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Monday, May 7, 2012

FIRST QUARTER RESULTS AND RECOVERY IN THE NIGERIAN BANKING INDUSTRY

 
       After about three years of confusion and financial lost that were at the heart of the Nigerian banking sector crisis, the industry is finally recovering declaring profits of billions of Naira in the first quarter of 2012. At the peak of the Tsunami in 2008 and 2009 Nigerian financial sector was in turmoil that it has never seen in it history; while the successes of Soludo banking sector consolidation were what you continued to hear from the official public relation machines, the inner rot in the system was never echoed. The about 24 banks created by Soludo reform at that period of time were more concerned with becoming the largest banks in Africa in this or that by dolling out loans to any individual with salary account or a business of some sort. The thought of concerning themselves with the risk that would come as a result of that never entered their heads. The concerned with risk management and corporate governance was of later period, after the crisis has nearly finished the industry, leaving Zombie banks with hundreds of billion Naira of bad debt. Banks such Erastus’s Intercontinental, and Ibru’s Oceanic that were some of the biggest banks in the country at that time had to go, due the level of fraud and shenanigans committed by their chief executives that later put those banks in the red. Other banks such as Afribank, Finbank, Sterlin Bank and Bank PHB were also found to give out huge amount of debt that later turn out to be bad debt and which their balance sheet cannot accommodate; and because of that they had to go the way of intercontinental and oceanic. Some analysts at that time were of the opinion that Nigerian economy cannot absorbed the trillion naira of that bad debt without going into a serious crisis with wider repercussions on the other parts of the economy. And, to a large extent they are right, as all the major indicators such as the index of the Nigerian stock exchange, the amount in the country’s foreign reserve, Naira exchange rate, inflation rate, foreign direct investment, and unemployment rate in the economy all became worst.
    The past weeks profits declaration by Nigerian banks is a clear divergence from the trend of the last three years. The result yet out has shown that Nigerians banks have returned to profitability from years of lost and making of provisions for bad debt. If these trends continue, all the major stakeholders in the Nigerian banking industry from shareholders, regulators, customers and employees are going to smile as the industry has finally returned from the death. The recent declaration of positive results by the Nigerian banks has boasted the performance of the banking stocks on the Nigerian stock exchange. In fact the performance of the banking sub section on the Nigerian stock exchange was responsible for the recent high performance of the all share index of the Nigerian stock exchange. After years of write down of bad non performing loans, Nigerian banks have started lending out to the real sector in anticipation of the growth in the Nigerian economy. Foreign investors have already started showing interest in the Nigerian banking sector, in some ways more than even the domestic investors, who are yet to recover from the in fact of the financial Tsunami that hit the sector. As the external reserve recovers for the first time in about one year and the value of Naira against foreign currencies appreciates, the financial sector is on the way out of trouble. Already, the regulators have started celebrating telling the world Nigerian banking crisis is over. Recently, the managing director of assets Management Company of Nigeria (AMCON) was quoted to have said that Nigerian banking crisis is over and the public should await the coming of positive results in term of profits. It seem like AMCON is finally paying up following the rescued of the banking sector by the CBN that cost the apex bank about $4 billion dollars.  At the time when the ministry of finance and the central bank proposed the idea of establishing AMCON, many saw it as a wishful thinking something that will not achieved much. But, we can see that, today, those skeptics have been proven wrong, the institutions have purchased bad debt from almost all the banks in the country helping to boost their balance sheet.
      The next phase of the reform envisaged the privatisation of other nationalized banks which will finally brought the era of unhealthy banks to an end. Already banks both local and international have started showing interest in acquiring the remaining banks in order to expand their present in the Nigerian banking industry. With the expected acquisition of the remaining banks now under AMCON management, the number of banks will come down to a few numbers less than when Soludo’s consolidation was finally concluded. One of the out comes of the banking crisis is the way structure and leadership in the banking industry have changed. While after the Soludo’s consolidation the banking sector was led by First bank closely followed by new generation banks such as Intercontinental, Zenith, Oceanic and the new UBA, today the landscape has undergone transformation. Guarantee trust bank, the obvious beneficiary of the crisis that engulfed the industry from 2008 now lead, closely followed by others such as First bank, zenith and UBA. Banks such as Ecobank and Access bank that acquired the former giants, Oceanic and Intercontinental, respectively, formed another group with greater potential to reduce the competitive advantages that old generation banks such as First bank and UBA enjoyed. Other national banks like Wema Bank which before was granted a national license is now a regional bank that concentrate it activities in the South West of the country. New entrants such as the non interest Islamic bank Ja’iz have already started business at the beginning of this year with branches in Kano and Abuja, with the hope of opening many more before the close of this year. The future potential of the industry is going to be positive as the Nigerian economy expanded. Already Nigerian banks like GTBank have been making headway in the continent, competing with some of the most efficient and profitable banks on the continent. One other trend that has started making impacts on the Nigerian banking landscape is CBN cashless policy. It is manifesting bit by bit that some banks have already started reducing the number of their branches and work force; because of the impacts the policy is expected to make on physical branch as transactions move to the internet.