Stories by Blaise Udunze
While commercial banks in the country are in for a tough half year due to rising bad loans and the economic downturn, more troubles seem to await chief executive officers and chairmen of banks over their failure to publish financial statements within the regulatory period ended June 30, 2016.
The Central Bank of Nigeria (CBN) had in its recently released monetary, credit, foreign trade and exchange guidelines for fiscal years 2016/2017, threatened to sack CEOs and chairmen of banks who fail to publish their financial statements within the regulatory period.
Daily Sun findings show that the deadline for quoted companies to submit their audited report and accounts for this period has expired, even as strong indications emerged that the Nigerian Stock Exchange (NSE) may sanction banks and other listed companies over non-compliance in exception of Wema Bank.
Already, Guaranty Trust Bank and Access Bank have appealed to the NSE to extend the deadline for the submission of their financial results for the first half of 2016. Both banks made their position known in separate letters to the Exchange.
Most quoted companies, including banks, major manufacturers, oil and gas companies, breweries and cement companies use the 12-month Gregorian calendar year as their business year, which terminates on December 31.
NSE’s regulatory filing calendar indicates that the deadline for submission of annual report for companies with Gregorian calendar business year ended June 30 while the one month extension is expected to end July 31, 2016.
However, the problem of the banks is hydra-headed. The economy at present is faced with weakening oil sector, which has seen the reduction in earnings. This, coupled with the implementation of the Treasury Single Account (TSA), has reduced drastically the take home of many bank.
In addition, the foreign exchange crisis, inflation, abolition of Commissions on Turnover (COT) and other economic headwinds, have dragged the banks into unplanned financial crisis. For one, the industry is heavily exposed to the oil and gas sector, which contributes over 70 per cent of government revenue and 90 per cent of all exports.
With the fall in global oil prices by nearly 60 per cent from $115 per barrel to about $44 per barrel in the past 23 months, thus resulting in lower government revenues, and thereby decreasing banks’ takes. With a high level of exposure to the oil and gas sector, which unfortunately is facing a sustained period of low oil prices, non-performing loans in Nigerian banks have reached alarming proportions. This has continued to significantly lower banks’ revenue and profits especially in 2016.
Meanwhile, Daily Sun findings have shown that rising bad loans due to the slow growth in the economy will drag a good number of Nigerian banks to record low profits when their financial results for the second quarter are released any time from now.
As a result, 13 out of the 15 banks whose shares are quoted on the NSE may post a combined 15 per cent drop in their second quarter financial reports, according to top bank executives familiar with the situation.
In the first quarter of 2016, 13 out of the 15 banks whose shares are quoted on the NSE posted a combined PBT of N135.36 billion, compared to N148 billion in the corresponding period of last year. This represents eight per cent decline.
Similarly, the 13 banks posted profits after tax of N116.6 billion in the first quarter of 2016, compared to N126.4 billion in the first quarter of 2015.
The affected banks are Access Bank Plc, Guaranty Trust Bank Plc, Zenith Bank Plc, United Bank for Africa Plc, Diamond Bank Plc, Ecobank Transnational Incorporated Plc, Fidelity Bank Plc, First City Monument Bank Limited, First Bank of Nigeria Limited, Union Bank of Nigeria Plc and Sterling Bank Plc.
Besides Wema Bank that has submitted its half year result, others will start releasing their second quarter financial results at the Exchange soon to escape the regulators’ hammer. Some, however, may delay theirs for some time.
Top bank executives have hinted that many of the nation’s lenders would post record low profits in their second quarter financial results due to rising bad loans in their books.
A director in one of the tier-1 banks privy to the development, who spoke under the condition of anonymity, said, “the slowdown in the economy has made more companies to default in the repayment of their loans; this has increased the amount of non-performing loans in banks’ books.
“The CBN regulation requires that provisions be made for these loans. The provisions have caused huge decline in banks’ profits in the second quarter.”
According to other bank executives, while many lenders will post record low profits, at least one or two would post losses in the second quarter.
“Many banks still recorded high NPLs due to record number of defaults from their clients in the manufacturing, consumer goods, real estate, and oil and gas sectors. These dragged down their second quarter profits following the mandatory provision for bad loans,” a risk manager in a tier-2 bank spoke under condition of anonymity.
The economic slowdown in the country made four banks to lose about N17 billion in profits in the first quarter of this year, their financial results posted on the NSE website showed. The banks are Ecobank Transnational Incorporated, Guaranty Trust Bank Plc, Unity Bank Plc and Diamond Bank Plc. They recorded a combined decline of N17billion in their profits before tax for the three months ended March 31, 2016, when compared with the corresponding period of 2015.
According to the 2016 first quarter unaudited financial results filed with the NSE, Ecobank, GTB, Unity Bank and Diamond Bank recorded profits before tax of N20.63 billion, N30.68 billion, N1.05 billion and N6.04 billion, respectively.
When compared with N30.52 billion, N32.65 billion, N4.26 billion and N7.94 billion recorded by the banks in the first quarter of 2015, the combined profit before tax of the four banks dropped by N17 billion from N75.4 billion in the first quarter of last year to N58.4 billion in the same period in 2016.
In terms of their profits after tax, the four banks recorded a decline of N14 billion as they posted record high profits between 2011 and 2014. This followed the establishment of the Asset Management of Corporation of Nigeria (AMCON) in 2010 following the banking sector crisis of the year before, which absorbed the NPLs of the lenders.
Owing to the lenders’ high exposure to the oil and gas sector, the global drop in crude oil prices in 2014 caused their profits to start declining by the end of 2015.
Majority of the 15 banks listed on the NSE recorded decline in their full-year profits in the 2015 financial year. However, a few including Access Bank Plc, Zenith Bank Plc, United Bank for Africa Plc and GTBank outperformed the market despite sizeable volume of bad loans.
This move by CBN to sanitise and stabilise the system in the 2016/2017 fiscal year came in less than one week after the regulator took over management of Skye Bank based on the issue of liquidity challenges, disclosing that “one or two others” were in distress.
It explained that the decision was a measure to prevent a total collapse of the bank. Skye Bank is believed to have an estimated non-performing loan portfolio of N700 billion, much of which is due to an over exposure to the oil and gas sector.
Economic and financial analysts, who are predicting lower profits in the second quarter of this year, linked the development to lower national imports due to foreign exchange challenges, lull in economic activities and slow implementation of the 2016 budget, among others.
The Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, said banks would make higher provisions for bad loans in their second quarter results due to the lull in the economy, slow implementation of the budget and reduction in their income lines and profits.
He said, “banks’ income lines have reduced due to the foreign exchange challenges in the country. Many banks cannot engage in trade finance as they should have done due to scarcity of forex.
“Also, lending that should go to the Federal Government contractors could not happen much due to the late passage and implementation of the budget. And more importantly, they will experience higher provisions for bad loans due to the lull in economic activities.”
An analyst at Afrinvest, a Nigeria-based research and investment advisory firm, Mr. Robert Omotunde, said the banks’ performance in the second quarter would be lower than that of a similar period in 2015 due to high impairment charges on the part of the DMBs.
He said, “it appears that banks (because of their resilient nature) will still manage to post profit in their H1 financial results but not as high as that of H1 2015 due to high amount of risks in the system.
“Banks are recording high impairments in recent times. This can also be traced to the high exposure of Nigerian banks to the oil and gas sector. On the average, the exposure rate is currently at 24.5 per cent for all the banks. This is quite high.”
Recession: MPC expected to leave monetary policy unchanged
Economic experts have predicted that the Monetary Policy Committee meeting of the Central Bank of Nigeria, will leave the Monetary Policy Rates (MPR) unchanged, at 12 per cent in order to address the impact of the current recession on the economy.
They, however, opined that the fiscal authority should devise a way out to wrestle the economy from recession and deal with the structural factors causing inflation.
An analyst at Ecobank Transnational, Olakunle Ezun, argued that it would not be appropriate for the MPC to tighten monetary policy as the country is already in recession and an increase in benchmark rate would further choke the economy.
He stated that rather the fiscal authority should seek out ways to take the economy out of recession by taking proactive measures. “I don’t think it will be appropriate for the MPC to react with a hike in the rate based on the level of the inflation rate. Taking a second look at the items that are driving inflation, they are basically not monetary issues. It depends on how much the fiscal authority can respond to the imbalances that we have today in the economy.
If technically the economy is in recession and it is not about hiking or choking the economy the more, that will take it out of recession. So if the CBN decides to increase rate to what level will it plans. I think there is a limit to how much increase they can do to address inflation. The focus should be on what the government is doing to help the economy through employment creation and others. Going forward we may start seeing a drop in inflation rate because all of these items.”
Meanwhile, the Managing Director and Chief Executive of RTC Advisory Services Limited, Opeyemi Agbaje, stated that inflation is expected to continue to trend downwards as factors that contribute majorly to the pressures have panned out already.
Consequently, he said the MPC is not expected to react to the current inflation rate with a rate hike stating that “I do not support further monetary tightening. My view is that the inflation is not due to money supply factors, it is due to the cost of goods and services arising from devaluation, constraints to agricultural production in parts of the country due to communal crisis.
“I think the imperative for this period is to have some economic growth and progress, so monetary tightening will be counterproductive. My counsel is that they should not panic but look to the causes of the inflation and not respond with a cure that does not relate to the cause which are not around monetary factors.
“My hope is that the inflationary pressure has already been factored into the economy, we have devalued and there is still some level of devaluation going on but not as large as what we have taken. The fuel crisis too, even if values will rise it would not be as we have seen before. So it is better we deal with the structural factors causing inflation” he stated.
Meanwhile, the naira currency hit a record low of N331 per dollar in regular interbank trading on Friday, falling 9.5 percent as traders tested lower levels seeking to attract liquidity in the absence of Central Bank of Nigeria’s interventions.
The naira slipped to N298.50 per dollar on thin volumes at market open and extended losses to trade a total volume of $26.97 million by 1203 GMT. A day earlier the naira crossed N300 for the first time and hit N330.50 in off-market trades.
While interbank overnight lending rate jumped as high as 40 percent, well up from 18 percent last week, after CBN drained naira liquidity from the market to support the currency after it hit a record low.
Commercial banks were also paying for purchases of foreign currency and treasury bills, thereby further reducing the amount of naira in the banking system.
However, the drop in naira, prompted the apex bank to intervene. By mid-afternoon it was trading back at about N300. The currency had slipped to more than N300 to the dollar on Thursday, a month after the central bank lifted its controls on the currency.
Meanwhile, traders said the more liquid banks were demanding higher interbank rates to lend funds to rivals in the market. Total banking system credit tumbled to minus N700 million on Friday from N26 billion in credit on Thursday.
The apex bank raised N207.9 billion in treasury bills on Thursday, more than it had planned to issue, and at a higher yield to soak up naira liquidity and attract foreign investors back to the country.
UBA’s GMD calls for closer collaboration among African central banks
Outgoing Group Managing Director of United Bank for Africa (UBA) Plc, Mr. Phillip Oduoza, has called for increased collaboration among African central banks to drive intra-African trade on the continent. He stated this on Friday when he delivered the 4 th Valedictory Lecture of the Chartered Institute of Bankers of Nigeria (CIBN) on the topic “The Emergence of a Nigerian Pan-African Bank” to a parked hall of bankers and financial industry players. Oduoza used the lecture to share his experience and challenges in helping build one of Africa’s largest banking groups, UBA Plc. He spoke extensively on UBA’s expansion into Africa, the rational for the expansion and the strategies adopted to derive maximum value and reduce the risks of UBA’s foray into different African countries. He also shared with the audience, the lessons learnt from the bank’s expansion into Africa.
Speaking specifically on the need to improve intra-Africa trade in order to drive the growth of Pan-African banks like UBA, Oduoza decried the low levels of intra-African trade. “The volume of formal intra-African trade is relatively low and estimated between 10per cent and 12per cent of Africa’s total trade. Comparable figures are 40per cent in North America and about 60per cent in Western Europe.”
He listed lack of the required infrastructure and policies as the major challenges to intra-Africa trade while noting that the adoption of policies like tax holidays, waivers, and market interventions to promote investments in sectors outside commodities will help diversify African economies and drive intra-African trade. “I strongly feel African Central Banks have a greater role to play by collaborating to promote the development of cross border trade platforms in order to encourage the informal sector to join the formal banking system. When this is done, the opportunity will be readily captured by Pan-African banks.” He also noted, “Intra-African trade growth will be further supported by the introduction of a visa-free travel policy across the continent by the African Union as well as the development of intra-regional transport infrastructure.” Oduoza also harped on the need for improved financial inclusion on the continent, noting that research has shown that only 34per cent of African adults have bank accounts as at 2014.
He suggested the adoption of mobile money services could help drive financial inclusion on the continent.
He also noted, “UBA has effectively been promoting financial inclusion on continent by leveraging on our advanced digital banking platform. Working with our payment partners, we are improving the payment systems on the continent with prepaid and debit payment cards as well as our mobile and internet banking platforms, which have been deployed and adapted for our subsidiaries across Africa.”
Speaking before the commencement of the lecture by Oduoza, the President and Chairman of Council of the CIBN, Professor Segun Ajibola, explained that the valedictory lecture is organized to honour retiring bankers who have distinguished themselves to share their thoughts and experience with industry players and regulators. He also emphasized that only bankers who have shown professionalism and integrity are honoured with a valedictory lecture by the Institute. The 4th CIBN Valedictory lecture is part of the series of activities lined up for Phillips Oduoza as he formally retires as the Group Managing Director and CEO of UBA Plc on July 31, 2016. Incoming Group Managing Director and CEO of UBA Plc, Kennedy Uzoka, as well as Founding Chairman of MTN and Founder Diamond Bank Plc were among the top dignitaries that graced the well attended lecture.
Forex situation makes suppliers think less of Nigeria –Okoli
By Olabisi Olaleye and Steve Agbota
The Group Managing Director of Emzor Pharmaceutical Industries Limited, Dr. Stella Okoli, at the weekend recounted how tough it has been for manufacturers in Nigeria to access forex, pointing out that this has caused forex suppliers to think less of Nigeria as a country.
Okoli, who stated this in Lagos recently while celebrating 30 years of Emzor Paracetamol in Lagos, said that forex situation has made everybody work 10 times harder as people are becoming innovative on daily basis. She disclosed that it could be better if government ensures that percentage of forex is given to manufacturers to source raw materials for production.
On recession, she said government can help manufacturers who have been the engine room of growth in every economy to do better, saying that, “it is through the activities of manufacturers that the government and people can come out of recession.” In further demonstration of its commitment to taking maximum as well as affordable wellness to every nook and cranny of Nigeria and beyond, she reiterated the commitment of Emzor Pharmaceutical to providing affordable healthcare to everyone.
The company celebrates 30 years of its flagship brand, Emzor Paracetamol, with unveiling of special anniversary pack.
“Over the years, Emzor Pharmaceutical has gone the extra mile in ensuring that affordable healthcare was readily available to everyone, this has made the company consistent in delivery time valued quality products and services to the delight of our customers. Ultimately, we see a world where unlimited wellness is available to all and affordable by all. It is our belief that a healthy nation is a wealthy nation. Therefore, we are giving the gift of wellness to our people, our nation and our world.”
She said the company, which was established in 1984 is into the manufacture of high quality pharmaceutical products and medical consumables.
Okoli said: “It has become a household name in the country and a leader in the pharmaceutical markets known for quality products as prices that offer real value. The company has a range of more than 100 high quality pharmaceutical products and all conform with international standards and approved by NAFDAC.”
Speaking on the achievement of the company, she said Emzor would have achieved more assuming it had embarked on its petrochemical project 30 years ago, stressing it could still complete the project, as it was never to late.