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Banks keep mum on credit assessment

By Clara Nwachukwu and Helen Orji   |   12 October 2016   |   1:11 am
CBN building

CBN building

•Say report can weaken market confidence
•Accuse foreign firm of having underlying interest  

Some Nigerian banks have criticised recent credit rating by Dubai-based Arqaam Capital which declared seven deposit money banks in the country under-capitalised.Others, including First Bank, FCMB, kept mum on the assessment.

The foreign firm declared in a Bloomberg publication that “A stress test identified FBN as the most under-capitalised lender with Unity, Diamond Bank Plc, Skye, FCMB Group Plc, Sterling and Fidelity Bank Plc also showing deficits if they were to fully provide for non-performing loans.”

Some of the affected banks, who spoke with The Guardian yesterday, argued that the assessment was not based on reality, saying it was “capable of weakening market confidence and aggravating the system.”

The Central Bank of Nigeria (CBN) had on August 7, maintained that based on its “examination reports and analysis from market watchers, international credit rating agencies, and development finance institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices.”

Apparently failing to allay the stress fear in the banking sector, the apex bank again on August 11 reiterated its earlier assurance, saying that “the health of the Nigerian banking system remains strong, all banks in Nigeria are safe and depositors have no cause to fear over their deposits.” It specifically insisted that “Skye Bank is not in distress and remains a healthy bank in the Nigerian banking system.”

But analysts in Arqaam Capital, Jaap Meijer and Tarek Sleiman, insisted on Monday that Unity Bank Plc and Skye Bank Plc were close to being insolvent, while FBN Holdings Plc and Sterling Bank Plc “will need a dilutive capital hike.”

“Our acid test reveals seven under-capitalised banks with a deficit of as much as N1trillion ($3.2 billion) in the financial system,” they added. Calls and text messages to First Bank, FCMB, Sterling Bank and Diamond Bank were ignored, while sources in the other banks adjudged to be having credit crisis accused the foreign investment bank of bias and protecting some interests.

According to them, “Arqaam Capital assessments are not founded on strong fundamentals; they were drawn from inferences and deductions, so they were not well informed.”

A top management source at Skye Bank told The Guardian that it would not join issues with any foreign assessor. “Our regulator, the CBN has made its declaration concerning our status and we are happy with that.”

Similarly, spokesman for Unity Bank, Mathew Obiazikwo, maintained that the bank “remains very strong,” noting that the health of a bank can be determined only if it fails to meet its cash obligations.

“But in Unity Bank, we are meeting all our obligations. We have even made strategic business decision to raise additional capital. In response, some foreign investors have even completed due diligence to raise certain amount for the bank,” he told The Guardian.

Also speaking, Head, Strategy, Innovation and Business Transformation and the Bank Chief Information Officer, Fidelity Bank, Gbolahan Joshua, said: “Let me make some clarifications, Fidelity capital adequacy ratio is 16.8 percent. For the business we do, we have an international banking licence, so we are expected by the CBN to have a CAR of 16 per cent. So our CAR is 180 basis point above what is required by CBN.”

“Secondly, the regulators have what is classified as systemically important bank. If you are a systemically important bank, your capital adequacy ratio is supposed to be16 per cent, but we are not a systemically important bank and our CAR is above the threshold that has been set for systematically important bank.

In an emailed statement sent to The Guardian, FirstBank said it remained adequately capitalised as reported in its FBNHoldings H1 results released on 26 July 2016.

“At FirstBank, we strive everyday to maintain our position as the safest and most respected banking franchise in the country,” said Patrick Iyamabo, CFO, FirstBank. “We continue to benefit and leverage our unique ability to grow and capitalize the institution – a testament to our solid track record.”

“Our highest priority remains meeting the financing and banking needs of our customers, by providing world class services, knowledge and expertise to support our customers, even in very difficult times.”

According to Arqaam Capital, Nigeria’s banking industry is experiencing a “full-blown financial crisis” as failed fiscal and monetary policies lead to a credit crunch.

Capital ratios are set to worsen because of currency depreciation and souring loans, they said. Calls to Unity weren’t immediately returned and Skye didn’t reply to questions.

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