Economist, Shareholders and financial analysts disregard troubled banks’ Q1 profit


Jul 5, 2010 By Peter Egwuatu & Micheal Eboh


Economists, Shareholders and financial analysts have dismissed the perceived return to profitability of the eight troubled in their first quarter result for 2010 expressing lack of confidence in the ability of the Central Bank of Nigeria (CBN)’s rescued banks to make genuine profits seven months after they made billions of loan loss provision and without any appreciable sign of lending and increase in deposit the major source of bank revenue. The profit is mere book keeping arrangement of posting recovered loans to the profit and loss account because they had earlier be regarded as lost.



They further dismissed the hope of any genuine foreign investor buying over any of the rescued banks given the recent rating by Standard & Poor’s (S&P ) of the Nigerian banking industry which the internationally acclaimed rating agency adjudged as highly risky and unviable and that there was “still a long way to go” with regulatory reforms. In the last two weeks, virtually all the eight troubled banks have turned out positive first quarter 2010 result, a development that have generated heated argument in the face of low economic activities in the sector .Wema Bank Plc, in its first quarter financial statement for the year 2010 released recently, recorded a profit before tax of N 795 million from a loss of N 2.03 billion in the comparable period of 2009, while its gross earnings shot up slightly to N 8.43 billion from N 8.08 billion recorded in 2009.



Afribank, in first quarter 2010 financial statement, recorded a pre-tax profit of N 1.99 billion compared to a loss of N 39.9 billion in similar period in 2009, while its gross earnings stood at N 25.1 billion compared to N 93.59 billion recorded in 2009.FinBank Plc posted a profit of N 1.165 billion from N 2.64 billion recorded in the comparable period of 2009, its gross earnings stood at N 12.5 billion dropping from N 17.3 billion in 2009.Oceanic Bank International Plc recorded a profit of N 2.56 billion from a loss of N 14.83 billion in the comparable period of 2009 and a gross earnings of N 30.35 billion from N 29.33 billion recorded in 2009.



Spring Bank Plc recorded gross earnings of N 5.98 billion from N 6.53 billion in the comparable period of 2009, while its profit before tax stood at N 635 million compared to a loss of N 1.73 billion in 2009.Union Bank of Nigeria Plc’s pre-tax profit stood at N 3.6 billion compared to a loss of N 938 million in similar period in 2009, its gross earnings dropped to N 34.2 billion compared to N 51.26 billion in 2009. The experts are of the view that most of the figures are illusory as they have not had any underlying growth.



A financial analyst, who called Vanguard on phone from New York said, “ I do not hope that any foreign investor would come to Nigeria and buy over Nigerian banks especially now that S&P has described the banks in Nigeria as highly risky and unviable. S&P had in its report said that for investors to recapitalise the rescued banks is if there is a government guarantee on their investment.So, he ruled out the possibility of any responsible and accountable government using public fund to guarantee private investment. According to him, “ these banks should be returned to their shareholders to recapitalise while a time frame be given to them to do so.”



In an interview with Vanguard, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Bonoiface Okezie said “these trouble banks are not making any profit from their core business. The profits they are declaring is just from some of the debts recovered. How can they say they are making profit when they are not lending. The primary responsibility of any bank is to lend. When they lend they are able to make money through interest payment.In fact, the Central Bank of Nigeria (CBN) is just deceiving the public, these banks are not really making any profit. The profit they said the made is what the CBN wants them to declare. The CBN should be very careful with the running of these banks. We cannot even see the reason why the CBN intervene in these banks since they cannot order them to publish details of their results.”



Continuing, he said, “In fact, we the shareholders will want the CBN to ask these banks to come out with the details of how they made their profit. At least when a company makes profit there must be expenditure. It is when the income is greater than expenditure that we can say there is profit. Nigerian shareholders would want to know how the profit came about.“I am very much convinced that the banks are not making fresh profit. They made billions of loan loss provisions, how can they recover soonest when they are not lending to the real sector which will now use these funds for further production that would generate profit from where they can now repay the principal and interest.



“Foreign investors are not ready to patronise Nigerian banks because when the Governor Lamido Sanusi went abroad to expose these banks in the name of reforms, he thought he was doing the country good. Now it has backfired as the recent rating by S&P has shown that Nigerian banks are the most risky institutions to invest in.So if these banks want to make profit they should start lending to the real sector that has the potentials to repay. As it is now the economy is not moving. It is in standstill and something should be done.



I think this is the time for President Goodluck Jonathan to intervene and call the CBN to order otherwise the economy will not move. In a situation where there is no credit available for people to borrow to engage in economic activity, then such economy will never advance.Mr. Adebayo Adeleke, Secretary General of Independent Shareholders Association of Nigeria (ISAN) on his part said , “the trouble banks are not making any profit because they are not lending to the investing public. For a bank to make any meaningful profit it must be able to lend. The Cost of Transaction (COT) can not be enough to take care of the expenses and still declare profit. What has happened is that they are bringing in some of the repaid loans to their books.



“In fact, the implication of not lending means that there won’t be any meaningful economic growth and development. Many people are no longer interested to keep their money with banks since they are not lending. If the trouble banks are really making profit let them show us what level of deposit they have attracted since the CBN intervention”.





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