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Have the Rescued Banks Returned to Profitability?
- By Business World
- Published June 28th, 2010
- MoneyWorld
- Unrated
Newspaper pages and airwaves are agog with the news of the return to profitability of the rescued banks. Even the Central Bank of Nigeria (CBN) is beating its chest on the so called recovery. OKEY NWANKWO here examines the veracity of the claims of return to profitability
Introduction
SANUSI Lamido Sanusi, governor Central Bank of Nigeria (CBN) left many Nigerians shell shocked on August 14, 2009 by sacking managing directors and executive directors of five banks operating in the domestic financial industry and appointed new chief executive officers to run the banks. He later sacked the management team of additional three banks. Giving his reasons for their sack, Sanusi said, “There was lack of capital adequacy, lack of liquidity, lack of corporate governance and the banks were run as sole proprietorship. Confidence would be restored when there is transparency. So our intention is to protect the banks in order to avoid a recession of the system which occurred in the past.”
The eight banks affected are BankPHB, Intercontinental Bank, Oceanic Bank, Afribank, Spring Bank, Union Bank, FinBank and Equatorial Trust Bank. Apart from the removal of their management team, the CBN also injected fresh capital into these banks. The injected funds remained a controversial issue for some time as there were speculations as to whether it is loan or equity investment by the apex bank.
The new management appointed by the apex bank were asked to make provisions for bad loans. But the guidelines for determining bad loans were not followed to the letter as all manner of loans were provided for. The apex bank even published names of chronic debtors in the newspapers. The publication generated uproar as many of the published names do not owe banks while others have performing loans. Following the provisioning, the affected banks reported losses running into billions of naira. Barely a year of making heavy provisioning and reporting industry record losses these banks are reporting a return to profitability. Even the CBN governor is beating his chest on the return to profitability.
Rescued banks declare profit
Afribank in the first quarter ended march 2010 declared a profit before tax of N2 billion compared to a loss of N39 billion in the corresponding period of 2009.
Oceanic Bank International Plc in its unaudited results for the first quarter ended March 31, 2010 announced Gross Earnings of N28.7bn and Profit before Taxation of N1.73bn for the Bank and N30.4bn and N2.56bn, respectively, for the Group. The bank posted a loss of N89bn posted in 2009.
Spring Bank posted a profit-before-tax (PBT) of N636.0 million in the first quarter compared with the loss position of N1.73 billion for the corresponding first quarter results of 2009. The bank reported a profit-after-tax (PAT) of N613m which is an increase over the 2009 first quarter loss of N1.75billion; deposits grew from N142billion in December 2009 by 11.6 percent to 158billion in March 2010 while the balance sheet size grew by 4.1 per cent from N146billion to N152.3billion.
Union Bank posted a profit before tax of N3.55 billion for the first quarter, ended March 31, 2010.The Bank ended 2009 with a loss after tax of N281.2billion for the nine months ended December 31st, 2009. Gross earnings stood at N34.235 billion for the three months as against N51.25 billion for the three months ended March 30, 2009.Profit after tax stood at N3.33 billion as against a loss of N978 million in the corresponding period of 2009.
Experts, shareholders react
Though accolades are pouring in for the management of the rescued banks and CBN for returning the banks to profitability, some experts and shareholders have taken the apex bank to task on the issue. Some analysts and even senior officers of rescued banks are contending that the profits arose from cost cutting strategies such as mass staff purge, closing of some branches and slashing of salaries and allowances. A senior official of one of the rescued banks speaking off record attributed his bank’s return to profitability to cost cutting and reversal of provisioning made in the preceding year. He admitted that the new management in place at his bank has yet to book any reasonable business that would translate into profit.
Sunny Nwosu, Coordinator Independent Shareholders Association of Nigeria (ISAN) speaking in the same vein said, “If the rescued banks are now making profit, it is a pointer to the fact that Sanusi made a mistake in sacking the former chief executives of these banks. All the management teams appointed by Sanusi have yet to make any kobo for the banks. They are still depending on the investments made by the previous managements.”
Renaissance Professionals who in the last couple of months have taken Sanusi to the cleaners for his controversial banking reforms in an advertorial signed by Victor Shodipo raised five questions that ought to bother discerning Nigerian’s as to whether the rescued banks are making profit; or not and if they are really making profit, is it real profit from transactions or reversal of provisioning forced on them.
In the advertorial, the group which has consistently drawn public attention to some perceived flaws in the Sanusi reforms stated:
“But the question discerning minds should be asking Lamido Sanusi is:Which activities are these banks, which were forced to declare multibillion naira losses in November 2009, suddenly making multibillion naira profits from? This question arises against the background that:
1. It is general knowledge that all the taken over banks have not been able to create new loans since they were taken over by the CBN
2. A minimum of 70% of their total loan books have been declared as non-performing and fully provided for
3. Income from interbank trading activities and international trade has dried up. Inter-bank rates and treasury yields are at historical lows while international trade is at its lowest ebb especially for the taken over banks
4. Fee based income is also at historical lows for the taken over banks due to decreased business activities at these banks
5.All the taken over banks have had different forms of third parties – EFCC, External Auditors, CBN appointed financial advisers, Various groups claiming to be investors wanting to buy the taken over banks doing due diligence, the CBN inspectors and NDIC inspectors, all of them asking for one document after the other, distracting the banks from focusing on their business.”
Specifically the group challenged Lamido Sanusi and the management of the rescued banks to disclose to the banking public the income lines from which these ‘profits’ are being made.
The advertorial reads, “These banks were making profits until Sanusi came. Then Sanusi said they were sick and forced them to declare losses. He then put his cronies and now the same banks, without doing any form of serious business – no loans and advances; no improvement in customer deposits, etc – are making mega profits again.,............ Sanusi’s cronies running these taken over banks have not done any magic. What they are simply doing is writing back into the banks’ books all the unnecessary provisions that these financial institutions were forced to make during Sanusi Lamido’s audit last year. It is a simple case of subtraction, when it suited Sanusi’s purpose to make the former management look bad and incompetent and, addition when it suits Sanusi’s purpose to make the new management look good and competent.”
Conclusion
It is not possible to say with all certainty whether the rescued banks have started making real profit or not. Only time will reveal whether the profits are from writing back provisions made in the past or from business transactions. The determination of the true position will set to rest the controversy that has plagued the Sanusi reforms.
Introduction
SANUSI Lamido Sanusi, governor Central Bank of Nigeria (CBN) left many Nigerians shell shocked on August 14, 2009 by sacking managing directors and executive directors of five banks operating in the domestic financial industry and appointed new chief executive officers to run the banks. He later sacked the management team of additional three banks. Giving his reasons for their sack, Sanusi said, “There was lack of capital adequacy, lack of liquidity, lack of corporate governance and the banks were run as sole proprietorship. Confidence would be restored when there is transparency. So our intention is to protect the banks in order to avoid a recession of the system which occurred in the past.”
The eight banks affected are BankPHB, Intercontinental Bank, Oceanic Bank, Afribank, Spring Bank, Union Bank, FinBank and Equatorial Trust Bank. Apart from the removal of their management team, the CBN also injected fresh capital into these banks. The injected funds remained a controversial issue for some time as there were speculations as to whether it is loan or equity investment by the apex bank.
The new management appointed by the apex bank were asked to make provisions for bad loans. But the guidelines for determining bad loans were not followed to the letter as all manner of loans were provided for. The apex bank even published names of chronic debtors in the newspapers. The publication generated uproar as many of the published names do not owe banks while others have performing loans. Following the provisioning, the affected banks reported losses running into billions of naira. Barely a year of making heavy provisioning and reporting industry record losses these banks are reporting a return to profitability. Even the CBN governor is beating his chest on the return to profitability.
Rescued banks declare profit
Afribank in the first quarter ended march 2010 declared a profit before tax of N2 billion compared to a loss of N39 billion in the corresponding period of 2009.
Oceanic Bank International Plc in its unaudited results for the first quarter ended March 31, 2010 announced Gross Earnings of N28.7bn and Profit before Taxation of N1.73bn for the Bank and N30.4bn and N2.56bn, respectively, for the Group. The bank posted a loss of N89bn posted in 2009.
Spring Bank posted a profit-before-tax (PBT) of N636.0 million in the first quarter compared with the loss position of N1.73 billion for the corresponding first quarter results of 2009. The bank reported a profit-after-tax (PAT) of N613m which is an increase over the 2009 first quarter loss of N1.75billion; deposits grew from N142billion in December 2009 by 11.6 percent to 158billion in March 2010 while the balance sheet size grew by 4.1 per cent from N146billion to N152.3billion.
Union Bank posted a profit before tax of N3.55 billion for the first quarter, ended March 31, 2010.The Bank ended 2009 with a loss after tax of N281.2billion for the nine months ended December 31st, 2009. Gross earnings stood at N34.235 billion for the three months as against N51.25 billion for the three months ended March 30, 2009.Profit after tax stood at N3.33 billion as against a loss of N978 million in the corresponding period of 2009.
Experts, shareholders react
Though accolades are pouring in for the management of the rescued banks and CBN for returning the banks to profitability, some experts and shareholders have taken the apex bank to task on the issue. Some analysts and even senior officers of rescued banks are contending that the profits arose from cost cutting strategies such as mass staff purge, closing of some branches and slashing of salaries and allowances. A senior official of one of the rescued banks speaking off record attributed his bank’s return to profitability to cost cutting and reversal of provisioning made in the preceding year. He admitted that the new management in place at his bank has yet to book any reasonable business that would translate into profit.
Sunny Nwosu, Coordinator Independent Shareholders Association of Nigeria (ISAN) speaking in the same vein said, “If the rescued banks are now making profit, it is a pointer to the fact that Sanusi made a mistake in sacking the former chief executives of these banks. All the management teams appointed by Sanusi have yet to make any kobo for the banks. They are still depending on the investments made by the previous managements.”
Renaissance Professionals who in the last couple of months have taken Sanusi to the cleaners for his controversial banking reforms in an advertorial signed by Victor Shodipo raised five questions that ought to bother discerning Nigerian’s as to whether the rescued banks are making profit; or not and if they are really making profit, is it real profit from transactions or reversal of provisioning forced on them.
In the advertorial, the group which has consistently drawn public attention to some perceived flaws in the Sanusi reforms stated:
“But the question discerning minds should be asking Lamido Sanusi is:Which activities are these banks, which were forced to declare multibillion naira losses in November 2009, suddenly making multibillion naira profits from? This question arises against the background that:
1. It is general knowledge that all the taken over banks have not been able to create new loans since they were taken over by the CBN
2. A minimum of 70% of their total loan books have been declared as non-performing and fully provided for
3. Income from interbank trading activities and international trade has dried up. Inter-bank rates and treasury yields are at historical lows while international trade is at its lowest ebb especially for the taken over banks
4. Fee based income is also at historical lows for the taken over banks due to decreased business activities at these banks
5.All the taken over banks have had different forms of third parties – EFCC, External Auditors, CBN appointed financial advisers, Various groups claiming to be investors wanting to buy the taken over banks doing due diligence, the CBN inspectors and NDIC inspectors, all of them asking for one document after the other, distracting the banks from focusing on their business.”
Specifically the group challenged Lamido Sanusi and the management of the rescued banks to disclose to the banking public the income lines from which these ‘profits’ are being made.
The advertorial reads, “These banks were making profits until Sanusi came. Then Sanusi said they were sick and forced them to declare losses. He then put his cronies and now the same banks, without doing any form of serious business – no loans and advances; no improvement in customer deposits, etc – are making mega profits again.,............ Sanusi’s cronies running these taken over banks have not done any magic. What they are simply doing is writing back into the banks’ books all the unnecessary provisions that these financial institutions were forced to make during Sanusi Lamido’s audit last year. It is a simple case of subtraction, when it suited Sanusi’s purpose to make the former management look bad and incompetent and, addition when it suits Sanusi’s purpose to make the new management look good and competent.”
Conclusion
It is not possible to say with all certainty whether the rescued banks have started making real profit or not. Only time will reveal whether the profits are from writing back provisions made in the past or from business transactions. The determination of the true position will set to rest the controversy that has plagued the Sanusi reforms.
