Daily Independent (Lagos)
20 July 2009
editorial
Jeune Afrique, a magazine published in Paris, has suddenly added to its other attributes the clout of a credit rating agency. Credit rating agencies carry out key functions. Their analyses act as a guide and guard for a host of stakeholders, across the board. It is therefore work that requires circumspection, technical capacity and must be based on impartiality and trust.
Jeune Afrique,s meander into the world of credit rating has not shown the required circumspection; far from it. Indeed, the magazine,s recent rating of Nigerian banks can be classified as reprehensible. If punches are not pulled, it is clearly an irresponsible piece of journalism. The consequence has been dire. There was a lot of unease (to put it mildly) amongst depositors and it even affected movement in the inter-bank placement market. It is difficult to fathom exactly what sort of methodology was used by Jeune Afrique to come to its conclusions. The magazine has an obligation to enlighten the Nigerian public on this issue.
Whatever methodology was employed, however, one thing is clear: the magazine could not have been so reckless in its own home base. It is impossible to imagine it adopting the attitude it showed in "rating" Nigerian banks towards banks and financial institutions operating in French territory. The magazine would be tempting fate and risking litigation if it had carried out such a preposterous rating of no certain technical or empirical validity on venerable French institutions such as Credit Agricole, Societe Generale or Paribas. These institutions are far too central to the health of the French payments system and economy to risk such mendacity. Our own financial institutions, no matter their perceived (real or imagined) inadequacy, are in no less a position vis-a-vis the nation's economy.
Discerning observers could be forgiven for being tempted to think that the whole business smacks of de-marketing. This hideous concept has recently come into the lexicon. De-marketing indicates a process whereby a surreptitious propaganda war is carried out to run down or destroy a competitor or competitors. Since the so-called ratings appear to be more in the figment of the imagination than based on any technical rigour, the suspicion is understandable.
Some of the ratings are obviously laughable. We might care to look at, for example, the ludicrous ratings for Union, Access and Finbank. Venerable Union Bank, which started its run decades ago as Barclays Bank, was described as shaky. This would be laughable if the consequences were not so serious and potentially ruinous. If the old "big, strong and reliable" is in a pickle, God help the Nigerian economy. If Union can shrug this off, the newer brands might not be feeling so chirpy. In the case of Access Bank, for example, in its 2009 financials, it embarked on a new process in the disclosure of risk or toxic assets, which is quite commendable, just like First Bank. Expectedly it wrote off about N27 billion margin facility out of its N57 billion profit for the year ended June 2009. As for another new brand, Finbank, Jeune Afrique completely ignored the fresh injection of N120 billion, being the proceeds of a capital increase. The bank as a result now has N400 billion in total assets with a risk assets position of N200 billion, 20% of its risk or toxic assets being fully secured. We can go on, what we have shown here is that even this sampling shows quite clearly that Jeune Afrique was totally inadequate in its analyses. It is to be hoped that they were not working towards a pre-conceived answer.
Much damage has been done and Nigeria's banks must accept part the same functions as ratings agencies. This means that anybody can wander into the terrain. This, as we have seen, has dangerous implications, and the trend must therefore be reversed. The way to end the rot is to organize at home a proper, credible ratings agency. The need for this is clearly urgent.
As for the regulators themselves, there is also a lot of urgent work to do. Restoration of trust can be ensured by fast-tracking the Central Bank's current audit investigation. What is or should be, in fact, a stress test must be speeded up in order to put an end to gossip, rumour and mischief-making. This will be in the best interest of the nation's economy. We hope that the necessary political will is there to release an open, transparent result of the audit after its completion. It is sad to note also that negative signals are being sent out due to the CBN's guarantee, till next year, of all inter-bank placements.
The pathetic Jeune Afrique issue points towards one direction: that the days of light-touch regulation are over. In addition to greater rigour in regulation, there must now be an emphasis on transparency and openness at all times, in all processes. The present situation demands nothing less.
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