Mergers and Acquisition may assume viable option in the banking industry, following historical antecedents of naira adjustments in the economy, BusinessDay analysis of developments in the industry show.
Further analysis show that historically, naira adjustments in 1996 and 2008 respectively, led to NERFUND crisis and the establishment of the failed bank decree, after the naira exchange rate declined from N22 to N88/$.
Also, the 2008 devaluation from N118 to N160/$ compounded the margin loan saga which resulted in eight out of 21 banks losing their identities.
“There may not be replication of the post devaluation crisis as witnessed before because most of the banks are well capitalised, while quality of risk management in the banks has since been upgraded due to past experience .Banks’ asset quality this time around is well diversified with some outside our shores in case of the global banks and that should enhance their capacity to weather the storm. It is worthy of note that the regulatory response to the inevitable post devaluation crisis will be more accommodating based on previous experience,” says Bolade Agbola, executive director, cashcraft asset management limited.
The development, according to some analysts, is in line with the present quest by some banks to embark on inorganic growth, through mergers and acquisition to remain competitive locally and internationally.
Consequently, despite poor outings by most banks in the first quarter financials, some operators have resolved to weather the storm and come out better in the 2016 financial year results.
But, the Nigeria Deposit Insurance Corporation (NDIC) has expressed concern over the increasing wave of non-performing insider loans in various banks and the consequence on stability in the nation’s banking system.
But First Bank of Nigeria Limited has unveiled plans to grow its customer base by over 10 million new customers in the next three years, as part of the bank’s financial inclusion initiative,.
Adesola Adeduntan, managing director and chief executive officer of the bank and subsidiaries, while describing the bank as a ‘strategically important bank’ to the Nigerian economy, said recently that the new management is determined to double the present 10 million customer base by 2019 through a phased deployment of agency banking.
Nigeria’s Sterling Bank is said to be focusing on raising funds as it considers acquisition options to expand its operations.
Abubakar Suleiman, chief finance officer of the bank, discussing the bank’s unsuccessful attempt to acquire Keystone bank, the last of Nigeria’s nationalised lenders, which state-backed “bad bank” Asset Management Corporation of Nigeria (AMCON) is seeking to sell, said recently that “ We will continue to evaluate all the options. As new candidates come into the market, we will also review them.”
But Bismarck Rewane, chief executive officer, Financial Derivatives Company, (FDC) says the soundness of the financial system may have been called to question by recent developments in the industry. Rewane adds that historically, banking system weaknesses follow 12-24 months after every currency adjustment, as gross border risk crystalise into domestic systemic crisis.
Rewane, in the current Lagos Business School, executive breakfast note, chronicled the development and said that in “In 1996 there was the NERFUND crisis and the failed Bank decree, After exchange rate declined from N22 to N88/$, killing approximately 20% of all banks.
“The 2008 devaluation from N118- N160, led to banking sector distress, which was compounded by margin loans. Eight out of 21 banks kicked the bucket, with CBN AMCON to the rescue. N620bn of tax payers’ money used for a bail out of the system but no depositor lost any money, but shareholders lost their shirts.
“The industry is now set for more consolidation as asset quality will deteriorate further. Four percent of NPLs are in power, 7% in public sector and 26% in oil and gas. Forty-five percent of loans are dollar denominated, while capital is in naira. Huge potential translation losses will erode shareholders’ value and banking sector earnings will decline in 2016/17 by no less than 30- 40%. The sector will still be profitable and will recover in the 2017/18 period. NPLs are expected to rise to 6% in 2016 from 5.5% in 2015 above the prudential CBN ceiling of 5% (BofAML). Data from Q1’16 results of the largest banks shows average NPLs of 7%.”
Umaru Ibrahim, managing director/chief executive of NDIC, at the weekend expressed concern over the increasing wave of non-performing insider loans in various banks and its consequence on the stability of the nation’s banking system.
Ibrahim observed that the development had posed credibility questions which were capable of eroding public confidence in the banking system. He called for strict compliance with the existing code of conduct and a review of the existing laws and regulations to provide stiffer penalties for directors who take advantage of their positions and fail to pay back their Loans. http://businessdayonline.com/naira-adjustments-rekindle-hope-of-ma-in-banking-sector/ lalasticlala, dominique, Mynd44 |
