Nigerian Banks: Weathering the storm in 2016

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By Odunewu Segun

2016 was a tempestuous year for the Nigerian banking industry. The resilience of the sector was put to test as elevated risk concerns triggered a spike in Non-performing loans, then the abolition of COT and worsening capital ratios due to currency depreciation also compounded the woes of many banks in the country this year.

The harsh realities of certain policies by the Central Bank of Nigeria also contributed in shaping performances of banks. From the decision to de-peg the naira from N197/$1 in June to its decision to block remittances from all money transfer operator operators, Banks have felt the pressure.

Again, the implementation of the Single Treasury Account (TSA) by the Federal Government presented additional chal­lenge to banks. With about N2.9 trillion of government funds withdrawn from the banks and moved into the Central Banks of Nigeria (CBN) vaults, liquidity crisis hits most banks in the country.

And as a result of this withdrawals, several workers in the sector were laid off. Ecobank and Diamond Bank sacked over 1060 staff citing economic downturn as reason for the cut. The sack increased the number so far chopped off from the salary block in the industry since one year ago to about 8,500.

Before Ecobank and Diamond bank which sacked 200, First City Monument Bank (FCMB) 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 also pruned its employees by 1,000.

Banks also faced significant pressure from the abolition of commissions on turnover (COT), which came into force on January 1 this year. COT alone contributes over 60 percent of the fees and commissions of banks. Thus, Nigerian banks are losing about N100 billion (out of N550 billion) in annual revenues as a result of the implementation of the zero COT policy.

Instead of COT, the CBN directed banks to introduce a “nego­tiable” current account maintenance fee to replace the Commission on Turnover (COT). In a circular issued to banks, the apex bank directed banks to charge a fee not exceeding N1 per N1, 000 in respect of all “custom­er induced debit transactions. The directive is targeted at easing the pressure on Nigerian banks. But how far this has been achieved is still under conjecture.

To complicate the woes of the banks, the Economic and Financial Crimes Commission (EFCC) beamed its searchlight on Nigerian banks, leading to the arrest of some bank managing directors. The arrest was based on the allegation that they helped the past administration launder public funds of over $115m into private pockets. As a result, some banks were forced to return some undisclosed amounts of money to the fed­eral government. This has further depleted their purses.

The affected Bank CEOs who were arrested and later released on bail included: Herbert Wigwe of Access Bank; Nnamdi Okonkwo of Fidelity Bank and Yemi Adeola of Sterling Bank.

Just recently, the head of media and public affairs of the EFCC, Wilson Uwujaren disclosed that the commission would drag more bank MDs and CEOs to court over allegations of money laundering.

Uwujaren said some of the banks had failed in terms of their reportage obligation to the Nigeria Financial Intelligence Unit (NFIU), on the minimum benchmark of transactions they should handle.

The Financial Reporting Council and Stanbic IBTC Bank Plc face-off was another controversial issue that dominated the Nigerian banking scene in 2016. While the FRC wielded the big stick over Stanbic IBTC, suspending its chairman and MD over its delay 2013 and 2014 audited accounts, allegedly laced with infractions, the CBN on Nov. 2 faulted the regulatory decisions taken by the FRC against Stanbic IBTC Holdings Plc.

However, last month, shareholders of StanbicIBTC Bank Plc threatened to boycott further investments in the South African bank and also sell their stakes if the controversy surrounding its face-off with the Financial Reporting Council persists.

Also in 2016, Skye Bank Plc almost went under. Though the CBN denied any distress in the system, on July 4th, the entire board and management of Skye Bank forced to resign by the apex bank, and replaced with management appointed by the CBN. Skye Bank was accused to have persistently failed to meet minimum thresholds in prudential and adequacy ratios.

Despite the threats faced by Nigerian banks this year, it is widely expected that they will weather the storm and grow much stronger in the coming year. The optimism derives from the growth outlook of the Nigerian economy.

While the growth outlook for the Nigerian economy and that of the banks are predicated on the non-oil sec­tors activities, a dramatic improvement in the outlooks could come about if oil price makes unexpected, strong rebound next year. This would help strengthen the naira and support the exchange rate, which has partly made foreign portfolio investors to remain on the sidelines of investing in Nigeria.

 

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