Banks Step Up Activities


By Emele Onu, 07.06.2010 


Global economic activity, which started recovering in the second half of 2009, evolved better than expected this year, according to reports released in May, by the Central Bank of Nigeria (CBN). The report indicated that among the emerging and developing economies, Asia is taking the lead, just as Sub-Saharan African countries have thus far weathered the crisis, with their recoveries expected to be stronger in 2010.



Although the CBN noted in the report that the resumption of credit growth in many emerging and developing countries has been weak, it observed that the domestic (Nigerian) financial markets have recovered remarkably faster than expected, suggesting that there has been an increase in the level of financial activities and banking operations this year, compared to 2009.The primary role of banks in the economy is financial intermediation and the provision of related services. Banks provide payment services just as bank account is considered indispensable by most businesses, individuals and governments. Through their intermediation roles, they lend money to individuals, households, businesses and government.  By the nature of their services, banks empower individuals and businesses to access the basic things of life; fund enterprises to boost production and employment as well as intervene in deficit economic sectors by which they foster the growth and development of the economy.



Records show there have been increased level of activities in the banking sector since the beginning of this year, some motivated by the banking watchdog and others by the banks themselves, all with the objective of jump-starting banking operations, after the lull witnessed at the peak of the financial crisis last year.For most of the industry observers that spoke to THISDAY, the trend indicate significant process compared to 2009, when banking services appeared to have grinded to a halt. 



Banking in 2009/ 2010 Half Year


Analysts said the greatest challenge to the banking sector, following the intervention of the CBN on August 14 and October 2 last year, remained how to make the banks resume lending and correct the negative growth in credit to the private sector. Related to that is addressing subsisting high lending rates in the face of declining inter-bank rates and relative liquidity surfeit in the banking system.After the CBN intervened in the sector, virtually all the banks shut their doors to borrowers. Explaining the situation, a treasurer with one of the banks said: “Most banks have not been in comfortable position on capital adequacy and liquidity ratios as to resume lending fully.”



Also, Chairman, Progressive Shareholders Association of Nigeria, PSAN, Mr. Boniface Okezie, told THISDAY: “If banks are not lending, then, what are they there for. Banks cannot thrive, survive or make headway when they cannot give loans or lend and grow their earnings, which will translate to profit based on the amount of money made.” Investigations revealed that whereas almost all the banks went to sleep in developing and marketing their various assets and liability products during the second half of 2009, virtually all of them are back to the market to increase their share of the customers’ wallet.   Access Bank and Wema Bank among others have launched new products into the market, while the rest of the banks have reactivated old products, brands, and are pushing them aggressively to customers.  



A general manager with one of the banks said pleading anonymity: “Our consumer banking, corporate and investment services have been raised this year compared to last year and that is because we have sorted ourselves out internally to a reasonable extent.” He added: “After the intervention of the CBN, many banks retracted and I think that was the usual thing to do. You had to sit back and ascertain how and where things went wrong, not that an official at CBN told you.That was what banks were doing. In my own bank, after we ascertained that there were actually loopholes, then we concentrated on building structures that would prevent a reoccurrence.Our workers participated more in the capacity building programmes in the bank than in interfacing with customers last year. After all that, including the recoveries and the provision declared for losses, we are ready now to face the market.”



Some policy measures adopted by the CBN are believed to have aided banks to come back to business and gradually they are impacting on their customers. At the end of its monetary policy committee (MPC) meeting in March this year, the CBN provided N500 billion facility for investment in debentures issued by the Bank of Industry (BOI) in accordance with Section 31 of the CBN Act 2007, for investment in emergency power projects dedicated to industrial clusters. The funds, according to the guideline, are to be channeled through the BOI for on-lending to banks at a maximum interest rate of 1per cent for disbursement of loans with a tenor of 10 – 15 years at concessionary interest rate of not more than 7 per cent. The CBN also approved the extension of the facility to the manufacturing sector and lately the aviation industry. 



At the MPC meeting in May, the monetary authority directed banks to henceforth, submit their Risk-based Interest Rate Pricing Model on a monthly basis. It also stated that loan pricing should be adjusted along with MPR movements. The committee retained the MPR at 6 per cent and the asymmetric corridor of interest rates at 200 basis points above the MPR and 500 basis points below the MPR for the Standing Lending Facility and Standing Deposit Facility, respectively. The monetary authority extended the CBN guarantee for all inter-bank transactions and foreign credit lines as well as pension funds’ placements with banks up till June 30, 2011. It stated the measure was to provide ample time for the conclusion of the banking sector resolution and the publication of audited accounts for the period up to December 2010. It said that by June 2011 all creditors and investors will have sufficient information to take an independent view of the risk of individual counterparties.Although, the banking public is yet to feel the full impact of the foregoing policy measures, money market operators said: “They have kept the system going, especially inter-bank transactions.”



Universal Banking


Other key regulations passed by the CBN during the first half of the year include the phasing out of universal banking. The CBN observed that having spread their tentacles very wide in the past, most of the banks neglected their areas of core competence. The new guideline that seeks to categorise banks is still in the process of implementation.



CBN/Malaysia MoU 


The apex bank also signed a strategic partnership memorandum of understanding (MoU) with the Bank Negara Malaysia (Central Bank of Malaysia). Under the MoU, the CBN is to share expertise and exchange relevant information in the areas of Banking Supervision, Small and Medium Enterprises (SMEs), Microfinance, Islamic Finance, and Monetary Policy. The other areas are Development Finance Institutions, External Reserve Management, institutional arrangement for financial crisis management and resolution, Foreign Exchange Administration, Performance Management and Corporate Strategy, Leadership Development as well as Talent Management.



Margin Lending


In other efforts at strengthening regulation during the half year, the Financial Services Regulation Coordinating Committee (FSRCC) announced new rules, including those on margin lending. It directed for instance: “Bank shares shall not be used in margin trading.” It said it took the decision to avert a repeat of the abuses and sharp practices that bedeviled margin trading in the run up to the capital market collapse.However, the FSRCC clarified that the shares of banks would continue to be used as collateral for bank lending, adding that the restriction placed on bank shares are only in respect of margin trading.



The Committee disclosed that the FSRCC put banks aggregate exposure to margin lending at a maximum of 10 per cent of total loans and advances and that banks with exposures in excess of the 10 per cent limit are required to submit to the CBN clear plan of how they intend to wind down their exposure in compliance with the prudential limit, among other rules.



Economic Indices


In assessing the performance of banks this year, at the end of its meeting last month, the CBN noted that aggregate domestic credit (net) grew by 6.1 per cent over the December 2009 level, and by 24.5 per cent when annualised.It pointed out that in the first four months of 2010, the downward trend in interest rates in the domestic money market, which began in July 2009, following the Bank’s decision to guarantee inter-bank transactions, continued. 



The low rates, according to the CBN, provide ample evidence of sufficient liquidity and restored confidence in the money market. It said the weighted average inter-bank call rate, which was 2.89 per cent as at end-December 2009, declined to 2.48, 2.17, and 1.50 per cent in January, February and March 2010, respectively. The downward trend continued to 1.27 per cent on April 30, 2010.



Similarly, the securitised open-buy-back (OBB) rate, which was 2.64 per cent at end-December 2009, declined to 2.46, 2.20, and 1.31 per cent in January, February and March 6, 2010, respectively. The rate further declined to 1.11 per cent on April 30, 2010, compared with the monetary policy rate (MPR) of 6 per cent and Standing Deposit Facility rate of 1 per cent.More importantly, the CBN stated that falling inter-bank rates appeared to reflect marginally on banks’ lending rates, which used to be of major concern to the monetary authority. 



It said: “The retail lending rates have started declining albeit by far lower magnitudes than the decline in inter-bank rates. The average maximum lending rate dropped to 22.88 per cent in March 2010 from 23.32 and 23.18 per cent in February and January 2010, respectively. The rate was 23.45 per cent in December 2009. Also, the average prime lending rate dropped to 18.06 per cent in March 2010 from 18.28 and 18.38 per cent in February and January 2010, respectively. In December 2009 the rate was 19.03 per cent,” the CBN said.



Banks’ Financial


THISDAY gathered from bankers that since this year they have been working to improve their balance sheets, remove toxic assets, promote the flow of credit and return their organisations to profit. The Managing Director of Afribank, Mr Nebolisa Arah said the profit declared by his bank arose from market intelligence, good relationship management, group integration, resource optimisation, people, value chain marketing and technology leverage pursued in the first half of the year.The first quarter pre-tax profit reports of some of the banks showed for instance: Union Bank  with  N3.56billion,  First Bank – N15.42billion, Zenith Bank – N13.2billion, GTBank N13.01billion, ETI – N8billion, Access Bank – N5.29billion, Syke Bank – N3.17billion, Stanbic IBTC -N2.47billion, Diamond Bank – N2.06billion, Sterling Bank – N1.4billion, Ecobank Nigeria – N1.21billion, Finbank – N1.165billion and  Wema Bank – N764million). 



Not oblivious of the fact that a lot is needed to sustain the performance beyond the first half of the year, the banks had in the past six months taken many strategic initiatives to succeed for the rest of 2010.



Rescued Banks’ Recapitalisation


Just as banks announced their strategies for the rest of the year, the CBN during the half year announced measures to fasten the recapitalisation of the rescued banks as well as other elements of the banking reforms.The monetary authority extended the recapitalisation deadline it gave Unity Bank and Wema Bank by three months, noting that the extension became impetrative due to unanticipated three months extension in timeline for setting up the Asset Management Corporation of Nigeria (AMCON).



It said AMCON will clear $10 billion (about N1.5trillion) of bad loans from the banking system by the end of this year, adding that debt purchases will cost the CBN “roughly” $5 billion as commercial banks don’t have collateral to cover the bad loans.The CBN Governor, Sanusi Lamido Sanusi, the bids on the rescued banks would be released by September or October this year, pointing out that four international banks were among the likely bidders for some of the rescued banks and that he expected bids to be in by the end of July.



Banks’ Growth Strategies


The strategy adopted by most of the banks for the rest of the year involves scaling up of operations through organic or inorganic growth, roll- out of terminal growth plans as well as improved competitiveness of operations.On bank’s strategic preoccupations in the first half of the year, Skye Bank said it reviewed its out-sourcing policy on staff and other third party supply process in order to streamline its staff engagement process and enhance efficiency of operations in the running year.



Afribank prosecuted a part of its two- year turnaround plan, designed to return the financial institution to optimal performance. The plan, according to the management is divided into three stages: diagnostic (clean up and reengineering), transformation (guided growth) and consolidation.Union Bank, in the first half, according to the Group Managing Director and Chief Executive, Mrs. Funke Osibodu, pursued growth strategies that have started yielding dividend, manifesting in the first quarter result. 



First Bank told stakeholders it has been preoccupied this year with winning market share as one of the longstanding, trusted institutions in the country, while Zenith Bank said it tailored capital to continue to provide stakeholders with a high level of returns and comfort.The economic environment for the half- year must have been instrumental to the performance of the banks, as a general manager with one of the banks said: “The economy is picking up as manifested by the rise in imports and consumer demand. It is an environment that favours an increase in the activities of banks.”





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