Global banking challenges and Nigeria’s financial institutions

At the just concluded International Monetary Fund (IMF)/World Bank Group yearly meetings in Washington DC, United States, a report claimed that the global banking industry is in difficult times.

For the IMF, it is about “too slow growth for too long” that only “benefits too few”. But for the World Bank, the lingering price volatility of commodities, chiefly among them is the oil price, has not only supported in causing growth challenges for emerging market economies, but created a spill effect. The example was Nigeria. The spill effect was cited as the Sub-Saharan Africa, which depend on the country to progress economically too.

The distortion from commodity price crisis has caused global banking industry huge losses in terms of impairment charges and write offs, yet with sizeable debt portfolio. Nigerian banking industry is not an exception.

Of course, more than half of the country’s banking industry risk portfolio are from oil and gas related issues, with the rest being a spillover effect of the same sector’s challenge. But facts are fast emerging that Nigerian banking industry are not in the “woods” alone.

Just last week, earnings of three of the world’s biggest banks- Citigroup, JPMorgan Chase and Wells Fargo, recorded decline during the third quarter of 2016, as their respective financial statements have shown.

Citigroup’s net income fell 9.5 percent to $3.8 billion, from $4.2 billion the same quarter a year ago. Revenues were also down 3.8 percent to $17.8 billion during the July-September period, from $18.5 billion the same period last year.

After the release of the results, shares of Citigroup fell 2.4 percent to $48.39 after opening Friday at $48.60 on the U.S. stock market.

At JP Morgan Chase, net income fell 7.3 percent to $6.3 billion. That’s was down from $6.8 billion.

Despite the challenges, the Central Bank of Nigeria (CBN) has maintained that banks in the country are holding fast their respective capital adequacy ratio, allying the fears of failures.

Even on the sidelines of the meetings in Washington, CBN Governor, Godwin Emefiele, assured that it is still an ongoing work with respect to supervision of the banking industry and maintaining the important, reiterating that no bank in Nigeria is in distress.

Just like bank in emerging economies, these three global giants manifested a threat of challenges with earnings capacity.

JP Morgan Chase, although recorded 8.5 percent to $25.5 billion after posting $23.5 billion in the third quarter of 2015, it was not as usual.

Troubled with illegal banking activities, Wells Fargo’s earnings were highly anticipated. Its net income fell 3.4 percent to $5.6 billion in third quarter of 2016, from $5.8 billion during the same period a year ago.

But in response to the report of the Dubai-based Arqaam Capital, CBN described it as false and overstatement of issues by the company.

It also ruled out the report and reiterated that Deposit Money Banks in the country are sound and have strong capital buffers, despite obvious challenges associated with oil and commodity dependent economies across the globe.

The Director of Banking Supervision, Mrs. Token Martins, at the Bankers Committee meeting, he said: “That seven banks are undercapitalised is absolutely not true.

“But that is not to say that the banking sector is not feeling the economic headwinds. They are, just like those in every other jurisdiction. It is not strange. Non-performing loans (NPLs) at 11 per cent is not what we need to focus on.

“What we need to focus on is if the banks have the capacity to absorb losses that would arise from those NPLs? And the answer is yes. They have very strong capital buffers.

“Another thing that is important is that Nigerian banks have very huge capacity to generate income to also absorb those losses, if they do arise. And then the loans that are non-performing now, can they re-perform? Yes, because the underlying assets are still there and they are good,” she said.

According to her, the fact that the country has NPLs at a period like this should be expected and is not a thing that any jurisdiction should be demonised about or ridiculed by any report.

“There are countries that have NPLs as high as as 15 per cent, some 30 per cent and some countries in Europe have NPLs as high as 80 per cent,” she noted.