Boniface Chizea
12 July 2009
opinion
Lagos — I had walked into the First Bank branch at the Estate where I live when my relationship officer told me that it has been reported that the Governor of the Central Bank granted an interview which was carried by Punch newspapers the previous day during which he categorised the banks in operation in the country and gleefully informed me that First Bank was put in the topmost category.
I told her it is not at all possible that the Governor of the Central Bank could make such a statement as I expected him to know better! It eventually turned out that some nondescript publications based somewhere in France made the publication. What is rather surprising is the amount of attention which has been lavished on this hardly reputable publication that even had some difficulties with simple spelling; 'shaken' for shaky and run of the mill grammar; the fourth category is designated as stressed! Could someone please tell me what that means contextually?
The publication did not indicate the parameters of assessment for such categorization. As it is commonly known that there are various and varied dimensions for the measurement of the size of any bank. Is it the level of capitalization, the balance sheet size, the volume of risk assets, the volume of liabilities, or size of the network or for that matter market capitalization?
Reactions have come thick and fast as should be expected as banking is a profession of which much store is placed on trust and confidence . The Chartered Institute of Banker has published an advertorial in which it invited the banking public not only to disregard the report but to consign it to the trash can, if I may add where it suitably and appropriately belongs. And proceeded to advise banks not to be bothered about the publication but to continue to offer value added service to the banking public. The Association of Corporate Affairs Managers of Banks ( ACAMB ) has also weighed in to condemned in totality the publication by The Africa Report enquiring into the source of information of the authors of the publication observing that the only recognized and acceptable authority in this regard remains The Central Bank of Nigeria and The Nigerian Deposit Insurance Corporation. The body proceeded to pooh- poohed the publication on grounds that bothered on professional competence and historical antecedents. There has been speculations regarding what informed the publication of the report. Some have argued that this is an attempt to stampede Nigerian banks to extend advertising support and some have speculated that following the recently announced liberalization of ownership of Nigerian banks by foreign interest that this is a calculated attempt to cause a run on some of the banks which could result in a crashing of the value of the shares at the Stock Market for cheap and easy pick.
This development is reminiscent of the rumours that made the rounds early in the year about Intercontinental Bank when issues were raised regarding the viability of the Bank. The rumour was so bad that some urgent damage control became necessary.
The bank put out paid advertisements to refute such damaging allegations regarding its viability and intensified its Corporate Social Responsibility efforts through the offering of scholarships to selected students in tertiary institutions across the various geo-political zones in the country along with the donation of physical structures at selected tertiary institutions. The Central Bank had to step in to reassure the banking public that the Bank was healthy and is fully meeting its obligations to its numerous customers and was participating fully in clearing house activities. What is baffling you may ask is why such rumours? We have experience in this country with bank distress. A bank that is distressed cannot hide it because the first red flag is the bank's inability to meet customers request to draw on their deposits with the bank as a result of illiquidity. And when the bank is insolvent that is advanced and worsened form of illiquidity whereby due to implications of bad loans the assets of the banks have been eroded leading to a situation where the liability is in excess of the assets.
Nigerian banks weathered the global financial crisis without the need for any injection of public funds to sustain them in operations mainly due to the reforms of the banking sector in the recent past; the central plank of which was the Consolidation program. Contrast that with the situation in the industrialised world; mostly America to be precise where there were bank failures, distressed acquisitions, and massive infusion of tax payers funds to bail out the banks was the order of the day in an attempt to stem the spate of bank failures with its potential for calamitous consequences for the world economy. The publication under discussion must also be contrasted with the other more reputable publications such as Forbes magazine; a leading publication which earlier in the year included some of the banks in the country in its publication of the list of 2000 biggest banks in the world. In the same vein Africa Business Research Limited, a research oriented consultancy outfit specializing on African financials corroborated the publication by Forbes magazine explaining that the Nigerian banking industry was stable, vibrant and capable of meeting financial obligations to all stake holders. Also Fitch Ratings, an equally reputable international agency as well as the respected Banker Magazine have all underscored the robustness of Nigerian banks.
It remains a fact that Nigerian banks cannot claim to have been totally unaffected by the global financial crisis. It has been argued by otherwise respected and knowledgeable commentators that our equivalent of the sub- prime lending to the mortgage sector overseas is margin lending to those who played at the stock market. In fact the extent of the exposure by banks in this regard has been a matter for conjecture which has recently resulted in the investigation instituted by the Governor of the Central Bank to ascertain the extent of these exposures as a first step to their management. Banks also took a hit from the perspective of the crash in the value of their market capitalization which in some cases have been claimed to be put at up to a whopping 70 per cent and as banks accounted for about 60 per cent of the capitalization at the Stock Market this readily explains the negative trend in all the market indicators over the period of the global financial crisis for which touch wood recovery in now evident. But the whole point about the Consolidation program whereby the number of banks in operation in the country were reduced from 89 to 25 and currently 23 was to provide a strong and reliable banking sector which will ensure the safety of depositor's funds and which will be in a position to play an active developmental role in the Nigerian economy and be a competitive player in the Africa region and the global financial system.
Consolidation as has been rightly observed is not a panacea for the continued viability of banks. There has been this interesting argument regarding whether a bank could be too big to fail. What we know and which we believe everyone must accept is the fact that big banks do fail and when they do the consequences are far reaching and therefore the authorities will be hard pressed to ensure that such big banks do not fail and this is why often the erroneous impression is created that big banks do not fail. But even if we consider the usual indices for measuring a bank's viability which includes; capital, asset quality, management, earnings and liquidity it cannot be gainsaid that consolidation impacted positively each of these indices. If for instance we are to consider the issue of the available managerial capacity it follows that if you reduced the number of banks substantially as under the Consolidation program that there will be surplus capacity as is the experience in the country today. As far as I am concerned Nigerian banks are healthy but that should not be taken for granted to lull us all into a false feeling of complacency. It is also possible to categorise the banks in operation in the country today using robust criteria but such categorisation is hardly necessary and could be counterproductive. We also need to guide against damaging rumours as that is anathema to the continued robust, viable and profitable operations of banks.
-Chizea wrote from Lagos
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