…their NPLs rose by 7.9% in 2017 – Investigation
- Blacklist bad debtors – Investors tell CBN
- Banks must adopt risk management framework – Experts
Despite a claim by the Federal Government that Nigeria had technically exited recession, some commercial banks’ non-performing loans increased from 4.58 per cent as at the end of 2016 to 7.91 per cent in 2017, exceeding the Central Bank of Nigeria’s five per cent limit.
The Point’s investigations revealed that the 2017 financial year statements of Zenith Bank Plc, Access Bank Plc, GTBank Plc, Stanbic IBTC Plc and Ecobank Transnational Incorporated Plc, showed that their average NPL ratio jumped, increasing by 3.33 per cent.
It was found that Access Bank, which had one of the lowest NPL ratios of 2.5 per cent in Q3 of 2017, saw its impairment charges balloon by 57 per cent (34.47 billion) while its NPL ratio increased from 2.1 per cent to 4.8 per cent, within the period under review.
The bank, however, admitted that increase in impairment charges contributed to the decrease in its profit before tax, from N90.3 billion in 2016 to N80.1billion by the end of 2017.
Figures in the GTBank’s annual result indicated that the financial institution’s NPL ratio increased from 3.9 per cent in Q3 2017 to 7.66 per cent by the end of 2017. This is 2.66 per cent above the 5 per cent CBN’s benchmark.
The bank’s books also revealed that it’s loan provision dropped by 81 per cent, when it fell from N65.29 billion to N12.17 billion, within the same period. The development was attributed to its N42 billion exposure to Etisalat, significant rise in toxic loans in the telecomm and transportation sector and other sectors such as hospitality, engineering services and co-operative societies, among others.
However, GTBank reduced the probability of loan default as its impairment charges to loan ratio dropped from 4.11 per cent in 2016 to 0.84 per cent in 2017, as it reduced its risk assets by -9 per cent to N1.45 trillion, against N1.59 trillion in 2016.
In own case, Zenith Bank’s NPL increased remarkably as its impairment loss dropped from N541bn to N98.23bn in 2017, a development reportedly attributable to the fact that the financial institution is also among the 13 banks’ consortium that provided a loan facility to Etisalat in 2013. This is in spite of reducing its loans and advances to N2.25 trillion in 2017.
However, the bank was able to rake in N745.19 billion as revenue, influenced by 456 per cent rise in trading gains, which was 46.7 per cent improvement from the N508 billion income it generated in 2016. Zenith Bank increased its profit for the year 2017 by 37.2 per cent.
In the first place, banks are meant to give loans to customers, but some customers don’t service these loans because they see them as national cake. And for you to grow the economy, you need to give loans because without loans, you cannot grow your business
While Ecobank was able to return to profitability in 2017 after posting N52.6bn loss in 2016, its NPL ratio rose from 9.6 per cent in 2016 to 10.7 per cent in 2017. It lowered its impairment loss of -43 per cent to N125.89 billion in 2017 as loans and advances grew slightly at 1 per cent to N2.86 trillion.
However, the Pan-African bank grew its gross earnings by 15 per cent to N763.63bn on the back of 12 per cent rise in interest income and fee and commission income, which was up by 15 per cent. It, however, posted a profit-after-tax of N69.99bn during this period, compared to N52.6bn loss it declared in 2016.
Stanbic IBTC NPL ratio dropped from 5 per cent in 2016 to 7.9 per cent in 2017, swayed by more toxic loans in the transportation and telecomm sectors, which is also connected to the Etisalat loan facility and the downstream oil sector.
WE WILL BOUNCE BACK- BANKS
The Chief Financial Officer, Stanbic IBTC Holdings Plc, Mr. Victor Yeboah-Manu, said, “The non-performing loans increased to N31.7 billion (2016:N18.7billion). The main driver of the increase in NPL was the classification of some corporate clients in construction and real estate, oil and gas downstream, and transportation and communication.
“We believe the loans will be resolved soon and our NPL ratio will decline accordingly. Impairment provision rose by 29 per cent to N25.6 billion as risk asset increased slightly by 5 per cent, to N372 billion,” he observed.
Stanbic IBTC’s gross revenue rose from 36 per cent to 41 per cent with improvement in its interest income rising to N122.9 billion (2016:N87.5billion), largely due to growth in income from investment securities, despite a 33 per cent growth in interest expenses. Its profit for the year consequently jumped by 70 per cent, to N48.38bn in 2017.
The Chief Executive Officer, Ecobank Group, Mr. Ade Ayeyemi, told investors that the bank had reduced its efficiency ratio to 61.8 per cent, which was the proof of the effectiveness of certain actions that will continue to drive down the ratio.
He said, “We have reorganised our businesses, overhauled our risk management, improved our controls and systems, and adopted technology to drive efficiency; and we are now addressing capital allocation. In 2018 and beyond, our focus will be on one thing: relentless execution.”
Commenting on the development, the Managing Director, Access Bank, Mr. Herbert Wigwe, said, “We will focus on the disciplined implementation of our strategy to drive efficient and operational excellence across all segments, expand revenue and increase profitability, with enhanced focus on risk management practices and a disciplined cost containment structure.”
The CBN recently stopped the payment of dividends to shareholders by Deposit Money Banks and discount houses with huge bad loans and low capital base.
This is due to the rising non-performing loans and the need to stop further erosion of the capital base of the banks and discount houses. The directive came barely a week to the release of the 2017 financial year’s annual reports by commercial banks and discount houses in the country.
BLACKLIST BAD DEBTORS – INVESTORS
However, the development has dashed the hope of many shareholders as a number of the banks will be affected by the directive and consequently unable to pay dividends.
Expectedly, shareholders have called on the apex bank to blacklist bad debtors, in order to prevent further abuse of loan approvals and check excesses of businessmen colluding with directors of banks against the interest of depositors and shareholders.
President, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, said shareholders of the banks could not do anything because they were not there when those loans were given.
He said, “In the first place, banks are meant to give loans to customers, but some customers don’t service these loans because they see them as national cake. And for you to grow the economy, you need to give loans because without loans, you cannot grow your business. But these loans must be recovered as it affects the shareholders’ fund.”
WHAT THE EXPERTS SAY
Some analysts and market observers have also said that a viable risk management network by banks would help to bring down the level of nonperforming loans in the banking industry, by the end of 2018. As a result of the large range of risks that the financial institutions undertake, Managing Partner, P & A Associate, an auditing firm, Dr. Ayodele Esho, admitted that there are no approved or agreed risk management techniques that work for everyone but that it is important for every bank to adopt a risk management plan that meets its requirements and circumstances.
According to him, banks should examine the best risk management practices that work for their target audience and operations.
Esho, who spoke to our correspondent in a telephone interview, said, “Irrespective of the risk management strategy, each plan should cover the risk identification, risk assessment/evaluation, and mitigation.
“Recognising risks, as well as their likelihood and overall impact, can help a risk expert to provide recommendations that enable corporations to develop an efficient risk management plan. If adequate attention is given to the three factors mention above, it provides the indicators and information that permit organisations to identify major risks before they negatively affect operations and hence the business.
Also, a forensic accountant, Ms. Toyin Oluwole, agreed with Esho as she also supported an overhaul of the existing risk management structure in some banks.
According to her, the industry features poor risk management practices, due to the absence of basic control measures, as some boards and managements of banks failed to observe established controls by the CBN.
She said, “There was near total absence of corporate governance in most of banks, only blatant and excessive exposure to the stock market, petroleum industry, and lack of adequate disclosure and transparency about their accurate financial positions.
“The developments that triggered crisis of confidence and brought the Nigeria banking system into discredit are huge NPL, inter-bank indebtedness, contravention of supervisory and regulatory provision, weak internal control, inside abuse, huge exposure to single or few obligors and macroeconomic instability. To end the increasing NPLs, banks’ shareholders must launch a campaign against the issues.”
