How banks survive these lean times

• Banks’ Current Status Doubtful, Says Ex-CBN scribe

In the wake of global and local shocks, the Nigerian economy has kept trudging on a thin line, and curiously managing to produce stellar returns to players in some of its distressed quarters.

This is most evident in the banking sector, where the financial institutions continue to record impressive growth figures and profits in the face of stiff economic climate.

Some banks that recently announced their financial standings for last year said they recorded profits before and after tax, showing significant gain from the previous year.

However, the figures are cast against the backdrop of liquidity squeeze in the sector, occasioned by the mop up of government funds following the implementation of the Treasury Single Account (TSA) policy. Not only did the policy rob banks of a large chunk of money, it sent them scrambling for more private and corporate customers to make up for the hole left by the huge withdrawals by government ministries and agencies.

It also appears that even though the banks may have been hit by headwinds in the economy, they are devising means to stay afloat. For instance, in the twilight of last year, and in what they termed reorganisation, the banks relieved some staff of their positions, thereby shedding weight and remain in business. Experts are however divided on how banks manage to cope in these lean times.

They argue that in-as-much as the figures do not reflect the reality of the economy, the impressive outings suggests that the banks may have adopted ingenious means to make profits, aside from merely relying on interests accruing.

Showing how buoyant they have become in recent times, one of the banks declared N120.7bn Profit Before Tax (PBT) and proposed a dividend of N1.52 per share for its shareholders.

Another player in the sector, recorded a PBT of N75b for 2015, which is a 44.23 per cent growth, compared with N52b recorded in 2014.

It recorded gross earnings of N337.4b in contrast with N245.4b in 2014, which translates to 38 per cent growth.

Even as some financial experts believe the banks’ profits are astonishing, others think that it is suspect. The latter group argues that if banks are making such profits in the face of current challenges, government should be curious and beam its searchlight on them to ascertain whether there is no ‘magic’ to their stellar figures.

They reasoned that the banks should not lay off workers, if they are making such huge profit.

Former President of Chattered Institute of Bankers of Nigeria (CIBN), Ralph Osayameh said the banks may be engaged in some other activities other their conventional roles, which may have insulated them from shocks from the economy.

“The huge profit they are declaring, where are they making it from? They won’t agree that they have problems. The banks are not carrying out their lending functions and they don’t have lending capacity. They depended on government fund, which when taken away due to the implementation of TSA policy, stunted their lending capacity,” he said.

He accused the banks of round tripping and failure to sell foreign currency directly to genuine members of the public.

“Many of them are making money from foreign exchange business and that, too, will soon dry off, especially, when searchlight is beamed on that area of their business. CBN knows the banks have problems. But if a patient refuses to tell the doctor his problem, he will prescribe wrongly. Are they really doing what they should be doing?

“All the sectors that should be contributing to their survival are dying. What are the banks doing that other sectors are not doing? A lot of their big loans have been taken over by Asset Management Corporation of Nigeria (AMCON). And what you have in the system are net takers. If the CBN beams its searchlight on banks, the secret behind the huge profit they are declaring would be made public. If they are making such a big profits as they claim, then something is going wrong, which we must know.

“When government scooped public fund, banks’ portfolios became rattled, which showed that they may be trading in foreign exchange. They have not supported the productive sector and many other sectors. If truly they are making money, why are they disengaging staff,” he queried.

Secretary of the National Union of Banks, Insurance and Financial Institution Employees (NUBIFIE), Mr. Sunday Salako said no sector is exempted from the current economic crunch. Hence, banks, according to him, have to cut their coats according to their cloth, adding that every organisation would definitely want to appraise the situation and make the most of it.

Said he: “The role of banks is to galvanise the economy, but given the situation at hand, they have a lot of adjustments to make. Some banks have also had to lay off workers, though we have been discouraging them from resorting to that. There are other means through which they make their profit without having to lay off workers. Government may have moved their funds due to the TSA, but banks are still lending out money, though the lending capacity might not be as much as it used to be. They would also have to decide the credibility and most valuable prospects before lending. I believe banks know how they can operate their business to yield profit despite the challenges and that is why they can still declare huge profits.

“Banks would not want to reveal the true state of their finances, or how hard the crunch bites. They are not like manufacturers, who can cry to the government whenever they have issues. They thrive on customers’ confidence and wouldn’t want to do anything to shake that. Not many people can read a balance sheet, but even a rumour can affect the customer’s confidence. I believe the banks will weather the storm because tough times never last. However, the only way out of this is for government to make good policies, as well as create an enabling environment for them to thrive,” he said.

Former Deputy Governor, Central Bank of Nigeria (CBN) Mr. Tunde Lemo disagreed that deposit banks have challenges whatsoever, adding that although the banks might not have large deposits as before, they are not suffering from liquidity problem.

“If they have challenges as popularly believed, they would not be posting profit, as they are doing now. They may not have large deposits as before, but they only need to restructure to become more efficient and increase banking activities. If they don’t have depositors, they will not declare profit. They should be more innovative and increase their activities,” he said.

He hailed the transfer of government fund from the banks with the introduction of Single Treasury Account (TSA), describing it as a very good initiative.

“No bank worth its salt should depend on TSA for lending. Government money is for short term, not for lending. It is for government projects. Because of the overriding interest in TSA, it is prudent to keep such money in Central Bank. The banks should not have liquidity challenge because of that,” he said.

Lemo, who is also the former Managing Director of Wema Bank, advised Nigerians not to see the mass retrenchment of workers by banks as a sign of challenges.

“The banks should not require large number of workers because of new technological innovations; they may not need staff as before. So, this is not a negative challenge. Banking is no longer labour-intensive. But if they go into real sector lending, the employment that will be generated in that sector will be more than what the banks have laid off,” he said.

However, an authoritative source in one of the banks confirmed that even with their commendable performance, the banks still struggle with low deposits, bad debt and internal conspiracy with debtors.

He explained that since the implementation of TSA policy, banks liquidity has depreciated, making it difficult for them to meet obligations to their customers and stakeholders.

“Liquidity capacity was adversely affected because of the implementation of the TSA policy. Due to the mop up of cash from banks, our lending capacity has reduced, which has naturally affected our profitability, as we lost the interest we should have collected from the loans,” he said.

On the huge profits being declared by banks, he said: “Many of the declarations are not real. If these declarations were subjected to forensic analysis, it would be discovered that these banks are just doing all that to remain in business by sustaining public confidence in them. No bank will make its real balance sheet open. It will take experts’ efforts to detect the irregularities in their balance sheets in the pubic domain. Members of the public just look at the profit after tax to base their conclusion about the liquidity position of the particular bank. But the CBN always has their correct balance sheets, which are always different from that in public domain.”

According to the source, banking operations have reduced in all banks, hence the situation that is making them retrench many of their “inorganic staff.”
The Central Bank of Nigeria (CBN) claimed ignorance of the fact that banks are going through challenges because they are still declaring profit.

In his reaction to allegations that the huge profit is as a result of round tripping, spokesperson of the bank, Mr. Isaac Okorafo said it is not true. He declared round tripping a criminal offence and an act of economic sabotage.

“If anyone is caught, he or she shall be made to face the wrath of the law. The banks’ balance sheets are there for scrutiny and we have our men all over the place. Anyone caught engaging in round-tripping will be punished,” he said.