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Business & Finance
Tuesday, October 2, 2012
National Mirror www.nationalmirroronline.net
Banking sector: Dogged by poor output despite brightening prospects CONTINUED FROM 19 its Monetary Policy Committee’s findings noted with serious concern that despite efforts to lower lending rates, the rates remained high, thereby undermining government’s drive towards inclusive growth of the economy. At the conclusion of the MPC meeting in August, the CBN lamented that developments in the interest rate structure indicated that there is need for the banks to adjust in order to impact on the economy positively. As the MPC noted, “Developments in the interest rate structure indicated that the retail lending rates remained high in August 2012. The average maximum lending rate increased marginally to 23.76 per cent in August 2012 from 23.45 per cent in July. “However, the average interest bearing deposit rate declined to 6.24 per cent in August 2012 from 6.64 per cent in July. Thus, the spread between the average maximum lending rate and the average interest-bearing deposit rate widened to 17.53 per cent in August 2012 from 16.81 per cent in July. In its revised forecast on Nigeria’s five biggest banks covering the first half of 2012, which focuses solely on the Tier 1 Nigerian banks defined by asset size and market share, a leading financial advisory firm, Renaissance Capital, projected some positive trends in the affected banks’ relative share price, loan book growth, book quality and impairment costs, cost management and overall returns on investments. On the relative share price performance for the banks, the company noted that “despite global trends and uncertainties overhanging developed market (DM) banks, this has been a good year for Nigerian banks, relatively speaking, in our opinion, pointing out that over the past two months up to June, it was observed that there was some pullback, in line with falling global risk appetite.” It noted further on the book quality and impairment costs of the leading banks and the industry generally that “at the risk of sounding like a broken record, we believe that, from a book quality perspective, 2012 is turning out to be different from 2011. The clean-out in FY11 turned out to be bigger and deeper than even our conservative estimates” adding that with the exception of one of the banks the NPL ratios for the banks are now sitting below the five per cent CBN guideline. The company stated however that while they acknowledged that there had been some improvements in risk management, they were not convinced that these improvements have been sufficiently significant across the entire banking sector. On the projected returns for the FY 2012 Ren Cap concluded, having taking some other issues into proper perspective, that “there is nothing insightful or profound in us saying we believe FY12 returns for Nigeria’s Big Five banks are set to be better than those of FY11. This goes without saying considering the balance-sheet cleanout that occurred last year. “The more interesting question for us is
A banking hall
Onasanya
MANY ENTREPRENEURS CANNOT MEET THE BANKS’ CREDIT REQUIREMENT, ESPECIALLY COLLATERAL; EXPERIENCE OF THE BANKS WITH LOAN QUALITY OF MANUFACTURING AND OTHER REAL SECTOR INVESTORS WOULD NOT DISPOSE THEM TO GIVE FURTHER LOANS whether these returns are sustainable. We believe investors should not confuse some one-off gains with the potential for a sustainable performance. The key factor impacting returns this year, in our view, will be the lower-than-average impairment charges”, it added. Reporting on the interest rates trend in the industry in its June 2012 Economic Monthly Publication, another leading financial consulting entity, Financial Derivatives Company, noted that though there was a slight drop in the nominal interest rates this was partly due to the net inflow of funds, particularly from the public sector monthly allocations to the three tiers of government in May 2012, the interest rates were still relatively high. FDC reported: “Although still relatively high, nominal interest rates have been on a downward trend; with the monetary policy rate (MPR) un-changed at 12 per cent. In the month of May, Nigeria Interbank Offered Rates (NIBOR) declined sharply by 178 basis points (bps), to close at an average of 12.84 per cent; this is 70bps lower than the corresponding period in April. The decline recorded in May was largely due to a net inflow of N229.57bn into the money market system (of which the bulk came from the monthly federal allocation to the three tiers of government). “Furthermore, the Federal Accounts Allocation Committee (FAAC) disbursement for the month of May declined by 8.14 per cent (month-on-month) to N563bn. The Open Buy Back (OBB) rate traded between a high of 14.5 per cent (May 21) and a low of 10.25 per cent. (May 28). As at May end, the OBB traded at 11.58 per cent. Overnight rates of call and 7-days funds declined by 191bps and 200bps, to 12.17 per cent and 12.67 per cent respectively (as at May 31st)”, it concluded.
A document sourced from the CBN showed that the lending rates to borrowers in agricultural, oil and gas, manufacturing, mining and quarrying and real estate sectors have risen by three to five per cent in some banks in recent months with potentials that the rates may surge higher in the Q4 of this year. According to the document, prime lending rate for borrowers in these critical sectors have been ranging from 17.56 per cent to about 24 per cent in most part of the year thereby posing serious challenges to manufacturers’ access to funds. Even at the Microfinance banking subsector, investigations showed that with many of the operating entities still contending with the challenges of strong customer base and capital adequacy, access to credit by customers is still a major constraint hampering their service delivery, particularly in the grassroots. The relatively high interest rates as cost of funds contrast sharply with the Bankers’ Committee’s aspiration of reducing lending rates by 30 per cent from January this year. The Committee had last year indicated their readiness to work together with the CBN to drastically reduce lending rates and restructure their loan portfolios to favour of the real sector operators. Real sector bemoans high lending charges. The e-payment initiative involves a transformation of the payment system and the idea is to permit banks to cut cost through moving the country from its present ‘cash-and-carry’ status to one where people will make payments through electronic channels.” Despite the take-off of the Operation Cashless Policy in Lagos a few months ago, the high cost of loans is yet to reduce even as prospects for increasing real sec-
Oduoza
tor lending in the banks’ lending portfolios from less than two per cent ratio now to about six per cent in the medium term remains doubtful. Reflecting on the experiences of real sector operators in the face of high interest rates on bank credit last month, the Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, decried the dearth of credit facilities to investors, saying that the rather than lend to manufacturers and other real sector operators, the banks believe “it is clearly more attractive now to invest in government securities than to invest in ventures that would create jobs. Yusuf explained further in the banks’ morbid desire for quick money and profitability they “would rather buy treasury bills and government bonds than give loans to investors. This credit and interest rate structure would continue to create distortions in the economy, which will only perpetuate the phenomenon of jobless growth and further depresses the stock market. “Many entrepreneurs cannot meet the banks’ credit requirement, especially collateral; Experience of the banks with loan quality of manufacturing and other real sector investors would not dispose them to give further loans; monetary policy tightening of the CBN has pushed up cost of fund; Risk asset provisioning requirements of the CBN is a disincentive to lending,” he said The Chambers’ President, Mr. Goodie Ibru, also corroborated the pains of the real sector operators a few days ago when he said the interest rates of over 20 per cent were inimical to entrepreneurship development, wealth creation and employment generation and urged the CBN to relax the policy and risk management guidelines to improve access to credit and reduce the cost of funds. Speaking in a similar viewpoint, the Chairman, Rivers/Bayelsa Chapter of the Manufacturers Association of Nigeria, Mrs. Emilia Akpan, who spoke after the association’s council meeting in Port Harcourt, lamented that the high interest rates in the banking sector had thrown many industrialists out of business.