CBN: Banks Not Yet in ‘Positive Territory’

Written by This Day Wednesday, 07 July 2010

Despite the modest profits recorded by some of the banks in the first quarter, Nigerian banks still have a long way to go in addressing the holes in their balance sheets, Central Bank (CBN) Governor Sanusi Lamido Sanusi said yesterday.
He also disclosed that N150 billion out of the N500 billion intervention fund is ready for drawdown and will be accessed by 150 manufacturers before the end of this month.

Sanusi, who made these known while addressing journalists in Abuja at the end of the Monetary Policy Commit-tee (MPC) meeting in Abuja, said CBN left the benchmark interest rate, the monetary policy rate (MPR) unchanged at 6 per cent while retaining the asymmetric corridor of 200 basis points above and 500 basis points below the MPR.
He said the profits declared by banks  in the first quarter although encouraging, still requires a lot of efforts by the banks to improve on their financials.

“If a bank with negative capital of N100 billion makes a profit of N2 billion, it still has a long way to go before it comes back to positive territory,” he said.
The CBN boss said the profits resulted from loan recovery and improvement in efficiency through staff rationalisation and shared services, and not by growth in their loan books.

 Sanusi pointed out that there would be more recovery of the bad loans of the banks and pressure on debtors to pay when the Asset Management Company (AMCON) comes on stream.
“For those loans that remained ‘hard-core,’ they are being valued now by the technical team from the CBN and Ministry of Finance for the purpose of being purchased by the asset management corporation. So there’ll be recovery through AMCON where  they have collateral,” he said.

He noted with satisfaction continued macroeconomic stability but said that there is still threat of inflation from the budget deficit and the operationalisation of the proposed AMCON.
 CBN noted however, that inflation threat remains subdued in the short to medium-term, adding that the quantitative easing measures introduced are yet to be completely implemented.

Sanusi said the apex bank will continue to monitor developments in the economy with a view to intervening as the need arises. He also stressed the need to grow the real sector on a sustainable basis.

The MPC also noted the sustained rebound in commodity prices, which is helping to support growth in Nigeria and underscored the need to diversify the economy to protect the country from the vagaries of oil price stability. It expressed satisfaction that the impressive output growth recorded in 2009 continued and that provisional data from National Bureau of Statistics (NBS) shows that Gross Domestic Product (GDP) grew by 7.23 per cent in the first quarter of 2010 up from 4.5 per cent in the first quarter of 2009. The committee noted that GDP has been projected to grow by 7.68, 7.76 and 8.13 per cent in the second, third and fourth quarters of 2010 respectively while overall GDP growth for 2010 has been projected at 7.74 per cent.

However the committee highlighted the major constraints on the domestic economy to include infrastructure gap, lack of access to finance, lack of skills, unfavourable trade policy and poor investment climate, which it said could retard growth. The MPC stressed the need for government to deepen and pursue macroeconomic, structural and institutional reforms that are very critical to the growth of the economy.

Meanwhile, Sanusi said the N500billion Intervention Fund is targeted at deficit and strategic sectors of the economy. He noted that even though the power sector remains a key target, there has been no request from that sector to access the fund, owing to the non-conclusion of the reforms.

“As for the fund, in the next couple of weeks, I think you will see a formal signing ceremony with the banks; so far we’ve had about 150 companies that are going to borrow under the manufacturing tranche and that is about N150 billion,” he said.
Sanusi also said that the CBN would be sending a team to study the microfinance model in Bangladesh as it looks into the smooth operations of the lower segments of the financial sector. The Governor of the central bank of Bangladesh, Atiur Rahman, who said Bangladesh would be willing to share their experiences in that sector with Nigeria, disclosed that the sector has helped the country improve its economy and cope with the global financial crisis.

He said a different body from the central bank, the microcredit regulatory body, whose board is headed by the central bank governor, regulates the sector.
Rahman further disclosed that commercial banks in Bangladesh extend 40 per cent of their credit to the microfinance banks in that country, who in turn channel the fund for lending to the small and medium enterprises sector as well as agriculture.
“We welcome Nigeria to look into our regulatory framework and if they find it useful, replicate it,” he said.
Sanusi further stated that CBN has given some investors a licence to operate Islamic banking, stressing that the institution might open to the public before the end of this year.

On allegations that shareholders have been excluded from negotiations on the sale of the banks, the governor said: “What is important is that the board of directors of the banks are themselves in charge of the process and those directors are representing shareholders, so it is a bit premature for anyone to conclude that shareholders are either precluded or in any way being sidelined. The reality is that the amount of capital that is required is not being brought by the capital market.”

Speaking on universal banking, the Governor said banks have the option of selling those businesses that are non-banking or using the existing laws to go to a holding company structure-that is their decision.
The governor said that between 2008 and 2009, there was a reduction in foreign exchange earnings of about $25 billion, adding that the country earned about $32 billion in 2008 and only $9 billion in 2009. He said the CBN is checking the net forex outflows in its management of the reserves.

He said the reserves at about N32 billion can fund 16 months of imports, which still put the country in a comfortable position.
On the rating of the Nigerian banking sector by Standard and Poor’s, the Governor noted that the issue was wrongly reported and blown out of proportion. He said the rating agency expressed the view for stricter risk management in banks; the need to strengthen balance sheet, adding that it commended the CBN for its intervention in averting what would have resulted in catastrophe.