Following a surprise intervention of the Central Bank of Nigeria in one of the deposit money banks recently, there has been rumours and speculations about the true and actual health of the individual banks and indeed the entire banking sector. The speculation reached to a point where the CBN governor could not ignore it, his office had to intervene.
In a statement, Isaac Okorafor, the Acting Director of, Corporate Communications, CBN assured the public that “Going by both the CBN’s examination reports as well as analysis from market watchers, International Credit Rating Agencies, and Development Finance Institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices. We therefore urge the banking public to remain calm and go about their normal businesses without panic. It is important that we do not create problems when none exists.”
How reassuring – and many might say, important it is for the CBN to allay fears of people. The challenge many are having though is, despite the efforts to make it appear that nothing went amiss with the recent reshuffling, one of the reasons posited by the apex bank before the exercise was particularly worrying. The statement is to the effect that liquidity and non-performing loan ratios have been below and above the required thresholds, respectively, for quite a while. Apart from admitting there was a problem, the same bank customers being asked to “calm” down where not aware of this development which has been on for “quite a while”.
So as a bank customer, our question is wouldn’t you want to tell when all is not well with your darling bank?
To start with, the CBN is right about your peace of mind. The Nigeria Deposit Insurance Corporation (NDIC) is an independent agency of the federal government of Nigeria with the objective to protect depositors like you and guarantee payment of insured funds in the event of failure of insured institutions. You should also be aware that all deposit-taking financial institutions that are licensed by the Central Bank of Nigeria are under obligation under NDIC ACT No 16 of 2006 to be insured by the NDIC. With that in mind, we can safely assume that all deposit money banks, microfinance banks and primary mortgage institutions are insured by the NDIC. In fact, as a customer you are insured up to the tune of N500, 000 in a deposit money bank and with N200, 000 in a microfinance bank.
Moving on, we recommend that you give attention to bank ratings. Some experts say it is the easiest way to identify weak banks. Check rating services to see how your bank is rated. Rating agencies like Agusto & Co, Global Credit Ratings Company (GCR) and niche media institutions like The Banker Magazine can provide invaluable insight into the health of banks especially in Nigeria. However be careful how you treat the information from the rating services. Some of them are under the payroll of the banks and he who pays the piper may equally call the tune.
Thirdly, read the bank statements especially the annual and quarterly statements. A bank’s monthly report may not tell you much. Since you may not know how to interpret the graphs and the numbers that usually come with the reports, get an expert to help you. Ask questions concerning the bank’s earnings, liabilities and how it manages its assets over a period of time.
In the course if studying the statement, you may notice that the bank suddenly increased write-offs; these are the losses that banks incur. The larger the amount of write-offs the likelihood the bank is in grave danger. You can take it further by examining a bank’s asset risks. Your finance advisor should be able to tell you whether something seems amiss.
The media may also provide you with good information concerning the health of a bank. If you have money at risk, the news can tell you which bank might be close to failure.
Finally the share prices page in newspapers like Businessday gives an indication of what the stock market thinks of your bank.
FRANK ELEANYA
