June 10, 2009

Bank ready to clean up balance sheet

By  Peter Egwuatu
A Nigerian bank quoted on the Nigerian Stock Exchange (NSE) has concluded plans to clean up its balance sheet in order to provide shareholders with favourable long term values.

A competent source close to the bank (name withheld) told Vanguard that the decision by the Board to clean up its balance sheet may not be unconnected with the decision of the Central Bank of Nigeria (CBN) to establish Asset Management Company (AMC) that would be responsible to manage credit toxic for banks.

According to the source, “ Shareholders need not to panic when  banks write off their bad debts since the CBN is in support of such exercise as it is spearheading the establishment of AMC.”

The source revealed that not less than 10 banks are getting prepared to use the AMC window as soon as the apex bank put it in place.

According to him “ The cleaned up toxic credits are bound to return into the banks and boost their profits. Capital adequacy is a backbone of any bank’s ability to do write off of their bad debt as it gives a clean start for such organizations.”
He further noted that the bank has strong liquidity, transparent management, many branches both in Nigeria and across Africa and operate a good risk management.  “Any bank with the aforementioned indices will be able to do what is right for its customers and shareholders when it clean its books in the nearest future. A strong balance sheet will provide the means to take advantage of new opportunities in the economy” he added.

While highlighting the benefits the bank would derive in writing off its bad debts, the source stressed that the management of the bank has determined to focus not just on the quality of earnings but also in the quality of services that will lead of exponential growth and in turn increase bottom line.

While stressing the temporary hiccups that may arise from writing off bad loans, he said, “ Write- off of bad loans do come with some measure of pains in the short time as some of the companies that embarked on such exercise in the past experienced decline in earnings and profits in general. and probable pay no dividend for shareholders. But these are temporary.”
He stressed that First Bank of Nigeria had in the past written off huge bad loans following the botched deal with IILL for the acquisition of NITEL , yet it still remain solid thereafter.

According to him, “ What matters in writing of f bad debt is that any company embarking on such exercise must have sound and skillful  management that will able to provide full disclosure of their bad loans and be ready to innovate and provide products and services that will lead to long term value for their stakeholders.”

Meanwhile, the Bank Group recently  posted an all round strong performance for the year, 2008 as it  gross revenues rose more than 60 percent from US$697 million in 2007 to US$1.2 billion in 2008.

Profit before tax fell slightly from US$191 million in 2007 to US$162 million in 2008. This slight drop was despite the international financial crisis and the drop in the value of the bank’s local currencies relative to the dollar. The Group’s asset base grew considerably from US$6.6 billion to US$8.3 billion. The number of the Bank’s branches and offices also increased from 450 to 610 across its vast network, and the group bolstered its steadily growing customer base from 1,202,271 customers in 2007 to 1,841,934 customers in 2008.