Bank chiefs learning to tread softly in era of hefty regulator sanctions

Nigerian bank CEOs are learning to manage in a new era when the regulator, the Central Bank, has shown that it will freely impose sanctions, including hefty fines and suspension from foreign exchange markets for any infraction.

Bank CEOs spoken to by BusinessDay say they are adopting a long-term view of the situation, even if they have come under unusually harsh rebuke by the apex bank in recent times.

“It has been quite scary but our view is that this will pass at some time”, one bank CEO told our reporter, choosing not to have his name in print.

With sanctions flying around and “You know that you can be ridiculed, even for the least conduct. This can affect your performance,” another bank CEO said.

Banks and their leaders have especially attracted the attention of the regulator in the light of Nigeria’s struggle with a devastating shortage of foreign exchange that ripped the economy apart and tipped it into its first recession in almost three decades.

The most recent sanction was the ban of all but eight banks from the foreign exchange market, over crowding out small businesses.

This sanction followed hefty fines slapped on a number of banks that sold dollars outside the CBN’s approved rates.

According to another bank CEO, Nigerian banks have sometimes been treated by the authorities in a manner that leaves the impression that they are to blame for the FX shortage.

In some cases, the CEOs said sanctions imposed on some of the banks have been unfairly applied.

They point to the recent suspension of banks from FX trading, after they were accused by the Central Bank of failing to sell FX to small businesses in the country.

The CEOs said the apex bank would promptly debit them for FX, even if the bank in question has not requested and this is in relation to weekly FX supplies from the CBN for the purpose of travel, medical and other personal needs.

In another instance, the CEOs referred to a merchant bank that was recently sanctioned for not dealing with small businesses even when it was clear that as a merchant bank, it does not have retail customers.

“The banks are learning to obey the rules in order to play the game, but some of the pain they feel is tough,” said Tajudeen Ibrahim, head of research at Lagos-based Chapel Hill Denham.

“The CBN has been overbearing in some instances, like when it turned to stabilisation securities to mop up liquidity last week, even though it was in a bid to forestall currency speculation.”

The CBN is said to have debited banks for about N320bn at 17.999% for OMO bills with a tenor of 183 days at the last T-Bills primary market auction. Even though they never signed up for it, using stabilisation securities last used in 1993.

“We are trying to get along with whatever is thrown our way, to deliver value in the end,” one bank CEO said, avoiding a direct comment on the CBN’s use of stabilisation securities.

While it may appear that the CBN’s patience for any infraction is thinning, investor service-Moody’s, is convinced otherwise, particularly as it concerns banks’ capital buffers.

According to Moody’s bank analyst, Akintunde Majekodunmi, the CBN is a lot more tolerant than in the past with banks struggling to raise capital buffers, in a report by Bloomberg.

Some of the country’s small- and medium-sized lenders are struggling to meet capital requirements after a plunge in oil prices since mid-2014 cut government revenue.

Economic activity has since plunged along with oil as the value of goods and services produced in the country contracted by 1.5 percent in 2016 compared to the year before.

Businesses have found it hard to survive, prompting a surge in non-performing loans.

Lenders, including Unity Bank Plc, Diamond Bank Plc and Skye Bank Plc are in talks to sell assets and attract equity and debt, to increase capital above the 10 percent set for local lenders and 15 percent required for banks with international operations.

The regulator replaced the top management of Skye Bank last July, for falling short of capital thresholds and extended a loan to the lender to boost its liquidity.

In 2009, a credit crunch prompted the government to create the Asset Management Corporation of Nigeria (AMCON), which bought about 14,000 non-performing loans from 10 banks at a cost of N3.9 trillion.

It also took over three lenders that couldn’t meet a recapitalisation deadline.

AMCON, which sold the last of the three banks- Keystone Bank- to new investors in March, said it has no plans for another rescue package, despite the surge in bad loans ratio to 11.5 percent in 2016, more than half the 5 percent set by the regulator.

Despite the surge in non-performing loans, following a contraction in Nigeria’s economy last year, the “outlook has improved’’ for the country’s banking industry due to higher oil prices and increased dollar supplies from the central bank, Majekodunmi said.

Nigeria’s 10-member banking stocks index has climbed 45 percent since the government three weeks ago opened a platform that allows dollars to be traded more freely.

 

LOLADE AKINMURELE