By Emeka Okoroanyanwu
This certainly is not the best of times for Nigeria’s Money Deposit Banks (MDB). There is palpable fear that all is not well with the banking industry given the depressing harsh macro and micro-economic environment that has stifled the economy since 2016.
Apart from such decelerating variables in the economy as low oil prices, illiquidity in the system, growing non-performing loans, foreign exchange crisis, spiking inflation and the hiccups caused by the introduction of the Single Treasury Account (TSA), other challenges such as unimpressive profit margins and low capital adequacy ratio, coupled with poor corporate governance practices have had a debilitating effect on Nigerian banks. Today there is debate among analysts and operators whether some banks can still be categorized as “healthy” or still “too big to fail.”
To compound their woes, the Central Bank of Nigeria (CBN) recently debited four banks a total sum of N5.87 billion for regulatory infringement following alleged transfer of $8,134,312,397.63 out of the country for telecommunications giant, MTN Nigeria. The four banks that have come under the sledge hammer of the CBN for the violations are Standard Chartered Bank, Stanbic-IBTC, Citibank, and Diamond Bank.
Announcing the decision to sanction the banks, CBN’s Director, Corporate Communications, Isaac Okorafor, said that the action became necessary following allegations of remittance of foreign exchange with irregular Certificates of Capital Importation (CCIs) issued on behalf of some offshore investors of MTN Nigeria Communications Limited and subsequent investigations carried out by the apex bank in March 2018. The CBN, therefore, asked managements of the banks and MTN Nigeria Communications Limited to immediately refund the sum of $8,134,312,397.63, illegally repatriated by the company to the coffers of the Central Bank of Nigeria.
Figures obtained from the CBN indicate that the highest fine of N2,470,604,767.13 was slammed on Standard Chartered Bank, while Stanbic IBTC Nigeria was fined the sum of N1,885,852,847.45. For its punishment, Citibank Nigeria was penalized in the sum of N1,265,541,562.31, just as Diamond Bank was directed to pay the sum of N250 million for violating extant rules.
Okorafor said the investigations revealed that the sum of $3,448,119,321.72 was repatriated by Standard Chartered Bank on the basis of the illegally issued CCIs. Similarly, he said the sums of $2,632,005,623.78, $1,766,263,212.75 and $348,914,501.30 were repatriated by Stanbic IBTC Nigeria, Citibank Nigeria and Diamond Bank Plc, respectively during the period 2007 and 2015. Analysts are worried that the fines and similar ones made against the banks in respect of some unapproved charges on customers’ accounts are capable of putting the banks on a cliff hanger. Even now, some banks’ shareholder’s funds are already in jeopardy as they stand the risk of being gradually eroded, thus triggering unease among customers. The bad situation in the industry has also resulted in poor earnings for some banks with many offloading both local and offshore assets in order to shore up earnings.
Some analysts are of the view that the CBN, even though unofficially, has reclassified operators in the industry to reflect their present status and realities. CBN classified Nigerian banks to reflect their performances. Eight banks were classified systematically important banks (SIBs) in September 2014, when the apex bank issued a framework, which was scheduled to become operational in March 2015. From the classification then, First Bank of Nigeria Limited, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc, Skye Bank Plc, Ecobank Nigeria and Diamond Bank Plc were designated as SIBs based on their impact on the Nigerian financial sector. The eight were ranked based on such indices as the size of their total assets, branch network, capital adequacy ratio (CAR), liquidity ratio, non-performing loans and so on. Most of them have continued to meet the criteria for ranking as SIBs before now. Analysts are, however, of the view that with the volatility in the economy now, some of the banks do not appear to meet the criteria for which they were so classified. As at then, some banks were tagged ”Too Big to fail. Today, some of these banks have fallen off the track and are no longer qualified to remain in the top ranking.
One of such banks is Skye Bank Plc, which appears to have failed the majority of regulatory benchmarks, forcing the CBN to axe its board and management. And in what surprised stakeholders last week, the regulatory authorities scraped the name of Skye Bank from its books and named a new entity, Polaris Bank Limited. In a statement signed by the Chairman, Muhammad K. Ahmed and Managing Director, Adetokunbo M. Abiru, the bank said the new entity, which has assumed a bridge bank position has taken over all deposit liabilities and other liabilities of Skye Bank, assuring depositors of security of their funds.
Another bank that is looking worrisome to analysts is Diamond Bank, which for sure is undergoing a critical time and may have fallen off the cliff from the clique of SIBs while there has been serious debate where Ecobank Transnational Incorporated belongs now.
Whereas the CBN has not officially announced that any bank has been dropped from the SIB cadre, industry observers believe Skye Bank, which has been unable to publish its financial statements since September 2015, can no longer be considered as “too big to fail”. In 2014, the bank was the fourth largest commercial lender in the country with 469 branches across the country after acquiring defunct Afribank, formerly Mainstreet Bank when it was nationalised by the government. While SIBs still account for over 70 per cent of total assets of the country’s banking industry, the total assets of Diamond Bank Plc shrunk in the last three years. It has dropped -61.92 per cent from N4.34 trillion at the end of 2014 to N1.65 trillion in March 2018, mainly as a result of the adverse impact of falling asset quality and the sell-off of its West African operations. According to the Managing Director of High Cap Securities Limited, Mr. David Adonri, the rough economic weather may have whittled down the capacity of some banks to perform optimally.
In the meantime, analysis of the half year performance of some banks indicate clearly a widening gulf between the big players (Too Big to Fail) and the small ones in the area of gross earnings, assets base, after tax profit etc. Another sign that all is not well with some of the banks is declined earnings in the first half of the year, which operators have predicted may get worse at the close of business by the end of the year.
For instance, Guaranty Trust Bank Plc (GTBank)’s pre-tax profit for the half-year (H1) period ended June 30, 2018 climbed up 8.4 percent to N109.6 billion from N101.10 billion recorded a year ago. In the same vein, profit after tax (PAT) increased 14.2 percent to N95.6 billion in H1 2018 from N83.7 billion reported the same period of 2017. Whereas gross earnings grew from N214.1 billion in the H1 of 2017 to N226.6 billion in the review period of 2018; indicating a growth of 5.9 percent, loan book dipped by 10.8 percent from N1.449 trillion recorded as at December 2017 to N1.293 trillion in June 2018. At the close of the business period, customers’ deposit grew by 10.0 percent to N2.269 trillion from N2.062 trillion in December 2017. The bank’s balance sheet remained strong with a 5.9 percent growth in total assets as it closed the period ended June 2018 with total assets of N3.549 trillion and shareholders’ funds of N497.1 billion.
Another high profile bank, Access Bank Plc, surprisingly recorded a decline in pre-tax profit for the half-year (H1) period ended June 30, 2018 by 11.9 percent to N45.84 billion from N52.04 billion recorded a year ago. However, post-tax profit grew marginally by 0.4 percent to N39.62 billion from N39.46 declared the same period in 2017. Gross earnings increased from N161.90 billion in 2017 H1 period to
N186.68 billion in the review period of 2018, showing an increase of 15.3 percent.
In the league of Too Big to Fail is First Bank, which recorded a post-tax profit of N28.3N billion in first six months of 2018, a 22.7 per cent growth, the highest it has recorded in the last four years. The appreciation was on the back of a -15.5 per cent fall in impairment charges on loan losses to N52.7 billion and non-interest income, which grew 21.4 per cent in the first half of the year. Analysts note that since First Bank Nigeria resolved to restrict its single obligor limit to N30 million, and reduce the size of its risk asset, the group’s non-performing loans ratio (NPLs), which was the highest in the country’s financial industry, has continued to come downward, dropping to 24.3 per cent in H1 2018 from 21 per cent in the same period last year. Its asset quality ratios were indicative of the progress it has made in recent times in terms of risk assets as they paint an encouraging picture with the cost of risk lowered to 4.7 per cent compared to 5.5 per cent in the first six months of 2017 and NPL coverage ratio was up to 68.2 per cent (H1 2017: 52.7 per cent).
Equally, Zenith Bank, arguably Nigeria’s largest financial lender by assets announced an interim dividend of N9.42billion or what amounts to a 30 kobo per share payout. The bank, in its half year results for the period ending June 2018 posted a profit before tax of N107.3 billion, representing a 16.5 per cent rise above the N92.1 billion achieved in the corresponding period of 2017. While its top line fell by 15.3 per cent from N380.4 billion in 2017 to N322.2 billion in 2018, the tier 1 bank’s profit after tax grew 8.2 per cent from N75.194 billion to N81.737 billion in 2018. The bank’s management attributed its improved performance to keen and creative reduction in its expenses by 25 per cent. Despite the spike in the industry’s non-performing loans (NPL) in the first quarter through the second quarter, which hovered between 8 and 10 per cent, the bank was able to keep its NPL below the regulatory bench mark of 5 per cent. This was despite the fact that the banks NPL surged ahead by 13 per cent from 4.3 per cent in 2017 to 4.9 per cent in 2018, the lender’s NPL appears to be amongst the lowest in the sector.
Ecobank Transnational Incorporated (ETI) also reported gross earnings of ₦384.59 billion for the period ended June 2018 compared to ₦386.82 billion reported for the period ended June 2017. This represents a 1% decrease for the comparative period in 2017. ETI’s profit before tax was ₦65.1 billion for the period ended June 2018, a 41 per cent increase from ₦46.2 billion reported for the period ended June 2017. Similarly, its profit after tax for the half year ended 30th June, 2018 was ₦51.6 billion as against ₦37.7 billion recorded in H1 2017. Ecobank Transnational Incorporated ETI, however, reported earnings per share of 167 kobo for the period ended June 2018, compared to 131 kobo reported for the comparative period in 2017.
Diamond Bank posted a profit before tax of 69 per cent in the second quarter ended June 2018 to N2.92 billion from N9.52 billion in 2017. Gross earnings stood at N98.50 billion as against N97.89 billion achieved in the preceding period of 2017. Managing Director of Diamond Bank, Mr. Uzoma Dozie said the bank’s non-interest income during the period grew by 6.4 per cent to N18.8 billion during the period on higher fees from retail transactions on mobile platform. Uzoma noted that customers’ loan volume decreased by 3.6 per cent to N728.7 billion as maturities exceeded new loans during the period. Diamond Bank Plc has strengthened its retail business segment with digital customers of three million for the second quarter ended June 30, 2018. However, analysts do not seem to be very enthusiastic on Diamond Bank, which fortunes have been on the drag for some time now and even worsened by the recent CBN fine.
As the fortunes of some banks continue to decline, there are worries that investors may become jittery and decide to offload or downgrade their investments. Another fear is that the banking industry may bear the negative effect of massive funds withdrawal in the months ahead because of fear of uncertainty in an election year.
