The two major areas mostly impacted by the micro economic challenge in the country are the reduction in the total banking liquidity and the increase in Non-Performing Loans (NPL), which have contributed in deflating the profitability of the Deposit Money Banks (DMB) in 2016.
A document obtained from the Central Bank of Nigeria (CBN) shows that customers deposit with DMB’s dropped by 5.6 percent or N1.03 trillion between April 2015 and April 2016. The total deposit with the DMB’s dropped from N18.54 trillion to N17.51 trillion.
The Accountant General of the Federation, Alhaji Ahmed Idris, had in November, 2015 disclosed that cash inflow into the Treasury Single Account (TSA) had hit N4.36 trillion.
Mr Herbert Wigwe, the Chairman, Body of Bank CEOs and Group Managing Director of Access Bank plc in describing the situation in his remark at the Bankers Night of November 2016 (organized by the Chattered Institute of Bankers of Nigeria) said: “At no time in my career have we seen an industry under siege in the manner our industry is operating today.” He noted further that “you cannot take away money from the bank through the Treasury Single Account (TSA) and talk about long term lending for infrastructure”.
The impact of the cash shortage was also made manifest in the CBN report which indicated that the industry’s gross credit to the private and public sectors dipped by N41 billion from April 2015 to the same period in 2016.
An industry report on CBN revealed that the CBN in the face of these difficulties intensified its intervention activities. The apex bank in the last seven years, injected about N2 trillion into the economy in its various intervention schemes. The interventions funded about 1,686 projects in agriculture, industry and aviation among others.
Whereas these interventions are considered a welcome development by many, other schools of thought like the respected economist, Mr. Henry Boyo, are of the opinion that these interventions are camouflage for failures.
Boyo said: “Once you start bringing in these intervention funds and it becomes your only way, they are using it to camouflage their failure. Am not saying intervention funds are not good but they are only necessary when you don’t have excess liquidity which is receiving mainly the patronage of government.
“For how long will you be intervening, year in year out, whereas the market system is supposed to take care of itself if funds were 4 or 5 per cent,” he also noted.
Another major worry for the banks in 2017 would be curtailing the further deterioration of the NPL ratios. According to the CBN, the average NPL level in the industry rose from five per cent in December 2015 to 11 per cent by June 2016 with Moody’s Investor Service predicting a further increase to around 12 per cent.
While some banks had fared better than others, the average performance of the Nigerian banking industry had not been so good as international rating organisations down rated many DMBs. Although the affected financial institutions have explained that they were focused on remediation and recovery activities towards declassifying non-performing accounts and driving asset quality improvements.
The CBN, as well as the Nigeria Deposit Insurance Corporation (NDIC) have continued to insist that the Nigerian banking industry is resilient enough to go through the phase. According to the Director, Banking Supervision, CBN, Tokunbo Martins, while the banking sector is feeling the economic headwinds, it is not strange.
Martins said: “Another thing that is important is that Nigerian banks have very huge capacity to generate income to also absorb those losses, if they do arise. And then the loans that are non-performing, can they re-perform? Yes they will because the underlying assets are still there and they are good.
“The fact that the country has NPLs at a period like this should be expected and is not a thing that any jurisdiction should be demonised about. Other jurisdictions are also going through what we are experiencing. There are countries that have NPLs as high as 15 per cent, some 30 per cent, and some countries in Europe have NPLs as high as 80 percent.
“Non-performing loans (NPLs) at 11 per cent is not what we need to focus on. What we need to focus on is if the banks have the capacity to absorb losses that may arise from those NPLs? And the answer is yes. They have very strong capital buffers.”
However, the CBN had granted a one-off forbearance to banks to write-off their fully provided for NPLs without waiting for the mandatory one year.
Fitch, another international ratings agency, in its assessment, highlighted other key concerns in the banking industry to include forex scarcity, weakening capital adequacy ratios, and the sovereign’s ability to support banks, given its weaker financial flexibility. Insisting, “If current challenges do not ease, the banks could face further downgrades.” – Daily Trust.
