Source Punch On The Web: Yemi Kolapo And Gbenga Agbana, February 8th 2010

In spite of the substantial clean up of banks’ books following last year’s special examination, analysts say more loan loss provisions appear imminent. Yemi Kolapo and Gbenga Agbana report

The December 31, 2009 common year-end results of banks in Nigeria may further expose weak banks in spite of the huge provisions already made in the third quarter ended September 30, 2009, experts have said.

They said although stakeholders might have seen the worst in the banking sector in terms of results, different banks were still going through tough times, adding that the degree of stress varied with the strength of individual banks and would still reflect in year-end results.

The Central Bank of Nigeria had in 2008 ordered banks to streamline reporting dates to ascertain their true financial strength and end the practice of banks borrowing funds from others to beef up balance sheets at year end.

However, there was a consensus that although huge provisions already made would impact negatively on the full year results of the banks, they would come out stronger in the 2010 financial year, provided the banking reforms were neatly and speedily concluded.

An executive director of one of the rescued banks, who asked not to be named, said the banking industry was still undergoing a painful correction and that it would take some time for things to go back to normal.

According to him, ”Although losses have been declared and huge provisions have been made, there are still losses to contend with. The rot on ground is too much to be cleared within six months. Even those banks that were not significantly affected by the shake-up are still nursing the wounds of global crisis as well as poor corporate governance.

”So, these results will vary. We shouldn‘t expect roses, but I will tell you that the worst is over; the sector can only look up. The only thing is that the results would show how far each bank has gone in tidying up. After the cleansing, there could still be weak banks that need help.”

But Deputy Governor, Operations, Central Bank of Nigeria, Mr. Tunde Lemo, told one of our correspondents on Sunday that the December year-end results of the banks could not be worse than what had already been declared.

”The banks are generally doing better now. They have put the past behind them, but the global business climate is still tough,” he said, adding that ”results will, however, differ from bank to bank.”

Commenting on what should be expected from the banks in the year-end results, Managing Director, Partnership Investments Limited, Mr. Victor Ogiemwonyi, said, ”The results are coming out already. It is obvious that the provisions will impact on their profits for 2009. The prospects will start to brighten from 2010 when the provisions are written back and the debt burden eases on the economy. Year 2011 is when we will see a return to solid profitability, as the economy stabilises and banks resume lending.‘‘
Managing Director, GTI Capital Limited, Mr. Abubakar Lawal, also said the banks had good prospects with the provisions already made.

”Provisions are not losses. We expect a regime of good and realistic results,‘‘ he said.
According to another senior stockbroker, Mr. Chidi Ajaegbu, ”Nothing further than right sizing and credit contraction is expected from the banks. Losses will be recorded for at least another 18 months and bad news all the way in the short term, but there will be good prospects in the medium term.”

Reacting to questions on whether stakeholders should expect further losses after those already declared, the CBN Governor, Mr. Lamido Sanusi had said, after the recent Bankers‘ Committee‘s retreat in Enugu, that American and British banks were still declaring further losses after the initial ones declared.

In the same vein, Managing Director, International Monetary Fund, Mr. Dominique Strauss-Kahn, had said even with the extent the cleaning up in Europe and American banks, there were still some important losses that had not been unveiled. ”It is possible that 50 per cent (of bank losses) are still hidden in their balance sheets. The proportion is greater in Europe than in the United States,” he had said.

According to Sanusi, ”Every time the market depreciates, you make additional losses. Having deterioration in a period of sectoral downturn is not strange or unique to Nigeria.”

The CBN governor added, ”Will December figures be better than September figures? It depends. Some banks took very conservative positions in September, cleaned up so that they could have an upside by December. I imagine some will go up, some will go
down, but I don‘t think December figures will be substantially different from September figures for most of the institutions.”

By the results presented by the banks to the Nigerian Stock Exchange, Union Bank made a provision for pension gratuity and long outstanding unreconciled items and provisioning arising from the joint CBN and Nigerian Deposit Insurance Corporation examination, which resulted in a loss of N222bn, in the six months ended September 30, 2009.

Also, Oceanic Bank Plc made a provision for losses of N315bn in the third quarter ended September 30, 2009, up from N1.16bn in 2008. The bank, however, said it was confident that with the provisions, the financial statement showed the true and fair value of the quality of its assets.

In the half year ended September 30, 2009, Afribank Plc also made a provision for risk assets of N72.4bn and an exceptional item of N83.5bn.

In the seven months ended September 30, 2009, Intercontinental Bank Plc made a provision of N195.37bn as loan loss provision and N241.32bn as diminution on investments and other known losses during the period under review.

Wema Bank Plc, in its half year ended September 30, 2009, showed provisions for risk assets of N33.35bn in 2009, compared with N600m in 2008, but the board was optimistic that the recovery of non-performing loans had started to yield positive results, which would be reflected in subsequent results.

The results of First City Monument Bank in the five months ended September 30, 2009 also showed that the bank recorded a loss after tax of N6.94bn, compared with an after tax profit of N7.46bn in the same period the preceding year.

Fidelity Bank Plc made a provision of N19.8bn in its full year ended June 30, 2009, as against N1.77bn in 2008, while Sterling Bank and Ecobank Nigeria Plc made provisions of N10.83bn and N33.39bn respectively.

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