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The Problem With Nigerian Banks by Okorieikechukwu(m): 10:33am On Jun 05, 2016 |
…Send 8,000 workers into labour market
By EMEKA OKOROANYANWU and BLAISE UDUNZE
NIGERIAN banks are in the news again, and for
the wrong reasons. Last week, two banks,
Ecobank and Diamond Bank sacked over 1060
staff citing economic downturn as reason for the
cut.The recent sack has increased the number
so far chopped off from the salary block in the
industry since one year ago to about 8,500.
Before Ecobank and Diamond bank which
recently sacked 200, First City Monument Bank
(FCMB) had laid off 700 workers earlier in the
year while Fidelity Bank sacked 100 late last
year. FBN Holdings, the parent company of First
Bank of Nigeria Limited, recently said it would
prune the number of its employees by 1,000.
While Ecobank has allegedly closed down its 100
branches in Nigeria, some other banks are said
to be planning to cut down the size of their
workforce. Many are wondering why Nigerian
banks are so hard hit by the prevailing economic
situation in the country?
The problem of the banks is hydra-headed. The
economy at present is faced with weakening oil
sector which has seen the reduction in earnings.
This, coupled with the implementation of the
Treasury Single Account (TSA), which has
reduced drastically the take home of many
banks; the foreign exchange crisis, inflation,
abolition of commissions on turnover (COT) and
other economic headwinds, have dragged the
banks into unplanned financial crisis. For one,
the Nigerian banking industry is heavily exposed
to the oil and gas sector, which contributes over
70 percent of government revenue and 90
percent of all exports.
With the fall in global oil prices by nearly 60
percent from $115per barrel to about $44 per
barrel in the past 23 months, thus resulting in
lower government revenues, and thereby
decreasing banks’ takes. With a high level of
exposure to the oil and gas sector, which
unfortunately is facing a sustained period of low
oil prices, non-performing loans in Nigerian banks
have reached alarming proportions. This has
continued to significantly lower banks’ revenue
and profits especially in 2016.
TSA implementation
Again, the implementation of the Single Treasury
Account (TSA) by the Federal Government
presented additional challenge to banks. With the
introduction of the TSA, about N2.9 trillion of
government funds were withdrawn from the
banks and moved into the Central Banks of
Nigeria (CBN) vaults. This sudden withdraw
caught the banks napping as over the years,
they have been beneficiaries of cheap federal
government deposits.
Full abolition of COT
Nigerian banks are also faced with significant
pressure from the abolition of commissions on
turnover (COT), which came into force on
January 1 this year. COT alone contributes over
60 percent of the fees and commissions of
banks. Thus, Nigerian banks are losing about
N100 billion (out of N550 billion) in annual
revenues as a result of the
implementation of the zero COT policy. Instead
of COT, the CBN directed banks to introduce a
“negotiable” current account maintenance fee to
replace the Commission On Turnover (COT). In a
circular issued to banks, the apex bank directed
banks to charge a fee not exceeding N1 per
N1,000 in respect of all “customer induced debit
transactions. The directive is targeted at easing
the pressure on Nigerian banks. But how far this
has been achieved is still under conjecture.
Arrest of bank MDs
To complicate the woes of the banks, the
Economic and Financial Crimes Commission
(EFCC) has recently beamed its searchlight on
Nigerian banks, leading to the arrest of some
bank managing directors. The arrest was based
on the allegation that they helped the past
administration launder public funds of over $
115m into private pockets. As a result, some
banks were forced to return some undisclosed
amounts of money to the federal government.
This has further depleted their purses.
Hope for recovery of the banking system
Despite these threats facing Nigerian banks this
year, it is widely expected that they will weather
the storm and grow much stronger. During her
visit to Nigeria, Christine Lagarde, the Managing
Director of the International Monetary Fund,
admitted that the Nigerian banks are generally
well-capitalized and more resilient” compared
with the period of the global financial crisis in
2008/2009 that resulted in several bank failures
around the world.
The optimism derives from the growth outlook of
the Nigerian economy. From 3.8 per cent GDP
growth of 2015, Nigeria is expected to grow by
4.2 per cent this year. This growth outlook is
expected to improve business confidence in
Nigeria and boost the performance of the
banking sector. Additional source of optimism for
the banks is the active role they would play in
financing the deficit of the federal budget.
President Muhammadu Buhari plans to finance
half of the N2.2 trillion budget deficit through
domestic bonds.
While the growth outlook for the Nigerian
economy and that of the banks are predicated
on the non-oil sectors activities, a dramatic
improvement in the outlooks could come about if
oil price makes unexpected, strong rebound in
the course of the year. This would help
strengthen the naira and support the exchange
rate, which has partly made foreign portfolio
investors to remain on the sidelines of investing
in Nigeria.
Head of Research at Afrinvest, Ayodeji Ebo, has
recently noted that the banking sector is on the
path of recovery especially in the light of the
policy pronouncement by the Minster of State for
Petroleum Resources on the liberalization of the
Petroleum Downstream sector.
According to him, there is a need for a
complementary policy from the Monetary
Authority, particularly in terms of foreign
exchange administration. 3 Likes |
Re: The Problem With Nigerian Banks by Nutase: 12:53pm On Jun 05, 2016 |
Re: The Problem With Nigerian Banks by Taeewo(m): 5:39pm On Jun 05, 2016 |
Nutase |
Re: The Problem With Nigerian Banks by paulstrings(m): 6:41pm On Jun 05, 2016 |
Okorieikechukwu:Thanks for this piece...it's really enlightening |
Re: The Problem With Nigerian Banks by Okorieikechukwu(m): 7:37am On Jun 06, 2016 |
paulstrings:u are welcome |
Re: The Problem With Nigerian Banks by Nutase: 1:28pm On Jun 06, 2016 |
Taeewo:wat I do |
(1) (Reply)
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