Caution, prudence see return of ailing banks to profitability




The re-emergence of conservative banking and prudence, among others, are responsible for the gradual return to profitability of the ailing banks and good outing of others in the first quarter results, according to BusinessDay investigations.


The implication, according to analysts, is that the elements have brought about significant reduction in loan loss provisioning and loan default levels that were responsible for losses witnessed in last year’s financials of banks.The development has posed challenges to the other banks, particularly the bailed out ones, that have not declared their first quarter results, to embark on aggressive debt recovery and giving of more waivers to debtors to pay up, so as to join the league of successful Turn Around Managers (TAMs) or promising banks Martin Oluba, president/chief executive officer, ValueFronteira Limited, is of the view that “when a bank is committed to conservatism and prudence, it is most likely to make profit even when the macroeconomic climate is very harsh for other businesses. The return to profitability is a consequence of growing conservative banking and prudence, which are key to significant reductions in loan loss provisioning and loan default levels that defined most of the losses witnessed in last year’s accounts.”


Oluba posited that the impression that banks were not making profits before the reforms was not correct. “It is not that banks were not making profits in the past. Long before central bank governor, Lamido Sanusi’s arrival, many banks were posting unjustifiably stupendous profits that had no discount on their huge credit risk exposures. Accordingly, the profits were merely paper income and quite deceitful. On the contrary, what we see now is a better approximation to the accounting profits.”


Faruok Umar, president, Advancement for the Rights of Nigerian Shareholders, is of the opinion that the implication of the development is that the CBN is succeeding in the task of reviving the rescued banks. “It is a good development and it shows that the apex bank is succeeding in the task of reviving the banks. My advice is that the management of the banks should not derail and should remain determined to put the banks back on their feet and put smiles on the faces of shareholders,” he said.However, analysts were quick to add that commitments to ideals of banking would naturally engender profitability even when the macroeconomic climate is harsh. They therefore, urged the regulators and the regulated to remain focused on the level of achievement to be sustained.


As at the last count, Union Bank came from a loss after tax of N281.2 billion for its financial year ended 2009 to a profit after tax of N3.3 billion for the first quarter of 2010, while another first generation bank, Afribank, posted the sum of N2 billion as profit before tax (PBT) in the first quarter ended March 2010. Oceanic Bank, Finbank and Spring Bank have also joined the league through their first quarter results.


After heavy provisioning with its attendant negative impact on their 2009 financials, First Bank, N15.42 billion; Zenith Bank, N13.2 billion; Guaranty Trust Bank, N13.01 billion; Access Bank, N5.29 billion; Syke Bank, N3.17 billion; Stanbic IBTC, N2.47 billion; Diamond Bank, N2.06 billion; Sterling Bank, N1.4 billion, Ecobank Nigeria, N1.21 billion and Wema Bank, N764 million, were recorded as profit before tax for the first quarter of this year.Funke Osibodu, chief executive, Union Bank, had expressed optimism that the bank would regain its rightful position in the banking industry, now that its books have been cleaned up.


Noting that part of the strategies for bringing the bank to reckoning is the level of strides made in debt recovery, Osibodu said realignment process became necessary as part of the efforts designed to reposition the bank into profitability. 






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