Nigerian banks groan under global liquidity crunch

Nigeria’s regulatory authorities have long persisted in painting a rosy picture of the country’s banks despite the global financial meltdown, but analysts are sceptical.

“Nigerian banks are strong enough to manage the shocks and challenges occasioned by the global economic crises”, Central Bank of Nigeria (CBN) governor Chukwuma Soludo said last week in a statement.

But analysts and operators fear the bubble will soon burst for the banks, which between them as of January had about 784-billion naira ($5,3-billion) in loans and advances to stockbrokers and investors still outstanding, according to the CBN.

Soludo says it was the bank consolidation programme—recognised even by the governor’s detractors as the signature achievement of his tenure—that has enabled the Nigerian banking sector to survive.

The consolidation, initiated in 2004, saw the emergence of 24 banks with strong balance sheets and deposit bases out of a total of about 90 banks then in existence.

“Thank God, we concluded the consolidation before the global crisis. The global crisis has affected all countries. We cannot say our banks are immune from the crisis,” Soludo said, adding: “in spite of this our banking system remains strong enough to weather the crisis”.

He said “the CBN stands ready to provide liquidity support to any bank that may require it during this period and beyond”.

But analysts remain sceptical.

“The realities on the ground do not tell us all is well with our banks despite the assurances of the central bank chief,” said Lagos banker Sunday Adeola.

He said the banks are reeling under bad loans.

“This is in form of margin loans to investors to buy stocks and securities which they have been unable to repay because of the crash of the capital market,” he said.

Adeola, a treasury manager, put such loans at about 900-billion naira ($6-billion) as of mid-March.
“This includes both the principal and interests which the banks are unable to recoup”.

Although the Securities and Exchange Commission (SEC) and the Nigeria Stock Exchange (NSE) are not specific on the total exposure of banks to margin loans, officials said the influx of funds from banks contributed to the bullish run witnessed in the sector in 2007 and the beginning of 2008.

“The Nigerian stock market has lost some eight trillion naira or 63% of its market capitalisation since March 6 2008,” said a senior manager.

He said the all-share index also fell by 69% within the same period.

Market capitalisation slumped to 4,9-trillion naira this week from 12,6-trillion 12 months ago, he said.

Financial analyst Dimeji Odumosu said banks are also finding it difficult to recover loans to the petroleum sector because of the slump in oil prices which have fallen to about $40 a barrel currently from $147 in July last year.

Tunde Shofowora of First City Monument Bank said banks have also lost millions of dollars to capital flight.

“A lot of foreign investors have withdrawn their money ... because of the liquidity crisis in their own countries,” he said.

Financial consultant John Otudor said banks are introducing job and pay cuts and are setting deposit targets for staff in an attempt to stay afloat.

More controversially, some are going in for the “de-marketing” of competitors—that is the spreading of false information about the condition of a bank by a competitor bank who wants to take its customers.

Otudor said the banks’ difficulties have been compounded by heavy withdrawals of public sector funds in recent months.

“Most banks survive on government funds which are no longer there owing to dwindling revenue from oil, the mainstay of the economy,” he said.

Many operators however underlined that banks are still able to honour payment obligations to their customers despite the liquidity squeeze.

Some customers have however complained of wanting to withdraw funds from an account in foreign currency and being given naira instead.

But observers say the rise in lending rates brought on by the credit crunch is hurting manufacturing and agriculture, the very sectors that should be the backbone of the economy. - AFP

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