The total liabilities of five commercial banks stood at N15.94billion at the end of the six months ending July 30, 2018, representing an increase of 25.4 per cent over the level at the end of the period under review.
This was against the N14.78billion which the banks recorded at the comparable period of 2017. The banks are Ecobank Trans International, FBN Holding, GTBank, Stanbic IBTC and FCMB.
A breakdown of the unaudited financial statements of the five banks showed that ETI’s total liabilities depreciated marginally, recording N2.80 per cent decrease to N6.03billion in 2018, from N6.19billion in the same period last year.
FBN Holding’s followed with 1.93 per cent increase to N4.65billion in H’1 of 2018, from N4.55billion at the period under review. GTBank’s total liabilities for the six months of 2018 jumped to 11.95 per cent to N3, 051billion in 2018, from N2.73billion at the comparable period of 2017.
FCMB reported 5.45 per cent decrease in total liabilities to N1.051billion, from N99.21billion, while Stanbic IBTC recorded 3.24 per cent increase to N1, 16billion from N1.20billion at the same period last year.
In most cases, some banks go back to borrow to sustain dividend payout and such is like mortgaging the future returns on investments of shareholders
Tread with caution, experts warn bankers
Financial pundits who spoke with our correspondent have expressed their displeasure over the high level of liabilities incurred by the banks, as they warned that companies must tread with caution and weigh options of paying back loans or risk being insolvent.
Professor of financial economics, and Dean, Business Administration, University of Uyo, Professor Leo Ukpong, said the nation’s low per capital income, low market liquidity, excessive market concentration, with over 60 per cent of trading activities on bank stocks as well as legal constraints, are factors traceable to the lull in the economy that the country has been witnessing in the last one year.
An economist, Mr. Michael Akindele, said policy inconsistency and propaganda by the Federal Government were one of the major factors responsible for the huge liabilities recorded by the firms.
“This government was built on the foundation of lies, they came in claiming that they have what it takes to turn Nigeria’s economy for good, but as I speak with you, the country is in deep mess. Investors are skeptical about coming to invest in our stock market,” he said.
“This attitude gave rise to mistrust for investment, as the boards and management of the companies are finding it difficult to meet expectations. Investors do not trust government policies to put in their money. So, companies went borrowing to keep business running and sometimes, it became difficult to pay back borrowed monies. Until government policies are well structured and enforced, doing business in Nigeria will be unstable,” he explained.
Shareholders blame board, management of banks
Some shareholders of the banks have described the Boards of Directors of the companies as careless and reckless managers.
National Chairman of Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, described the board of directors of the companies as careless and reckless managers, saying there were no tenable explanations for the ‘reckless’ exposure of the companies to huge liabilities like loans, and fines (being sanctions for the delay in submitting their financial statements), among other offences.
Okezie explained that, though he understood that the cost of running business in Nigeria was so high, the managements had failed to be proactive in some of their decisions as they were not the only companies doing business under a harsh economic environment.
He said, “You must factor in taxation, cost of operations and other levies while taking decisions, because these factors create overhead cost for companies in the course of running their businesses. Before you borrow money, you must weigh the options to know if you will be able to pay back the loan on time.
“For instance, one of them borrowed to do business, paid dividend and planned to pay back from the profit it hoped to make at the end of the financial year. But it failed to remember that aside from the loans, it would also pay dividends. After building huge liabilities for a few years, it would stop paying dividends and shareholders would be on its neck. In most cases, some banks go back to borrow to sustain dividend payout and such is like mortgaging the future returns on investments of shareholders.”
Another investor, Mr. Mathew Okeke, observed that the stock market was heavily laden with low investor confidence; poor market depth in terms of limited securities and products on offer; poor savings and investment culture, which he attributed to the dwindling fortunes of most quoted firms.
For the projected economic growth envisioned by the Federal Government to be realised, he advised that more highly capitalised firms must be encouraged to get listed on the floor of the Exchange, as it was imperative to get the capital market back to desirable heights.
The Chief Executive Officer, APT Securities Limited, Mallam Garba Kurfi, also cautioned banks executives against owing more debts than their companies’ worth.
If that has been done already, he urged them to take fast action to reduce debt and increase the value of their banks. Apart from that, he expects to see improved performance in the fourth quarter if the economy grows faster than what it recorded in the first half
of the year.
Reacting generally on capital market performance, Chief Executive Officer of the Nigerian Stock Exchange, Mr. Oscar Onyema, said the negative performance of some companies was a reflection of the domestic economy and, to some extent, international economic performance.
He, however, advised companies to manage their indebtedness so that monies borrowed for the purpose of business could contribute to its profitability in the future.
“If the company is borrowing money for investment and to increase assets, then it can bring profitability in the future. But if they are just borrowing money for frivolous means, then, they must be cautious, as it will lead to collapse,” he said.
He, therefore, advised investors to invest through portfolio approach in the market, saying the current state of the market created both challenges and opportunities for investors.
“We believe that taking a portfolio approach to investing provides the best risk adjusted alternative for participating in the capital market,” he said.
