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Report Raises Concerns over Health of Nigerian Banks



A number of banks in Nigeria are living on borrowed time as they struggle to recover sticky assets and pare down their loan loss provisions, according to Business Hallmark.


The report said that the banks are buried in a heap of poor quality loan assets in the guise of high none performing loans (NPL’s) and that all may not be as well with the banks as the domestic regulator, Central Bank of Nigeria (CBN), would have many believe.


Indeed, recently the international credit rating agency, Fitch, marked a down grade in the credit ratings of virtually all Nigerian banks as the agency pointed to the worsening condition of their credits.


Within the year Fitch’s analysts downgraded the outlook for four Nigerian banks from stable to negative; the banks were Zenith Bank, GT Bank, First Bank and Diamond Bank.


The problems with the banks downgraded were attributed to, ‘heightened vulnerability of capital due to downside asset quality risks’ which in simpler terms meant that these banks were finding it increasingly difficult to get back the monies that they lent to customers.


Third quarter 2017 results for nearly all the banks have been dyed in rose colour. Nine months’ results for the banks have shown profit figures glide up as the economy edges out of recession. But how real are the numbers?


Truth be told with discussions with a fair number of bankers who did not want their names put in print, the profit tally for most of the banks, ‘where beautiful Picasso replicas, as brilliant as they were; they were all fake’ said a senior manager of one of the banks with headquarters in Victoria Island, Lagos.


The banker insisted that, ‘you cannot make omelets without breaking eggs, with interest rates at double  digits and manufacturers rolling in escalating debt as retailers groan in agony, how the heck does a bank make money with customers hung over a barrel?’, he asked pensively.


When it was pointed out that banks had stopped granting credit and had actually become more comfortable simply buying treasury instruments at double digit yields he agreed but noted that, ‘banks may have been able to turn a trick or two by buying treasuries over the last two years, but that is not core retail banking; it is more of an investment banking function and it still does not address the problem of proper loan loss charges against risk assets that have already been created.’


In other words most banks have made inadequate provisions for loan impairments or bad credits and have simply engaged in a number of clever accounting rouses to restructure bad loans to make them appear hale and perhaps hearty.

It is obviously difficult to establish how bad Nigerian commercial bank loan portfolios precisely are, especially as even the Central Bank of Nigeria (CBN), the sector’s chief regulator, and the Nigerian Deposit Insurance Company (NDIC) often get caught on the wrong foot as bank examiners serially underestimate impairment charges required by banks to cover their deteriorating loan assets.


This has led to independent observers classifying bank loans as a mixture of financial fact, fiction and something one analyst recently called ‘faction’, a grey area between reality and outright falsehood.


Peering through reams of recently published financial data is not likely to shed very much light on the warm matter of bank assets and capital adequacy.


The problem of poor bank loan books is not just that of the smart reclassification of bank loans by managers form non-performing to performing but also the accounting convention of using historical valuation of bank assets rather than adjustment of the assets on the books by marking to market which means that if interest rates go up the value of banks assets simultaneously go down and vice versa.


It would also mean that the increasing riskiness of bank loans when interest rates rise would be better captured on bank books when loan quality is measured as weaker when rates go up; in other words as interest rates go up bank loan quality comes down.


As lending rates have hovered between 25 and 28 per cent over the last two years, bank asset quality has taken a turn for the worse.


The CBN estimates that delinquent loans as a proportion of loans outstanding on average industry wide is about 12 per cent as against the regulatory rate of 5 per cent. But even the twelve per cent claim is disputable.


Investigations suggest a more accurate rate of double that number putting real average loan impairment ratio closer to 25 per cent or a quarter of all loans outstanding.  This clearly indicates that banks would have to recapitalize operations to reduce leverage (debt to equity ratio) and build greater strength in balance sheets.


In a telephone conversion with Business Hallmark, Chidi Ajaegbu, former President Institute of Chartered Accountants of Nigeria (ICAN), noted that the challenge of bank credit assets and their current levels of equity was not dire enough to cause major worry, ‘I don’t think we have an immediate systemic problem but something must be done to ensure that we do not slide into systemic distress’. He was of the opinion that banks may need to raise their capital base in 2018 by either rights issue or Initial Public Offers (IPO’s).


Also commenting on the issue, Dr. Afolabi Olowokere of Financial Derivatives Company Limited (FDC) said it is a known fact that the relatively low capital base of banks could constitute a serious problem for such institutions anywhere in the world. ‘It is normal that the capitalisation of banks will be eroded at a time like this if you consider the huge non-performing loans which they have to provide for. I hope the banks do not suffer any shocks because they have links with one another, poor management of one could set off a contagion that hurts all’’, he said.


In his own observations Dr. Adi Bongo, economist and faculty member, Lagos Business School was of the view that the recent Fitch downgrades of local bank was a fallout of the poor macroeconomic management that started last year, adding that the banking industry suffered huge capital flight as portfolio investments that were plugged into banks during the consolidation period, began to pull out on concerns over macroeconomic direction.


He further explained that, ‘Nigeria has been performing poorly in capital importation. As money began to leave the system, banks where many portfolio investors had plunked capital, started having liquidity challenges.’ Noting that, ‘…because of the state of the economy, non-performing loans in banks have increased geometrically. The combination of these two issues has caused banks to face serious challenges, except those that have strong equity bases.’


With calls for bank assets to be marked to market or at least made compliant with International Accounting Standards Board’s (IASB’s) IFRS 9 rules, the days of bankers running rings around regulators in regards to the quality of their balance sheets is slowly fading into distant memory or at least that is the hope



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NDIC Warns Nigerians of “Wonder Banks”



The Nigeria Deposit Insurance Corporation (NDIC) has urged Nigerians to be wary of “wonder banks” that give extra-ordinary interest rates and profits on investments.

Its Managing Director, Alhaji Umaru Ibrahim, gave the advice in an address at the NDIC Special Day at the ongoing 29th Enugu International Trade Fair in Enugu on Thursday.

Umaru, who was represented by Mr Festus Ekechi, NDIC Director of Strategy Development, said many Nigerians had continued to lose fortunes and even their life savings to Ponzi schemes and other illegal fund managers with disastrous consequences.

“The corporation’s activities, through the supervision of banks continuous monitoring and oversight, serve as consumer protection for depositors (in legal banks) which enhances confidence in the financial system.

“This acts as an incentive for the unbanked to access financial services of licensed banks.

“Poor and uninformed depositors need assurance that the services of licensed deposit taking institutions are safe and that they have access to their money whenever they need it,” he said.

The NDIC managing director said the NDIC was determined to ensure the safety and soundness of the nation’s financial system.

According to him, the key mandate of the corporation is to provide deposit guarantee to depositors of insured financial institutions, banks supervision, distress resolution, and bank liquidation.

He said that since inception, NDIC had grown from strength-to-strength in ensuring that the over-riding public policy objectives for establishing a deposit insurance system in the country were realised.

“With the protection of depositors in mind, the Maximum Deposit Insurance Coverage (MDIC) per depositor per bank progressively increased from N50, 000 in 1989 to its current N500, 000 per depositor per Deposit Money Banks (DMBs).

“Similarly, the insured limit for Micro-Finance Banks (MFBs) and Primary Mortgage Banks (PMBs) in 2009 was increased from N100, 000 to N200, 000 per depositor per MFB/PMB in 2010.

“However, on August 4, 2016, the Minister of Finance approved an upward review of the deposit insured limit for depositors of PMBs to N500, 000 in order to ensure coverage of over 90 per cent of depositors in the banking sub-sector.

“It is pertinent to point out that depositors who have funds in excess of the insured limit are entitled to liquidation dividend after recovery of debts and sales of physical assets of the closed banks,” he said.

Earlier, the President of Enugu Chamber of Commerce, Chief Emeka Udeze, had commended NDIC for always partnering with the chamber to educate the banking public on the safety of their bank deposits.

Udeze said that NDIC remained resolute in the protection of depositors’ funds within banks and other financial institutions in the country.

“The NDIC has helped to build confidence amongst bank depositors, thereby helping to stabilise the Nigerian financial system,” he said.

The fair, which has entered its 7th day, has its theme as “Engendering the Competiveness of Nigerian Products in the Global Market.”

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SIGMA Pensions Launches Mobile App To Redefine Customer Experience



Sigma Pensions Limited, one of Nigeria’s leading Pension Fund Administrators with the goal of providing exceptional value to their stakeholders through the delivery of superior pension administrative services recently launched its mobile App; the Sigma Buddy.

The development of Sigma Buddy is evident in the organisation’s desire to be the Pension Manager of Choice providing innovative solutions and redefining customer experience.

It is fast, convenient and easy to navigate. It eliminates the hassle of walking into any of their branches to sort out account related issues.

Access to personal information, account related information and even communication with the customer’s assigned relationship manager is made possible with the Sigma Buddy.

For over a decade, Sigma Pensions has provided innovative solutions to its customers and the mobile App is an excellent opportunity to tailor more quality services with emphasis on the ease of transactions while building a stronger relationship with their customers.

One of the outstanding features of the Sigma Buddy is the ability to request for your e-statements.

The platform also provides a secure way to find their nearest branches closest to you. The App is free and available for download on both Play store and Apple store.

‘’We are revolutionizing the process of Pension fund administration and the first step towards achieving this is to offer easy access to our customers by bridging the gap between them and their retirement savings account.

This is the motivation for developing the Sigma Buddy’’.-Dave Uduanu, MD, Sigma Pensions Limited.

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Heritage Bank Achieves ISO 27001 Information Security Management Certification



Heritage Bank Plc, has achieved the Information Security Management Certification from International Standards Organisation (ISO).

This certification also known as the ISO 27001: 2013 is part of the ISO 27000 family of standards which helps organisations keep information assets secure. The certification was achieved on the heels of the bank’s drive to revolutionize the banking sector digital experience with Octopus, by putting in place a systematic approach to managing sensitive organisational information, ensuring it remains seamless, secure and available.

The Octopus platform owes numerous benefits to the users, thereby enable small businesses key into electronic payment system easily, efficient collections, social integration, retention strategy, bills payment, mobile virtual top-up, funds transfer, balance enquiry, movie show time, news.

With the introduction of Octopus, the ISO 27001: 2013 Information Security Management Certification is proof of the Bank’s demonstrated ability to consistently provide products and services that gives service consumers and customers an easily recognisable security hallmark.

Speaking on the award received, Ifie Sekibo, MD/CEO of Heritage Bank Plc, reiterated the bank’s commitment for secured services, whilst assuring customers that their information is appropriately protected and, as such, reduces the need to undertake time consuming and costly onsite security audits reducing time and cost for both parties.

According to him, the certification demonstrates credibility and trust, which reduces customer and supply chain audit and ISO 27001 certification reduces third party scrutiny of your Information Security Management by customers and the wider supply chain.

“The achievement of ISO 27001 will differentiate two competing organisations in the market place, providing a valuable competitive advantage. Increased legislative and regulatory compliance ISO 27001 supports compliance with relevant laws such as the Data Protection Act 1998 and software copyright legislation.

This in turn reduces the risk of facing prosecution and fines. An organisation’s liability in security incidents may be reduced if it is certified ISO 27001 compliant,”

He further explained that it reduces customer and supply chain audit, stating that ISO 27001 certification reduces third party scrutiny of your Information Security Management by customers and the wider supply chain.

As ISO 27001 is the current international benchmark for Information Security Management, it is increasingly recognised that compliance with the standard is supportive evidence of adequate security.

Considerations and outcomes To achieve ISO 27001 certification, an organisation must produce documentation that demonstrates that it has developed an Information Security Management System that complies with the standard.

Organisations should consider producing most of this documentation even if they are not going for certification as it provides a best practice approach for compliance as well.

There are three key issues to note about the standard: Its generic requirements mean that it is applicable to all organisations, regardless of size, type or nature. However, you tailor it to the exact needs of your organisation through the information security controls that you select to implement within your Information Security Management System.

It takes a flexible, risk-driven approach. It is dynamic – it focuses on continual improvement and helps the organisation keep ahead of changes both within and outside the organisation.

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