Banks’ Q1 profit propelled by recovered loans, say experts




Contrary to the belief that banks have returned to profitability after the financial crisis that brought more than half of them to the brink of collapse, experts say all that has happened in the first quarter of this year is a simple transition from paper loss to paper profits. They argued that there has been no activity in the banks capable of turning their situation around.


By their reckoning, non-performing loans that were provisioned for earlier by the banks later re-paid to the banks were written back into the books as profit. Many of the rescued banks have recovered between N30 billion and over N60 billion loans since August 14 last year.Apart from the monies realised by the banks, analysts insisted that there was hardly any business activity that could have bolstered their performance in the first quarter. According to them, lending by banks that usually brought in about 70 percent of their profits has since shrank, interest rates at inter-bank market have dropped, while yield on bonds where the banks fled to as safe haven is not promising either, but for the promise that their investments are in safe hands.


Okechukwu Unegbu, ex-banker and former president of the Chartered Institute of Bankers of Nigeria (CIBN), told BusinessDay that the recent profits banks are declaring are as a result of recovered facilities. Experts say most of the banks’ profits are usually a fall out of their level of lending over the years. A financial analyst who preferred not to be named said 70 percent of profits made usually come from lending activities. Unegbu noted that since the sack of the managing directors of the bailed out banks last year, lending has declined sharply, making it difficult for the banks to grow profits from a loss position.


He, however, said banks and bureaux de change have made some money from foreign exchange transactions. Wale Abe, chief executive of the Financial Market Dealers Association, also explained that since what was earlier provisioned for has been paid back by debtors, it goes straight to their profit books, thus boosting returns. But another banker who did not want to be named said a look at what rakes in profit indicates that profit could not have come from any other quarter than non-performing loans initially provided for that were paid back.


According to him, banks used to make handsome profits from the inter-bank market, but that has since stopped after the financial crisis that brought about credit squeeze. The scenario now is that interest rates in the inter-bank market are so low that the profit margin may not be enough to ensure passage from loss to profit positions. Similarly, banks used to get huge returns from their investment in the capital market in the past. According to him, since the collapse of the stock market last year, another window for profit taking was shut.He also argued that since banks now opt for the bond market in a bid to look for safe havens to put their funds, returns are bound to be lower since yields are very low.


The expert was very particular about the lending which has shrank drastically since last year. He recalled that since a list of debtors were published and some directors and managing directors hauled into prison on account of non-performing loans, banks have since decided to play safe, while some of the big borrowers have become shy of approaching banks for loans in the time being.






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