At least half of the shareholders in Nigerian banks would go home without dividends this year go-ing by the snippets from the banks’ 2015 financial results, which are currently awaiting the Central Bank of Nigeria (CBN)’s approval, New Telegraph has learnt. Sources at the apex bank told this newspaper that the 2015 earnings of most of the lenders fell, especially in the last quarter of the year; a trend analysts say may continue throughout this year.
The banking watchdog source said most of the banks recorded marginal increases in their earnings in the third quarter of 2015 as against the second, but stressed that the lenders’ financial performance in the last quarter was negative due to the recent economic realities facing the nation. Corroborating our sources at the CBN, the Managing Director of one of the Tier 1 banks told New Telegraph that his bank may disappoint its shareholders this year because of the actualities on ground, which he said has stressed financial sector in particular and the economy in general. He said: “The industry has already been stressed and so is the economy.
The 2015 financial year may not be terrible, but half of the banks will not be able to pay dividends. “However, 2016 financial year is our (banks’) headache. All our businesses have shrunk. Also, the CBN policies are neither investor-friendly nor bank-friendly.
The exchange rate has also impacted on banks. We managers just have to go beyond putting on our thinking caps.” Banks’ earnings, which has been steady over the years, is expected to dip, as lenders struggle to boost profit on reduced deposit liabilities due to the strict implementation of Treasury Single Account (TSA), the banking watchdog’s policies and falling transactions from commercial and corporate customers.
Besides, banks that were heavily dependent on revenue from Commission on Turnover (COT) charges, which was removed this year, would have to develop other sources of income. Also, the oil price slump has negatively affected banks’ earnings because of lenders’ huge exposure to the energy sector. With the price of oil, which is responsible for 70 per cent of Nigeria’s revenue and about 90 per cent of the nation’s foreign exchange earnings, predicted to fall to $20 per barrel, lenders have been forced to restructure their credits and debts locally and abroad.
Moreover, majority of the debtor oil firms and others linked to it – that have calculated their repayment terms with the pre-June 2014 price of crude oil – would be compelled to renegotiate their loans. This implies that banking industry’s ratio of nonperforming loans would exceed the stipulated five per cent threshold.
Consequently, interest income and fees chargeable have started decreasing. These developments have triggered lots of costcutting measures by lenders including cut in jobs, media budget, sponsorship, public relations and other costs that are perceived as not really adding to their bottom lines.
Respected economist and Managing Director of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, had caused a stir in the banking industry early in this year when he predicted that the tough business environment in the country would make lenders to “commence massive staff retrenchment in Q2 2016.”
Already, several banks have commenced downsizing activities. Indeed, First City Monument Bank (FCMB) issued a statement on January 22nd confirming that while some workers had been laid off, the number of those affected was far fewer than what was reported in the media.
The lender said: “As a result of the various policy changes that have affected banking adversely and macroeconomic challenges, volumes of business in various geographies and product areas have reduced significantly.
These factors have resulted in the redundancy of various roles. “Regardless, we have continued to hire in various areas of the group, particularly those that will drive financial inclusion and provide support for the real sector.
One unintended consequence of the current scenario is that we have been unable to redeploy affected staff from some redundant roles. We have thus been compelled to effect a minor reduction in our staff strength. However, the affected employees to date are approximately a quarter of the figures being suggested in the press.”
Also, an Assistant Manager at a second-tier bank, who did not want to be named, disclosed that the lender’s management had set 2017 as the year when the financial institution will go paperless, adding that to ensure that this target is met, each branch of the bank now gets only one carton of paper. He said: “If we run out of paper, it is up to us to devise how to get a fresh supply if we have need for paper. This is to make us start preparing for 2017 when the bank will go paperless.”
Besides, he revealed that as part of the cost cutting measures, the bank has scrapped its variable pay programme for staff. These developments have prompted at least two lenders to profit warning. The first was FCMB Group Plc., which issued profit warning for its third quarter results ending September 30, 2015.
The Managing Director, FCMB Group, Mr. Peter Obaseki, said 3Q15 earnings, which was materially below earnings for the same period in 2014, was due to two factors: a spike in impairments, particularly in the energy sector and the significant reduction in trade financerelated revenues due to foreign exchange illiquidity.
He noted that the trend continued in 4Q15 and largely emanated from wholesale banking activities, while retail banking showed greater resilience and earnings momentum. He, however, said “2016 will be characterised by continued growth in retail contribution, stabilisation of wholesale banking revenues and increased focus on cost efficiencies (opex, funding and risk) in order to restore earnings levels.”
Next was FBN Holdings in its earning guidance for FY 2015. It stated that earnings would be materially below that of the prior year. The reduction in earnings are attributed to recognition of impairment changed on some specific accounts resulting from reassessment of the loan portfolio within its commercial banking business.
“The reassessment was largely driven by the challenging macro-economic environment, coupled with fiscal and monetary headwinds, which have resulted in marked reduction in output,” the company said.
