Shareholders condemn N499b fine on 12 banks over loan breach
Capital market shareholders have condemned the N499 billion fines slammed on 12 commercial banks by the Central Bank of Nigeria (CBN), for breaching the regulator’s directive on lending to the real sector, insisting the move is capable of shrinking the banks’ earnings, and ultimately erode profitability and dividend payout.
The LDR policy is expected to push banks to increase lending to high-risk borrowers with the potential to incur heavy losses and higher non-performing loans (NPLs).
Besides, the investors stressed the need for banks to adhere strictly to policy directives from the regulators to avoid sanctions and penalties that may arise due to non-compliance.
Shareholders at the weekend also urged the apex bank to reconsider its stance to forestall negative effects on the stock market, since the banks belong to the services sector that provides for other areas of the economy.
They noted that the penalty came at a time banks are struggling to recover from the weak asset quality issues prevalent since 2016.
The shareholders pointed out that loan portfolio may become more delinquent if a number of beneficiaries cannot repay or pay back on the agreed terms and condition, as the macro-environment is still too fragile to support strong growth in lending
According to them, this is in addition to the bank’s rising NPL ratio currently put at ₦1.5trillion, representing 15 per cent rise when compared to N1.3 trillion posted in the industry in 2017.
The Chief Research Officer, Investdata Consulting, Ambrose Omodion, said net interest margins (NIMs) are likely to be depressed on banks’ reaction.
“We see this as a possible negative consequence of CBN’s latest push, as banks may be forced to re-price loans lower than the competition for scarce quality obligors. This implies weakness in NIMs, as well as the opportunity cost of relinquishing 50.0 per cent of the lending shortfall to the CBN, which can also negatively impact earnings.
“We expect that banks who have already been punished will be unwilling to get caught up in the storm again, as that will be a negative signal to investors. We believe this development is largely negative for the banking sector, which has only just recovered from the weak asset quality issues prevalent since 2016.”
The Publicity Secretary, Independence Shareholders Association, Moses Igbrude, said the trend could shrink banks’ current liquidity, profitability, potential growth, and ultimately hamper equities investors’ dividends’ payout, especially for banks that do not have an appropriate framework to withstand risks.
“Fines or penalties are something that the Nigerian investors have learned how to live with because it has been reoccurring. There is no financial year that banks do not pay one fine or the other, but they will not listen to the voice of shareholders; N500 billion is not a small amount.
“It will surely affect the payment of dividends one way or another. I appeal to the management of these banks to employ competent compliance officers, that way; all these incessant fines may be reduced.”
The President, Proactive Shareholders Association, Taiwo Oderinde, urged CBN to reconsider its position on the issue to avoid multiplier effect on the share prices in the stock market.
“It will affect their share prices, operation, dividend payout, and the capital market negatively among others. CBN should reduce the fine for the sake of the economy.”
The President, New Dimension Shareholders Association, Patrick Ajudua, said there is a need for banks to adhere strictly to policy instructions from their regulators, as failure to do so always attract severe punishment.
“On the part of the regulators, there is a need to always administer fines and penalties with a human face, knowing full well the implications of such on shareholders’ investment in the banks.
“We, therefore, call on the CBN, to as matter of urgency, review downward the above fine meted out to the 12 banks.”
CBN directed banks to maintain a minimum Loan-to-Deposit Ratio (LDR) of 60 per cent by September 30, 2019. The LDR was reviewed upwards from 58.5 per cent to 60 per cent with the banks informed to main the LDR till September end. The LDR has now been increased, and all deposit money banks (DMBs) are to now attain a minimum LDR of 65 per cent by December 31, 2019.
The CBN Governor, Godwin Emefiele, had earlier warned of a penalty if banks failed to attain the LDR by September end.
“The CBN Director, Banking Supervision, Ahmad Abdullahi, had also stated in July, that “Failure to meet the above minimum LDR by the specified date shall result in a levy or additional Cash Reserve Requirement equal to 50% of the lending shortfall of the target.”
The LDR, which is being reviewed quarterly to improve lending to the real sector was 58.5 per cent as at May and now raised to 65 per cent for the last quarter of the year.
A CBN circular: “Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy,” said to ramp up economic growth through investment in real sector, the CBN approved that all banks should maintain a minimum LDR of 60 per cent.
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