Strong indications emerged at the weekend that the era of grace is over for money deposit banks seeking a window of bailout for their toxic assets from the Asset Management Corporation of Nigeria (AMCON) as the corporation is no longer disposed to relieving banks of their bad debts in the last quarter of the year.
Most of the banks in their nine months results had recorded modest non-performing loan ratios but financial industry watchers said at the weekend that it would be a different ball game by the time banks' fourth quarter results start trickling in next month.
The Central Bank of Nigeria (CBN) had pegged the NPL ratio of banks at five per cent for the entire banking industry.
However, the international financial advisory firm, Renaissance Capital, in its latest report last week said although there was no cause for alarm over banks NPL ratios for the first nine months of the year, the loss of enthusiasm for another round of bailout by AMCON may leave some banks with higher ratios when the fourth quarter results are ready.
AMCON Managing Director Mustafa Chike-Obi confirmed to THISDAY that the corporation is no longer ready to undertake any other write-off for banks.
When asked to confirm the development, Chike-Obi said in a terse statement, "Very true. We have done the clean-up."
Rencap, in the report titled, Nigerian Banks, All Eyes on 4Q12, said although NPL ratios in 9M12 did not raise many alarms bells, the fact that AMCON was not in discussion with any of the banks for the purpose of bailout strategy means that the NPL ratio for the fourth quarter may be on the high side.
"With the exception of UBA, Fidelity and Stanbic IBTC, the rest of the banks under our coverage reported NPL ratios below 6%. We believe there is unlikely to be a repeat of 4Q11, when large write-offs were taken in the final dash before the AMCON window closed.
"From our discussions with management, we understand that AMCON is no longer actively seeking to relieve banks of their toxic assets. With a few notable exceptions, we do not expect the banks to report 4Q12 sales to AMCON this year," the report said.
Rencap recalled that "by this time last year, the banks were already in discussions about asset disposals; we are not aware of any sector-wide discussions or clean-ups taking place at the moment.
"Nevertheless, 4Q12 may still result in upward revisions to NPL ratios, provisions and hence impairment expenses when auditors have had a chance to review the numbers. For those banks that have already published their audited interim results, such as GTB and Access Bank, we would expect the scale of any revisions to be lower.
For others, which may be going through a full IFRS-based audit for the first time, we could see more significant restatements to numbers released during the year. We have some reservations about the quality of IFRS numbers published by some of the banks this year - the revisions have already been significant, while the explanations and justifications have not always been easy to follow," Rencap said in the report.
Insisting that most of the banks cannot survive a regime of low NPL ratios, Rencap said "The banks are also benefitting from low impairment charges, with most of them reporting annualised cost of risk of below 0.70%.
We do not think these low levels are sustainable; in our opinion, most of the banks under our coverage cannot sustain NPL ratios of around 5% without impairment expenses of around 2%. Nevertheless, given the magnitude of the AMCON clean-up in 2011, we would expect the banks to continue reporting below-average charges into FY13, with normalisation likely to start coming through in FY14.
Nigerian banks have declared cumulative after tax profits of N362.2 billion, in the nine months to September 2012 compared to N192.4 billion in 2011, indicating an 88.2 percent rise.
While banks earnings grew by 88.2 percent, their loan books grew by 0.3 percent month/month in September and 4.9 percent year to date (YTD).
This is an indication that the earnings did not necessarily come from expanding lending to the real economy.