Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Banks

Nigerian bank stocks tumble as number of bad loans rises


Posted on November 27, 2016

Gone are the days of $100-plus barrels of oil, and with them the glitzy marketing campaigns from Nigerian banks. Lenders that were once flush with the proceeds of the buoyant energy sector chased corporate and retail clients. Now, as the recession bites harder, the focus is not so much on growing loan books or customer bases, but on survival.

“Customers are struggling and not making profit. Any new loans are more likely to go bad,” says the head of a Nigerian bank, reflecting the widespread malaise in the industry.

That oil industry’s troubles are hitting local banks hard. The stock prices of all but five of the 10 biggest lenders have fallen more than 40 per cent this year. Assets that looked attractive during the oil boom have become big liabilities on their balance sheets.

The oil price crash — and the government’s management of the ensuing economic challenges — have made dollars scarce, causing bottlenecks and frustration for banks.

That the banking sector is in such bad shape demonstrates how it has been impossible for even the most sophisticated of lenders in Nigeria to guard against the impact of the increasingly broad and deep economic woes gripping the country. It also reflects the legacy of patronage, and the dangers of what the Muhammadu Buhari administration sees as crony capitalism and cozy ties between the state and business.

Under the previous administration Nigeria’s biggest lenders were making big returns with little effort. Bank executives in Lagos are today laying off employees and writing off bad loans to their formerly wealthy and powerful customers. 

The five top-tier banks, which hold nearly 60 per cent of the sector’s assets, once challenged South African rivals for dominance in the continent’s markets. 

But at least three-quarters of their total assets are in the domestic market, according to Moody’s. The analyst forecast that non-performing loans (NPLs) would increase from 5 per cent last December to 12 per cent in the next 12 months. It gave a negative outlook for the country’s biggest bank, First, citing its high proportion of NPLs.

The most notable of First’s “problem” loans is to a Nigerian oil company, Atlantic Energy, which is under government investigation for fraud and money laundering. Whether the bank is an outlier or not is debated by analysts and investors, but either way, they note, its 12 per cent market share reflects sectoral weakness. 

Most of Nigeria’s 21 commercial banks have met the capital ratios set by the central bank, which are 10-16 per cent, depending on size. By restructuring their loans to the energy sector this year, they have kept their NPL ratios low enough to be compliant with central bank requirements, though they are expected to make more provisions against losses by the end of the year. 

With the economy not yet showing signs of recovery, however, the question looms as to whether the sector is set for consolidation as in 2009 and 2005, or whether it is heading for another crash, as occurred in 2008-9.

Capitalisation across banks is relatively low and compares unfavourably to Ghana, Kenya, Tanzania and Uganda, says Akin Majekodunmi, senior analyst at Moody’s.

One of Mr Buhari’s early reforms required revenue-generating government agencies to remit funds to a single central bank account, instead of allowing state bodies to hold commercial accounts. This contributed to several banks having their capital bases whittled down. Depreciation of the naira in the summer further eroded buffers as the bulk of energy loans are denominated in foreign currency. 

“It’s a tough market, either you sink or swim, and it’s an industry wide problem,” says Uzoma Dozie, chief executive of Diamond Bank, one of the 10-largest banks by assets. Diamond’s shares have fallen by more than 60 per cent this year. Mr Dozie argues that systemic risks are overblown because there are more buffers in the system than last time the regulator intervened to recapitalise banks and bail out the sector with a range of rescue and reform measures in 2009.

Indications that stress in the system is severe have largely been dismissed by the central bank, which says the sector remains healthy. In July it removed the board of Skye, another top-10 lender, for breaching cash and liquidity requirements. 

Though executives and analysts believe some consolidation — perhaps of three or four of the smaller banks — is inevitable, they note that the central bank cannot afford a fresh bailout. “If 2017 is to be a year of recovery we should have started by now but there’s none in sight,” says Mohammed Garuba, head of asset management at Cardinal Stone, a Lagos-based investor.