new report by Allan Gray Group has stated that a few Nigeria banks may go bust or raise capital next year.

The report, which examined the lenders’ performance as of the end of March, added that investors’ sentiment towards Nigerian banks had gone from positive to ‘outright fear.’


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The research by Allan Gray, Africa’s largest privately-owned investment management company, linked the development to the falling oil price, likely spike in bad debts, political uncertainty and the Boko Haram insurgency.

The report read in part, “Sentiment towards Nigerian banks has gone from positive to outright fear. The fear is not without reason given the falling oil price, likely spike in bad debts, political uncertainty and Boko Haram insurgency.

“It is indeed likely that there will be a lot of distress in the next year, but it is important to remember that what a company earns in a particular year generally has little bearing on the intrinsic value of the business; what counts is the level of normal earning through the cycle and the ability to grow those earnings.

“Financial companies are a little different in this regard as they may go bankrupt before achieving normal earnings. A few Nigerian banks may go bust or raise capital, but luckily the share prices are discounting this probability.”

The Allan Gray report, entitled ‘Gray Issue: The sentiment pendulum’, also compared Nigerian banks with Kenyan banks relative to their assets and the Gross Domestic Product of their respective countries.

According to the research and investment firm, there is no reason why the Kenya banking sector should be any more or less profitable than the Nigerian in the long term, arguing that over the past 10 years the Return on Equity for the two sectors have been similar.

The ROE measures a company’s profitability by revealing how much profit a company generates with the money shareholders have invested.

The study read, “With a similar ROE, the Price-to-Book value for these two countries’ banks should be fairly close. However, the largest five listed banks in Kenya are trading at 2.6 times book value, discounting a long-term ROE of about 26 per cent, while the Nigerian banks trade below book value, indicating a long-term ROE of around 10 per cent.

“The market capitalisation of the companies relative to the assets on the balance sheet tells a similar story, with Kenya banks pricing in a return on assets 3.5 times that of Nigerian banks.

“In the Allan Gray Africa ex-SA Equity Fund we have a significant investment in Nigerian banks and very little in Kenya banks. We think the terrible sentiment and clear risks are giving us the opportunity to buy decent businesses, with favourable long-term prospects, at very attractive prices.”

The Price-to-book value is a financial ratio used to compare a company’s current market share price to its book value i.e the value of the of a company’s net assets expressed on the balance sheet.

Industry players and analysts had said a number of regulatory measures aimed at stabilising the economy would make it difficult for banks to make higher profit this year.

The Managing Director, Afrinvest West Africa Limited, an investment advisory firm, Mr. Ike Chioke, had said the reduction in banks’ fee income would make the year turbulent for the financial institutions.

He said, “It is going to be very challenging for the banking sector this year. You remember a gradual progression of the CBN trying to reduce the fee element that the banks do enjoy. The Commission on Turnover for example has been reduced from N5 to N3 and N1 per mille. By 2016, it will be reduced to zero.

“The CBN has also come up with a lot of measures to control the foreign exchange. All of these are taking away the fee incomes that the banks would ordinarily have enjoyed. So, I see that some banks will be in a place where their cost structure may be too difficult for the income generated to carry. So, they will have to find new ways to generate additional income.

“But trying to find new ways to generate additional income in an environment where there is declining revenue overall for the federal, state and local governments is going to be very difficult. It is going to be a depressed year for the banks.”

The Managing Director, Asset Management Corporation of Nigeria, Mr. Mustafa Chike-Obi, recently said falling oil prices would cause “serious economic headwind” this year and banks would be forced to record very significant increase in non-performing loans.

Chike-Obi said, “We can see that there is an economic headwind coming to Nigeria this year; and when the economic headwind comes, it will certainly impact on the Non-Performing Loans levels. So, we expect an increase in the NPL levels this year.”

Fitch Ratings had in a report released on October 8, 2014 said that although the banks’ NPLs were below five per cent as of last year, it would not be sustainable in the long run.
http://www.punchng.com/business/money/few-nigerian-banks-may-collapse-in-2016-report/

Under every new CBN Governor, a few Nigerian banks must close shop. This seems to be the custom in Nigeria's economy for some time now. Soludo swallowed many of them in the pretext of bank consolidation. Sanusi sanitized the banks yet further. I remember Ocean bank. Oh, it is difficult to forget Intercontinental Bank; the bank that did not charge me any monthly management fee on my IPSA account until it was submerged and things fell apart. We do not know what the new CBN Governor will do with the remaining banks. Maybe he will sell them off or maybe Nigerians will start paying subsidy for their survival. Whether what our financial managers do is prompted by economic exigencies or informed by clandestine agenda is what many Nigerians do not know.

Abeg list dem o make I go comot my money first

Failure of the so-called "few" could be very disastrous.

lalasticlala, FP things

If the banks like, let them enter oblivion for all I care

They don't help small businesses and startups with loans;
their corporate social responsibility is is almost zero;
They don't assist in mortgage;
Infact, they don't do nothing other than collect our monies and charge COT on our accounts.

They only give mega loans to the Dangote's and Adenuga's.

So if it becomes a bad debt, that's their fvucking business

dis is y i deal with d biggest banks

List d banks pls my money ni koko

Oil price falls.....economy falls....bank fails.

Nigeria has to get off oil.

only few? gmb is coming for new banks with gud services to emerge. if these ones can't cope. then they might collapse as well. I don talk my own

first bank....all De way!!!!!

It will only affect 'the weak' banks...

APC...

This is not a good news at this time when people are struggling to make a living.

No way



APC will change that



Oby Ez. And Soludo to the rescue

Let there be a cleansing! Some banks are not fit to be called banks, just call them financial institutions.

There is a systematic unorderliness in the banking and bigger financial sector. There is money everywhere in this country dormant and untapped and horded by a few lunatics.
What we are experiencing is a byproduct of extreme looting... Funds meant to go from point A to B end up in C and we are talking indices and numbers like sense dey the sector! Our banks cant generate any revenue because their default condition is 'Cut Costs' not 'Improve Profits'.

Zenith had beta make the cut even though my gtb account is up and running

thank God for Australia banks

No matter how its, First Bank is unshakable also Zenith and GT Banks. Others dunno about them

I dey suspect Skye Bank . I need to remove my money sharply Team GTB

Make dem tell us the banks oh, b4 some people money go follow fold

Waiting to see end results.

Make i go comot my money for wema

Na today?





Which work get job security before





Nonsense

Jarchi:
Make i go comot my money for wema

Abeg do quick

I'm telling y'all confidently that MAINSTREET bank and KEYSTONE bank will certainly close shop. ENTERPRISE may be acquired by a much robust bank.

Its not a prophesy, its a vision!

Choi !!!
Massive sacking dey do press up o

hope fcmb and first bank no dey there?abeg list those banks for us.

Abeg make GTB & UBA no collapse oh make my money no enter voice mail.

And the lesson is......................Learn to move your money into investments. Even if no bank collapses, inflation, taxes, bank charges, etc will keep devaluing your money. N1million today will be worth N750K in the next five years. Be WISE!!!

eduxerxes:
I'm telling y'all confidently that MAINSTREET bank and KEYSTONE bank will certainly close shop. ENTERPRISE may be acquired by a much robust bank.

Its not a prophesy, its a vision!

Enterprise and Mainstreet Banks have already been acquired by Heritage and Skye Banks respectively.

Sorry, your vision is late in coming

rezzy:

Abeg do quick