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‘Regulators should watch out for banks’ early distress signs’

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CBN headquarters, Abuja

With about N157.15 billion provisions for bad loans posted by 13 Nigerian banks in the half-year (H1) performance, capital market operators have urged regulators to watch out for early warning signals of financial distress, so as to take quick remedial actions.
   
The operators admitted that Nigerian banks have remained resilient to economic disruptions, but argued that the COVID-19 pandemic has inflicted colossal damage to businesses across sectors.
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They pointed out that further pressure on the banking sector – whether through losses from provisions or write off, is capable of eroding their profits and cash flow.
  
The Vice President, Highcap Securities, David Imafidon, said the loan loss of N157 billion reported by 13 banks in the second quarter (Q2) is alarming.
 
He pointed out that the possibility of recovery by the affected banks in the second half of this year is seriously in doubt, and urged regulators to look out for early signs of distress.
 
However, he believes the situation is not yet a threat to the sustenance of the country’s payment system since the major banks have demonstrated their resilience by paying interim dividends.
 
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He noted that: “If it is outright loss due to the waiver of interest on outstanding loans or bad debts, it means that the loss has crystallised and therefore irredeemable.

“However, if it is due to provisions made for doubtful debts, in line with prudential regulations, the loans may still perform in the future when the economic environment becomes conducive.
 
“Recent news that banks have rushed to CBN for funding, may be connected with increasing delinquency of credits and declining cash flow.
   
“This damage is colossal, let us hope that this damage can be controlled so that its impact is minimal on full-year performance,” he said.

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The Chief Research Officer, Investdata Consulting, Ambrose Omordion, said the sector’s half-year earnings report beat market expectations despite the loan loss provision.
 
“And, the same gives an insight of the dividend cut as a result of huge provision resulting from the impact of the coronavirus outbreak on the economy, as many businesses are unable to meet their debt service obligation.  
   
“This is expected to impact negatively on the banks’ bottom-lines. Few banks may maintain their dividend equalisation policy, while many may cut dividends and not pay at all.
 
“This will also be extended to other subsectors of the market, suggesting that investors should invest wisely by targeting dividend-paying stocks with strong fundamentals.”
   
A stockbroker with APT Securities, Jamiu Kayode, said because the loans have already been provided for before they crystallized, their effect will minimal on the bank.
 
According to him, banks were able to suppress their expenses despite that they were affected by lower earnings.

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