June 14, 2009

Experts disagree on Fitch report on Nigerian banks

By Babajide Komolafe
Banking and finance experts have  faulted the recent Fitch Rating recent report on Nigerian banks saying the situation is not hopeless situation as portrayed by the report.



Fitch Rating agency last week in its 2009 rating of the banking sector in Nigerian banks said that Nigeria banks are carrying high risk volume of margin loans granted to stock brokers, which are hidden by the growth in the sector in the last few years, stating that this will negatively impact on the financial sector of the Nigerian economy.

The report said that though the Central Bank of Nigeria  estimated the margin loans granted at about N 1.2 trillion the figures provided by management of banks to Fitch are much lower. It further stated that  “The excesses which have been built up in Nigerian banks in recent years is likely to negatively impact the financial performance of the sector for the next couple of years.

In addition, the economic effects of the global credit crisis have also taken their toll, but the sector is relatively well positioned to absorb ongoing risks because of significantly higher minimum capital requirements that followed the system-wide consolidation in 2005 and 2006.”

Experts however differed in their reactions to the report. While some believe it is a fair and true assessment, others stated that the situation is not as scary as portrayed by Fitch.

Managing Director/Chief Executive, Partnership Investment Company Limited noted that, “The Fitch report is not unexpected. The need for transparency on Nigerian banks’s exposure has been a hot topic in the last several months. The CBN’s continually changing position on the extent of the exposure is one good reason to wonder.  At the beginning of the crisis, Soludo ,then the CBN governor insisted the exposure can not be more than N300bn, He has since revised that figure to N760bn at his town hall meeting on the crisis in April. Two banks that have taken the bull by the horns, FinBank and Ecobank by writing off huge sums should give the public some indication of the magnitude.

If we were to take Solud’s last figures of N760bn. Considering that the market has lost value anywhere from 60 per cent  to 70per cent,  that should give you  where we really are. The chartered Institute of Stockbrokers in their presentation to the Governor puts the figure at not less than N1trillion. Transparency is an issue.”

Corroborating his view, a senior analyst with a global investment group, with significant portfolio in Nigeria, averred the Fitch rating is a fair assessment, who spoke on condition of anonymity, stated,

“I think it is fair assessment. Banks in Nigeria have not disclosed their assets especially the toxic assets. Also the quality of disclosure and corporate governance in the local industry is not yet  in line with global best practices. There is no way I am going to assess your health or your status if you don’t open your books to me. So that is what is going on here.”