Food for thought

If you see a banker jump out of the window; follow him. There must be money in it.” Anonymous.Once upon a time, that was considered good advice. Bankers, in those halcyon days, could do no wrong. They had a sure nose for sound investments from which to profit. For decades in Nigeria the wisest investment a banker could make was in oil and gas.

So, bankers literally jumped out of the window to get their own pieces of the action in oil and gas. Money in local and foreign currency flowed into their coffers; so much so, they could, like Gowon in the 1970s say “Money is not our problem, but, how to spend it”.

What better way was there to spend it than to invest in more oil and gas ventures? If one goose lays a golden egg a day, surely two birds will lay two eggs a day; three layers will produce three eggs – ad infinitum.Unfortunately, life does not always move in straight lines. Sometimes it is like a boomerang; the stuff you throw out, turn your back and which returns to crack your skull.

It was one of our brightest and best bankers, Mr Atedo Peterside, who during the debate on banking Con-SOLUDO-tion, who warned his fellow bankers, lining up to support Professor Soludo, that it is easier for an economist to understand banking than for a banker to understand economics. He earned my everlasting gratitude for that frank admission – as an economist naturally.

Economics is full of paradoxes. At least two of them are responsible for the dire situation facing the banks in 2016. The first is the idea of economic cycle. Plainly stated, it means that nothing lasts for ever – neither good times nor bad periods. When global or national economic boom occurs the incentive is there for more investors to enter the key sectors and for those already there to expand.

When the global price of crude, driven by double digit GDP growth in China, India, Russia and near eight per cent in Brazil, Indonesia and South Africa, shot up to $145 per barrel in 2008/9 there were speculations that it might eventually reach $200 per barrel. The frenzied search for more oil deposits globally was only equaled by the famed search for gold in Colorado in America’s early days.

Every puddle containing a “spoonful” of crude became valuable and more crude oil was pumped into the world than ever in history. Even the export embargo placed on Iran and Libya’s inability to produce were unnoticed by a world swimming in the “black gold”. Come to think of it, when was the last time oil was called “black gold”?

Crude started to lose steam as several countries in Europe went into economic recession and Greece twice threatened to default on loans. This was followed by economic slowdown in other countries as well – Nigeria is as good an example as one can get. From annual growths of 6.5% to 7.2% in 2008 to 2014 — the best racer on the continent during the period — our country crawled to 2.8% growth in the first three quarters of 2015.

China is expecting less than 5% growth, Brazil and Russia are in recession and Saudi Arabia has a $200bn budget deficit to manage. Suddenly, the gold had become dross on our hands globally. Another economic principle which explains why all the banks might suffer the consequences of “Group Think” is called the “Fallacy of Composition”. Again simply explained, it warns economic units that if one or two profit from a venture and later everybody else joins disaster will follow.

We are all familiar with drivers on Nigerian roads in a hold up. Suddenly, one driver peels off and goes down the wrong way which is free and beats the traffic jam. Then two others follow down the wrong way. Soon every vehicle is going down the wrong way and standstill occurs – until Road Safety comes to restore sanity. When all the banks in Nigeria jumped out of the window in pursuit of oil and gas companies, a good economist could have told them that financial paralysis would follow eventually.

Financial paralysis is round the corner because the investments in oil and gas, which made sense at $145-90 per barrel, are now threatening to result in bankruptcy as the price of crude dives closer to $30 per barrel. Production has been halted in many rigs, meaning no money flowing in.

When oil companies fail to pay, bankers are in a fix. But, not just bankers; we are all in a fix. Shareholders of Nigerian banks, already waving off a bad 2015, will again have to endure two economic woes – low or no dividends and plummeting share prices. Currently, only two banks shares are above N15 per share: ECOBANK and GTB. None of the others is above N6 per share.

These are shares that were eagerly purchased at N40-70 per share when Professor Soludo assured Nigerians that we could put our money in banks and go to sleep with our eyes closed. Nobody is sleeping now because the economic wolves at the gate are set to swallow what is left of bank share prices and, perhaps, the banks themselves.

Unfortunately, for the banks and the rest of us, “returning to base” – meaning a more diversified client base will not be easy. The easy money available in oil and gas rendered Nigerian banks lazy and, to some extent, unprofessional. It will not be easy for them to identify the next golden opportunities; and they might not even have the funds to lend. Turning back from the wrong road takes a lot of time and eats up your fuel.

http://www.vanguardngr.com/2016/01/banking-blues-in-2016/

How an article like this will not make front page but tonto dike's dog giving birth will never ceases to amaze me on nairaland

Good piece....Investors take note

Hmmmmmm.... It's well...


Check my signature for ur customised wristbands.

gunpoint:
How an article like this will not make front page but tonto dike's dog giving birth will never ceases to amaze me on nairaland

The matter is tiring I tell ya...

Dominique naijacutee lalasticlala can you pls help move this to headquarters??

We are in for tough time in this country. may God help us

gunpoint:
How an article like this will not make front page but tonto dike's dog giving birth will never ceases to amaze me on nairaland

Lalasticlala, you know this guy is right. This thread is our FP thread. F*cck that shiit! Nairalanders ti take over. Every f**king sentence is a hit.. from the banker jumping out of the window, to oil and gas. ko ni da fun iya anybody. *slams phone* *middle finger*

Good for the investors

Well, I couldn't make meaning of this post.

All that was in my mind was reggae blues.


After the reggae play the blues,
a blues a blues
Make you do as I do
I do, I do
Enjoy yourself baby boo
Bae boo, Bae boo
Even your boo get a boo
A boo, A boo
Share the Gala, share the booze
The booze, the booze
Everybody wanna groove
They grove, they groove
As far as E-money dey pay
Dey pay, dey pay
Skiibii o pop champagne oh ah ah




**modified
Well written piece op

Hnmmm nice breakfast

Every puddle containing a “spoonful” of crude became valuable and more crude oil was pumped into the world than ever in history. Even the export embargo placed on Iran and Libya’s inability to produce were unnoticed by a world swimming in the “black gold”. Come to think of it, when was the last time oil was called “black gold”?

To me there is no safe way to invest this days, the best way is to convert your wealth by buying gold instead of raw cash that doesn't have value much.

This must be after the reggae....

The easy money presented by booming oil prices had rendered Nigerian banker so lazy they will have no way out but to face the reality of competitive economics this year. MFB and CB could easily give loan to workers at 24-30% because the 'workers' were having it easy hitherto. Ideally, the CB were suppose to be driving the core of the economy with low interest lending but have derailed so much because of the easy money virtually poking their nose and begging to be made.
I have said before, this is the time to start anything that leads to export-ready produces. If as a honey farmer or yam seller, for every $1000 you made before now you had 1000 X N165/$ to spend then by now you have some 1000 X N250/$ plus to spend. Our problem is lack of competitiveness in exportation caused by years of easy oil money. The easy oil money sure held us back for decades like a curse.

I wonder weda na everytin dem dey talk 4 dis nairaland I nor go surprise wen I go see one day person write article like how dog eat e meat

To make front page na wahala

Still Reading...

Just watch , even those that don't understand the subject will still come and book space.

food for thought!

2016 must be good cos the Owner of Times and Seasons have gone ahead of me
My little effort in business will yield increase.
I'm very optimistic!

Whatever you say here, Buhari will stabilise world oil price, no shaking

Ok

Banking reggae blues;

Even your bank get a bank.....

Share the charges, share the cash

Youngzedd:
Just watch , even those that don't understand the subject will still come and book space.

You that understand, we await your own analysis/input

.

Good article, I learned alot of things

From basic Economics we all know that the higher the supply, the lower the price/value of the commodity.

ofofoCEO:
Well, I couldn't make meaning of this post.

All that was in my mind was reggae blues.


After the reggae play the blues,
a blues a blues
Make you do as I do
I do, I do
Enjoy yourself baby boo
Bae boo, Bae boo
Even your boo get a boo
A boo, A boo
Share the Gala, share the booze
The booze, the booze
Everybody wanna groove
They grove, they groove
As far as E-money dey pay
Dey pay, dey pay
Skiibii o pop champagne oh ah ah

U c Ur life

Boom and bust cycles. Thank God I didn't invest in stocks.

This story tooo long

The topic though