks

  • INVESTIGATION: BANKS LOSE 80% PROFIT
    Trouble as Bad Loans Increase to N1.36trn
  • 5 Banks Lose N54bn
  • To Slash Withdrawal Limits
  • New Forex Policy May Reduce Risk – Experts

As Nigeria’s economy quivers under revenue shrink and uncertainties, the situation is telling hard on Nigerian banks. The 23 deposit money banks in the country are currently facing severe pressure on their balance sheets over the growing non-performing loans (NPLs) that dragged most of them to suffer from other risks.
Although many of the banks made frantic efforts to recover some of the bad loans and reactivate the NPLs since last year through several publications of the companies and their promoters, not much result was achieved in reducing the menace.
Checks by Daily Trust on Sunday reveal that a lot of the loans were trapped in the oil and gas sector as many marketers could not meet their obligations due to the downturn of crude oil price in the international market, and the huge electricity sector debt that couldn’t be recovered. Over N800billion invested in the power sector in compliance with a federal government directive to the banks is at risk as distribution companies suffer huge losses owing to cash crunch and low gas supplies.
Last week, after the Bankers Committee meeting, the Central Bank of Nigeria (CBN) revealed that the NPLs had crossed the regulatory threshold limit of 5 per cent. The bad loans jumped from N650 billion as at December last year to double at N1.36 trillion as at April, 2016, equivalent to 10.1 per cent of the total loans of N13.36 trillion.
The report, which reviewed development in the banking sector, stated that the industry’s combined capital adequacy ratio had reduced to 16.5 per cent from 17 per cent, although still above the prudential minimum of 10 per cent and 15 per cent for banks with national and international authorisation respectively.
The report attributed the Capital Adequacy Ratios (CAR) deterioration within the period to decline in the total qualifying capital and increase in the total risk weighted assets. It stated that the unaudited profit before tax for the period ended April 2016 decreased from N222bn for the period ended April 2015 to N198bn in the period ended April 2016.
It was gathered that from the middle of last year to April this year, the non-performing loans almost tripled or rose by about 300 per cent, a situation that resulted in CARs of 12.77 and 16.52 per cent for the banking sector and the large banks respectively, which were above the 10 per cent required regulatory minimum.
Although the annual solvency stress tests conducted on December 2015 gave a different picture of the condition of banks, the industry has remained relatively resilient. However, majority of the banks were sensitive to credit concentration and interest rate risks. But in the report, the CBN said this did not pose systemic threats to the industry.
The December test result obtained by Daily Trust on Sunday, which captured the idiosyncratic nature of individual bank’s balance sheet and macro-prudential concerns using the bottom-up and top-down approaches, covered the 23 commercial and merchant banks, using the risk elements such as credit, liquidity, interest, foreign exchange rates and foreign exchange trading risks.
For systemic and peer assessment, the banks were classified into three groups based on their asset size as follows: large banks with assets greater than or equal to N1.0 trillion, medium banks have assets greater than or equal to N500 billion but less than N1.0 trillion, and small banks have assets of less than N500 billion.
The bad loans burden has forced the CARs of the banking industry to deteriorate to 7.79, 8.73, 5.75 and 6.80 per cent respectively from the baseline. Under this scenario, none of the peered banks maintained a CAR up to 10 per cent.
Under the credit risk, medium and small bank groups showed vulnerability to severe shocks of 200 per cent rise in NPLs as their CARs fell to 7.16and 6.85 per cent respectively.
Under the interest rate risk, the results of the stress tests on the net positions of interest sensitive instruments relative to Returns on Asset (ROA) and Returns on Equity (ROE) revealed that the banking industry and peered banks weakened in interest rate risk as their pre-shock positions (in terms of capital impairment, ROA and ROE) decreased.
Under the exchange rate risk, the banking industry showed resilience to foreign influence as banks’ capital only experienced slight deterioration after the impact of a 50 per cent exchange rate appreciation shock was induced on their net foreign assets.
Contagion Risk Analysis through interbank exposures was also conducted during the review period. The analysis conducted on banks with unsecured interbank exposures revealed that two banks were central in the network as they were exposed to more than two counterparties in the system. A review of secured interbank exposures showed that three banks were central in the network as they had three or more bilateral exposures. Overall, there was high contagion risk through unsecured interbank exposure as one bank’s CAR was below the benchmark before the shock while two banks would fail to meet the CAR benchmark after the shock.
The sustained stress on the economy saw Gross Domestic Products (GDP) growth rate tumble to -0.36 per cent in the first quarter of 2016, compared to 2.11 per cent in Q4 2015, 2.84 per cent in Q3 2015, 2.35 per cent in Q2 2015 and 3.86 per cent in Q1 2015, the National Board of Statistics reported recently. This situation has raised concerns with analysts warning that a further dip in GDP in Q2 would officially push Nigeria’s economy into a recession.
Indeed, the times are hard and banks are reacting to the environment. With the new fuel price regime (N145 to the liter of petrol), rising cost of living and rising inflation (15.10per cent in May) with telling negative effects on disposable income, banks deposit continue to shrink. The banks are also groaning under the Single Treasury Account (TSA) which mopped in an excess of over N1 trillion government deposits from the banks, and counting is still hounding the banks.
The apex bank specifically mentioned the low price of crude oil and supply constraint at the forex markets as key factors responsible for the poor loans performance.
Recently, the CBN said it had issued circulars advising the banks to retain more of their earnings in anticipation of the risks that the rising NPLs might pose to their balance sheets.
“The sudden rise in NPLs was attributed to the outcome of the Risk Assets Examination of Deposit Money Banks (DMBs) conducted in December 2015.
“Also, the return on assets and return on equity were 2.17 per cent and 16.17 per cent in February 2016, compared with 2.42 per cent and 19.39 per cent in the corresponding period of 2015,” the report said.
The decline was driven largely by a decrease in both interest and non-interest incomes, which declined by 6 per cent or N50bn and 54 per cent of N259bn respectively.
On the liquidity ratio of the banks, the report showed that the industry operated far above the minimum requirement of 30 per cent. The ratio stood at 46.3 per cent compared with 39.78 as at April 2015.
The first quarter analysis of the balance sheet of five banks showed that they recorded a total Profit After Tax (PAT) of N90.07 billion for the first quarter. The Q1 financial period ended March 31, 2016, representing a drop of N10.52 billion or 10.5 per cent from N100.59 billion in the corresponding period of 2015.
The banks are Guaranty Trust Bank Plc, Union Bank of Nigeria Plc, Zenith Bank Plc, Ecobank Group, and United Bank for Africa Plc.
Similarly, the five banks recorded a total Profit Before Tax (PBT) of N106.29 billion for the three months period ended March 31, 2016, indicating a drop of 11.15 per cent from N119.63 billion recorded in each of the banks’ financial performance for the first quarter of 2016
The report also indicated that the total deposits in the banks declined by N1.03tr within the period under review, noting that the TSA contributed hugely in decreasing deposits.
The document revealed that the industry’s total assets decreased by N158bn from N27.588tr while the gross credit declined from N13.403tr to N13.363tr within the period.
The effects over the last financial year (2015/2016) on the industry have been unsavoury, with five banks losing N54 billion from their 2014/2015 financial year figures.
Five out of 10 of the 15 banks quoted on the Nigerian Stock Exchange (NSE) which had released their 2015 annual financial statements by March 31, 2016, regulatory deadline set by the CBN for the submission of the statements, posted unfavourable profits.
Information on the website of the NSE revealed that Ecobank International Incorporated, Union Bank Plc, First City Monument Bank Limited, Wema Bank Plc and Fidelity Bank Plc, posted a combined 80 per cent decline in their annual profit after tax (PAT). The 2015 financial results of banks released in March this year showed that the banks’ combined profit before tax (PBT) crashed to N77.65bn, from N131.19bn in 2014, while their combined PAT fell from N107.279bn in 2014 to N59.73bn in 2015. Wema Bank posted a PBT of N3.046bn; Ecobank N40bn; FCMB, N2.5bn; Union Bank, N18.1bn and Fidelity Bank, N14bn.
Bankers attributed the sharp fall in profit to high impairment charges on bad loans, and to foreign exchange uncertainties arising from a significant drop in oil revenue. Impairment charges or loan loss expenses occur when a bank is unlikely to collect all or some of its due debts, including both the contractual interest and principal payments under a loan agreement. Analysts have identified the exposure of most of the banks to oil and gas loans in the era preceding the assumption of office of President Muhammadu Buhari, especially loan facilities to the downstream sector of the oil industry. Most of the transactions were said to have burst as President Buhari began moves to sanitise many operations in the downstream sector, with many importers of petroleum products who had obtained bank loans for their businesses greatly affected.
The NSE website showed that despite the turbulence of bad loans provisions, forex problems and deposits crunch, the five other banks that released their 2015 annual reports in March this year were able to post increases in both their PBT and PAT.
The GTBank smiled on its PBT from N116.4bn to N120.7bn and its PAT from N94.4bn to N99.4bn. Access Bank joined the mood with its PBT from N46.1bn to N65.2bn, and its PAT increasing from N39.9bn to N58.9bn; and Sterling Bank’s PBT from N10.7bn 2014 to N11bn, while its PAT rose from N9bn to N10.3bn. GTBank and Zenith Bank were able to report their positive figures even after reporting full-year impairments of N12.4bn and N15.6bn respectively in 2015. GTBank’s net impairments in 2014 were a mere N7.1bn.
The impairment negatives apparently hit Ecobank and FCMB worse as their losses on financial assets rose by 137 per cent from N44.4bn in 2014 to N105bn in 2015 and a nil impairment loss in 2014 to N690m in the last financial year, respectively. The FCMB Group’s net impairment losses equally rose from N10.6bn to N15bn.
Sterling Bank’s impairment losses rose from N7.4bn in 2014 to N8.2bn in 2015. Access Bank’s impairment also increased from N10.6bn to N13.3bn in2015.
For UBA Plc, it was a sweet movement of PBT from N42.4bn to N50.8bn, while its PAT was to N47.6bn from N40bn; and Zenith Bank’s PBT increased from N107bn to N115bn, while its PAT jacked up to N98bn from N92.5bn.
The First Bank of Nigeria (FBN) Plc has since released its results for the 2015 financial year. Though the financial giant was still able to record a profit, it confirmed the worst fears of its shareholders and banking analysts. The bank itself had sounded a warning to investors on February 23 on its eagerly awaited results.
In a notice signed by the company secretary, Mr. Tijjani Borodo, the bank stated: “Earnings for the 2015 financial year will be materially below that of the prior year. This is as a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within our commercial banking business.
“This reassessment was driven by the challenging macro-economic environment, coupled with fiscal and monetary headwinds, which have resulted in marked reduction in domestic output.”
The FBN hugely suffered from its exposure to bad loans, with the mark hitting 18.90 per cent, crossing the 5.0 per cent threshold set by the CBN. Its impairment charge for credit losses was N119.3bn, up from the N25.9bn figure it was in December 2014.
Virtually all the bank’s performing arrows face southward. Its non-interest income of N99.4bn was down 12.0 per cent year-on-year to the December 2014 sum of N112.99bn.
Its PBT also dropped sharply, year-on-year, by 77.1 per cent to N21.5bn. By December 2014, the bank had already grossed N94.1bn. Similarly, its PAT crashed 82.0 per cent year-on-year, from N84bn in December 2014 to N15.1bn in the 2015 financial year.
FBN’s huge impairment charge of 18 per cent, which more than triples the 5 per cent ceiling the CBN has set, affected its income by 82 per cent, from N84bn at December 2014 to N15.10bn at the end of its 2015 financial year.
The bank suffered a 361 per cent sharp rise in impairment charge for credit losses to N119.30bn, meaning that it may not be able to recover a sum of N119.3bn out of its total loans of N2.2 trillion.
The bank attributed the drop to “the recognition of impairment on some specific accounts, as well as collective exposures following reassessment of the loan book in the commercial banking business due to the sharp decline in global oil prices, the volatile macro environment, and fiscal and monetary headwinds, which have resulted in marked reduction in domestic output.”
Saying it has embarked on remedial actions on the specific impaired accounts, the bank mentioned the main sectors that contributed to its woes as the oil and gas, real estate and general commerce, contributing 59.7 per cent, 12.3 per cent and 10.2 per cent to the impairment charge respectively.
The FBN Holdings, however, managed to propose a dividend per share of 15 kobo, mostly from the profits it made from its other subsidiaries.
Like the FBN, Skye Bank had also issued profit warnings ahead of the release of their results. The bank’s management has alerted that high impairment charges arising from non-performing loans would lead to major decline in their profits.
“The management of Skye Bank Plc wishes to intimate its shareholders and investor community of anticipated material decline in its profits for the full year ended December 31, 2015, compared with that of 2014.
“The expected decline in performance is attributable to management’s decision to recognise increased impairment on loans to sectors severely affected by the prevailing economic headwinds, which are yet to abate, especially the lull in the oil and gas and real estate sectors,” Skye Bank said in a statement issued on March 22.
The managing director of Fidelity Bank Plc, Mr. Nnamdi Okonkwo, also fingered the impact of impairment on the bank’s 9.6 per cent PBT decline. “The increase in impairments, due to a more prudent approach adopted with respect to a special regulatory provision, which was charged directly to the profit and loss, was responsible for the decline in profit.”
A CBN staff report presented to the Monetary Policy Committee revealed that bad loans in the banking industry rose sharply by 78.8 per cent to N649.63bn in 2015, a serious deterioration in the quality of the loan portfolios of the 22 money deposit banks operating in Nigeria. The report revealed general increase in bad/non-performing loans among the banks. This was despite the 30 per cent decline in new loans granted by banks in 2015 to N5.78tn.
The report disclosed that 18 out the 22 banks recorded increase in bad loans. Furthermore, the number of banks that exceeded the regulatory limit of five per cent for the ratio of bad loans to total loans rose from three in 2014 to eight in 2015, with three banks exceeding 10 per cent.
The ratio of bad loans for the industry, relative to total loans, the document showed, rose to 4.88 per cent, which is only 0.22 per cent less than the regulatory limit of five per cent.
The report identified factors that include low and volatile oil prices, uncertainty about severe fiscal imbalance at the sub-national level of government, weak output growth and eroding investor confidence as responsible for the impairments the banks are experiencing.
In response to these troubling times in the sector, the banks have been retrenching members of staff. In the next few days, six of the banks may be hosts to some disruptive August visitors if the Nigeria Labour Congress (NLC) makes good its threat to picket the banks, which had recently sent some of their workers into the labour market. Three of the banks – Ecobank, Diamond and Skye – were reported to have sacked over 1,250 staff within one week this year, citing economic downturn. Before the Diamond Bank sacked 299, First City Monument Bank had laid off 700 workers earlier in the year while Fidelity Bank sacked 100 late last year. FBN Holdings, the parent company of First Bank of Nigeria Limited, was also reported to have, in December last year, relieved many secretaries of branch managers across the country of their jobs and followed that up with more sacks of senior hands in January and February.
The banks argued that the downsizing was unavoidable if they were to continue to do business. The spin-offs from the sharp crash in the price of crude on the international market are inevitably having their toll on local banking business. A dearth of foreign earnings from crude sales and drastic drop in revenues to governments meant there were no more huge flows of deposits into banks. The consequent dislocations on businesses have also resulted in many borrowers from banks defaulting in payments.
Both the federal government, through the Minister of Labour and Productivity Dr. Chris Ngige, and the NLC, through its president, Comrade Ayuba Wabba, have been fuming on the wave of dismissals in the banking industry. Ngige had threatened to withdraw the operating licences of the banks if they failed to stop the retrenchment exercise.
Wabba, on the other hand, gave the banks a two-week ultimatum to recall the affected workers. The ultimatum expires on July 1. “By this letter, we are giving your bank 14 days ultimatum, commencing from Thursday, June 16, 2016, to immediately recall all workers so sacked and allow unionisation of workers in the bank or face industrial action, which may include closure of your banks and all its outlets nationwide,” the NLC president stated.
How the two bodies will enforce their threats remains to be seen as some analysts have said that the financial institutions are not isolated from the vicissitudes of the Nigerian business environment.
The Nigeria Employers Consultative Association (NECA) described the minister’s statement as “reckless and inconsequential to extant labour laws in the country.”
Although the banks, under the aegis of the Bankers Committee, had agreed to suspend further sack of workers, there has risen another fear of massive sack over its proposal to the CBN to limit across-the-counter withdrawals to N10,000, following a major drop in customers’ deposits.
Banks argue that the measure would drastically reduce the number of customers that would need to physically visit banking halls for transactions. But bank workers fear it may just be a ploy to reduce their ranks as a means of cutting cost of operations.
The CBN, in 2012, had introduced a policy on cash-based transactions, which stipulates a cash-handling charge on daily cash withdrawals that exceed N500,000 for individuals and N3m for corporate bodies. The policy is aimed at reducing, but not eliminating, the amount of physical cash circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.).
In addition, the policy is aimed at curbing some of the negative consequences associated with the high usage of physical cash in the economy.
A CBN analysis showed that only 10 per cent of daily banking transactions are above N150,000, but the 10 per cent accounts for majority of the high-value transactions. This suggests that the entire banking population subsidizes the costs that the tiny minority 10 per cent incurs in terms of high cash usage.
However, the difficult operating environment in 2015, and the first two quarters of 2016 have heavily impacted the bottom-line of the commercial banks, forcing a rethink on how to sustain profitability.
According to a document obtained by reporters from the CBN between April 2015 and April 2016, the total deposits of bank customers dropped by 5.6 per cent or N1.03trn, from N18.54trn to N17.51trn.
The banking sector also recorded a decline of N154bn in total assets within the one year period, from N27.58trn in April 2015 to N27.43trn as of April 2016, with the industry’s gross credit to the private and public sectors also dropping by N41bn or 0.3 per cent.
A staff of one of the banks in Lagos said: “To reduce the number of customers in the banking hall is tantamount to reducing the need for more bank staff. This is bad news for bankers. More sack looms if this coup is achieved.”
Ken Ukoaha, the president of the National Association of Nigerian Traders (NANTS) said: “The proposed limited withdrawal is too small considering the inflation in the country. This plan can force most local businessmen to start keeping their money at home.
“Traders are not averse to innovation, but have the banks addressed the problems of limited ATMs channels, or ATMs not having cash at all times? Can they guarantee that the network on the ATMs and internet banking must never go offline?”
A management staff of an old generation bank who pleaded anonymity asserted: “The commercial banks do not have a liquidity problem as we speak because as at April 2016, the banking sector’s liquidity ratio stood at 46.3 per cent, as against 39.79 per cent as of April 2015. So the industry is operating above the minimum requirement of 30 per cent.
“What we are witnessing is a deliberate attempt to shift from pet banking to offering real banking and leveraging on the huge retail sector to drive growth because with the advent of the TSA, there are no cheap funds anymore.”
The national president of the National Union of Banks, Insurance and Financial Institutions Employees (NUBIFIE), Comrade Danjuma Musa, maintained that before the current economic crisis, banks had long been engaging in anti-workers activities through different levels of exploitation in varying degrees.
He added that the continuing mass sack of workers in the financial institutions would not solve the problem facing the banks.
The Independent Shareholders Association of Nigeria (ISAN) president, Boniface Okezie, though expressing sadness with the sack development, believes that government’s move to halt ongoing job loss in the banking sector can’t succeed as lenders would continue to downsize their workforce until there was full economic recovery.
NECA, through its director-general, Olusegun Osinowo, assured workers affected by the redundancy storm that the body would ensure that their employers pay them benefits. He appealed to the NLC and the Trade Union Congress (TUC) leaders to sheathe their swords “and come to the dialogue table.”
The managing director and chief executive officer of the Standard Chartered Nigeria, Mrs. Bola Adesola, who briefed the press after the Bankers Committee meeting in Abuja last week, said banks in the country were looking at ways to ensure that they minimise exits from the institutions.
“Banks understand the implication of people not being in employment. However, we noted that market sentiments will be difficult, but there will be reasons why people will exit, not just in the banking industry but in telecoms and other industries. It is something we will manage,” she said.
Mr. Manz Denga, a former Managing Director of Transnational Corporation (Transcorp) and former regional managing director of UBA, East Africa, said because economic activities have reduced, banks capacity to attract deposits has also gone down.
He however added that the N350 billion recently released by the federal government to reflate the economy is a good development.
He urged the CBN to reduce liquidity ratio for banks to be able to lend to the productive sectors of the economy.
He said there is hope in the horizon, adding that the new flexible exchange rate regime by the CBN, will attract foreign capital and investments and that naturally Nigerian banks would benefit.
“When this occurs, the banks will make more profits and will bounce back to life”, he said.
Many analysts are optimistic that the passage of the 2016 budget by states and federal government and the new flexible FX policy will reduce risks faced by the banks significantly.
Wema Bank posted a PBT of N3.046bn; Ecobank N40bn; FCMB, N2.5bn; Union Bank, N18.1bn and Fidelity Bank, N14bn.
Bankers attributed the sharp fall in profit to high impairment charges on bad loans, and to foreign exchange uncertainties arising from a significant drop in oil revenue. Impairment charges or loan loss expenses occur when a bank is unlikely to collect all or some of its due debts, including both the contractual interest and principal payments under a loan agreement. Analysts have identified the exposure of most of the banks to oil and gas loans in the era preceding the assumption of office of President Muhammadu Buhari, especially loan facilities to the downstream sector of the oil industry. Most of the transactions were said to have burst as President Buhari began moves to sanitise many operations in the downstream sector, with many importers of petroleum products who had obtained bank loans for their businesses greatly affected.
The NSE website showed that despite the turbulence of bad loans provisions, forex problems and deposits crunch, the five other banks that released their 2015 annual reports in March this year were able to post increases in both their PBT and PAT.
The GTBank smiled on its PBT from N116.4bn to N120.7bn and its PAT from N94.4bn to N99.4bn. Access Bank joined the mood with its PBT from N46.1bn to N65.2bn, and its PAT increasing from N39.9bn to N58.9bn; and Sterling Bank’s PBT from N10.7bn 2014 to N11bn, while its PAT rose from N9bn to N10.3bn. GTBank and Zenith Bank were able to report their positive figures even after reporting full-year impairments of N12.4bn and N15.6bn respectively in 2015. GTBank’s net impairments in 2014 were a mere N7.1bn.
The impairment negatives apparently hit Ecobank and FCMB worse as their losses on financial assets rose by 137 per cent from N44.4bn in 2014 to N105bn in 2015 and a nil impairment loss in 2014 to N690m in the last financial year, respectively. The FCMB Group’s net impairment losses equally rose from N10.6bn to N15bn.
Sterling Bank’s impairment losses rose from N7.4bn in 2014 to N8.2bn in 2015. Access Bank’s impairment also increased from N10.6bn to N13.3bn in2015.
For UBA Plc, it was a sweet movement of PBT from N42.4bn to N50.8bn, while its PAT was to N47.6bn from N40bn; and Zenith Bank’s PBT increased from N107bn to N115bn, while its PAT jacked up to N98bn from N92.5bn.
The First Bank of Nigeria (FBN) Plc has since released its results for the 2015 financial year. Though the financial giant was still able to record a profit, it confirmed the worst fears of its shareholders and banking analysts. The bank itself had sounded a warning to investors on February 23 on its eagerly awaited results.
In a notice signed by the company secretary, Mr. Tijjani Borodo, the bank stated: “Earnings for the 2015 financial year will be materially below that of the prior year. This is as a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within our commercial banking business.
“This reassessment was driven by the challenging macro-economic environment, coupled with fiscal and monetary headwinds, which have resulted in marked reduction in domestic output.”
The FBN hugely suffered from its exposure to bad loans, with the mark hitting 18.90 per cent, crossing the 5.0 per cent threshold set by the CBN. Its impairment charge for credit losses was N119.3bn, up from the N25.9bn figure it was in December 2014.
Virtually all the bank’s performing arrows face southward. Its non-interest income of N99.4bn was down 12.0 per cent year-on-year to the December 2014 sum of N112.99bn.
Its PBT also dropped sharply, year-on-year, by 77.1 per cent to N21.5bn. By December 2014, the bank had already grossed N94.1bn. Similarly, its PAT crashed 82.0 per cent year-on-year, from N84bn in December 2014 to N15.1bn in the 2015 financial year.
FBN’s huge impairment charge of 18 per cent, which more than triples the 5 per cent ceiling the CBN has set, affected its income by 82 per cent, from N84bn at December 2014 to N15.10bn at the end of its 2015 financial year.
The bank suffered a 361 per cent sharp rise in impairment charge for credit losses to N119.30bn, meaning that it may not be able to recover a sum of N119.3bn out of its total loans of N2.2 trillion.
The bank attributed the drop to “the recognition of impairment on some specific accounts, as well as collective exposures following reassessment of the loan book in the commercial banking business due to the sharp decline in global oil prices, the volatile macro environment, and fiscal and monetary headwinds, which have resulted in marked reduction in domestic output.”
Saying it has embarked on remedial actions on the specific impaired accounts, the bank mentioned the main sectors that contributed to its woes as the oil and gas, real estate and general commerce, contributing 59.7 per cent, 12.3 per cent and 10.2 per cent to the impairment charge respectively.
The FBN Holdings, however, managed to propose a dividend per share of 15 kobo, mostly from the profits it made from its other subsidiaries.
Like the FBN, Skye Bank had also issued profit warnings ahead of the release of their results. The bank’s management has alerted that high impairment charges arising from non-performing loans would lead to major decline in their profits.
“The management of Skye Bank Plc wishes to intimate its shareholders and investor community of anticipated material decline in its profits for the full year ended December 31, 2015, compared with that of 2014.
“The expected decline in performance is attributable to management’s decision to recognise increased impairment on loans to sectors severely affected by the prevailing economic headwinds, which are yet to abate, especially the lull in the oil and gas and real estate sectors,” Skye Bank said in a statement issued on March 22.
The managing director of Fidelity Bank Plc, Mr. Nnamdi Okonkwo, also fingered the impact of impairment on the bank’s 9.6 per cent PBT decline. “The increase in impairments, due to a more prudent approach adopted with respect to a special regulatory provision, which was charged directly to the profit and loss, was responsible for the decline in profit.”
A CBN staff report presented to the Monetary Policy Committee revealed that bad loans in the banking industry rose sharply by 78.8 per cent to N649.63bn in 2015, a serious deterioration in the quality of the loan portfolios of the 22 money deposit banks operating in Nigeria. The report revealed general increase in bad/non-performing loans among the banks. This was despite the 30 per cent decline in new loans granted by banks in 2015 to N5.78tn.
The report disclosed that 18 out the 22 banks recorded increase in bad loans. Furthermore, the number of banks that exceeded the regulatory limit of five per cent for the ratio of bad loans to total loans rose from three in 2014 to eight in 2015, with three banks exceeding 10 per cent.
The ratio of bad loans for the industry, relative to total loans, the document showed, rose to 4.88 per cent, which is only 0.22 per cent less than the regulatory limit of five per cent.
The report identified factors that include low and volatile oil prices, uncertainty about severe fiscal imbalance at the sub-national level of government, weak output growth and eroding investor confidence as responsible for the impairments the banks are experiencing.
In response to these troubling times in the sector, the banks have been retrenching members of staff. In the next few days, six of the banks may be hosts to some disruptive August visitors if the Nigeria Labour Congress (NLC) makes good its threat to picket the banks, which had recently sent some of their workers into the labour market. Three of the banks – Ecobank, Diamond and Skye – were reported to have sacked over 1,250 staff within one week this year, citing economic downturn. Before the Diamond Bank sacked 299, First City Monument Bank had laid off 700 workers earlier in the year while Fidelity Bank sacked 100 late last year. FBN Holdings, the parent company of First Bank of Nigeria Limited, was also reported to have, in December last year, relieved many secretaries of branch managers across the country of their jobs and followed that up with more sacks of senior hands in January and February.
The banks argued that the downsizing was unavoidable if they were to continue to do business. The spin-offs from the sharp crash in the price of crude on the international market are inevitably having their toll on local banking business. A dearth of foreign earnings from crude sales and drastic drop in revenues to governments meant there were no more huge flows of deposits into banks. The consequent dislocations on businesses have also resulted in many borrowers from banks defaulting in payments.
Both the federal government, through the Minister of Labour and Productivity Dr. Chris Ngige, and the NLC, through its president, Comrade Ayuba Wabba, have been fuming on the wave of dismissals in the banking industry. Ngige had threatened to withdraw the operating licences of the banks if they failed to stop the retrenchment exercise.
Wabba, on the other hand, gave the banks a two-week ultimatum to recall the affected workers. The ultimatum expires on July 1. “By this letter, we are giving your bank 14 days ultimatum, commencing from Thursday, June 16, 2016, to immediately recall all workers so sacked and allow unionisation of workers in the bank or face industrial action, which may include closure of your banks and all its outlets nationwide,” the NLC president stated.
How the two bodies will enforce their threats remains to be seen as some analysts have said that the financial institutions are not isolated from the vicissitudes of the Nigerian business environment.
The Nigeria Employers Consultative Association (NECA) described the minister’s statement as “reckless and inconsequential to extant labour laws in the country.”
Although the banks, under the aegis of the Bankers Committee, had agreed to suspend further sack of workers, there has risen another fear of massive sack over its proposal to the CBN to limit across-the-counter withdrawals to N10,000, following a major drop in customers’ deposits.
Banks argue that the measure would drastically reduce the number of customers that would need to physically visit banking halls for transactions. But bank workers fear it may just be a ploy to reduce their ranks as a means of cutting cost of operations.
The CBN, in 2012, had introduced a policy on cash-based transactions, which stipulates a cash-handling charge on daily cash withdrawals that exceed N500,000 for individuals and N3m for corporate bodies. The policy is aimed at reducing, but not eliminating, the amount of physical cash circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.).
In addition, the policy is aimed at curbing some of the negative consequences associated with the high usage of physical cash in the economy.
A CBN analysis showed that only 10 per cent of daily banking transactions are above N150,000, but the 10 per cent accounts for majority of the high-value transactions. This suggests that the entire banking population subsidizes the costs that the tiny minority 10 per cent incurs in terms of high cash usage.
However, the difficult operating environment in 2015, and the first two quarters of 2016 have heavily impacted the bottom-line of the commercial banks, forcing a rethink on how to sustain profitability.
According to a document obtained by reporters from the CBN between April 2015 and April 2016, the total deposits of bank customers dropped by 5.6 per cent or N1.03trn, from N18.54trn to N17.51trn.
The banking sector also recorded a decline of N154bn in total assets within the one year period, from N27.58trn in April 2015 to N27.43trn as of April 2016, with the industry’s gross credit to the private and public sectors also dropping by N41bn or 0.3 per cent.
A staff of one of the banks in Lagos said: “To reduce the number of customers in the banking hall is tantamount to reducing the need for more bank staff. This is bad news for bankers. More sack looms if this coup is achieved.”
Ken Ukoaha, the president of the National Association of Nigerian Traders (NANTS) said: “The proposed limited withdrawal is too small considering the inflation in the country. This plan can force most local businessmen to start keeping their money at home.
“Traders are not averse to innovation, but have the banks addressed the problems of limited ATMs channels, or ATMs not having cash at all times? Can they guarantee that the network on the ATMs and internet banking must never go offline?”
A management staff of an old generation bank who pleaded anonymity asserted: “The commercial banks do not have a liquidity problem as we speak because as at April 2016, the banking sector’s liquidity ratio stood at 46.3 per cent, as against 39.79 per cent as of April 2015. So the industry is operating above the minimum requirement of 30 per cent.
“What we are witnessing is a deliberate attempt to shift from pet banking to offering real banking and leveraging on the huge retail sector to drive growth because with the advent of the TSA, there are no cheap funds anymore.”
The national president of the National Union of Banks, Insurance and Financial Institutions Employees (NUBIFIE), Comrade Danjuma Musa, maintained that before the current economic crisis, banks had long been engaging in anti-workers activities through different levels of exploitation in varying degrees.
He added that the continuing mass sack of workers in the financial institutions would not solve the problem facing the banks.
The Independent Shareholders Association of Nigeria (ISAN) president, Boniface Okezie, though expressing sadness with the sack development, believes that government’s move to halt ongoing job loss in the banking sector can’t succeed as lenders would continue to downsize their workforce until there was full economic recovery.
NECA, through its director-general, Olusegun Osinowo, assured workers affected by the redundancy storm that the body would ensure that their employers pay them benefits. He appealed to the NLC and the Trade Union Congress (TUC) leaders to sheathe their swords “and come to the dialogue table.”
The managing director and chief executive officer of the Standard Chartered Nigeria, Mrs. Bola Adesola, who briefed the press after the Bankers Committee meeting in Abuja last week, said banks in the country were looking at ways to ensure that they minimise exits from the institutions.
“Banks understand the implication of people not being in employment. However, we noted that market sentiments will be difficult, but there will be reasons why people will exit, not just in the banking industry but in telecoms and other industries. It is something we will manage,” she said.
Mr. Manz Denga, a former Managing Director of Transnational Corporation (Transcorp) and former regional managing director of UBA, East Africa, said because economic activities have reduced, banks capacity to attract deposits has also gone down.
He however added that the N350 billion recently released by the federal government to reflate the economy is a good development.
He urged the CBN to reduce liquidity ratio for banks to be able to lend to the productive sectors of the economy.
He said there is hope in the horizon, adding that the new flexible exchange rate regime by the CBN, will attract foreign capital and investments and that naturally Nigerian banks would benefit.
“When this occurs, the banks will make more profits and will bounce back to life”, he said.
Many analysts are optimistic that the passage of the 2016 budget by states and federal government and the new flexible FX policy will reduce risks faced by the banks significantly.

(Curled from daily trust)

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