Nigeria: Spectre of Who Is Next Stalks Nigeria After Bank Shakeout

LAGOS, Nigeria, Capital Markets in Africa: The ousting of top management at one of Nigeria’s largest banks is deepening concern over the health of the industry.

The central bank stepped in to replace the chief executive officer, chairman and 10 other directors of Skye Bank Plc on July 4 after the nation’s eighth-biggest lender consistently breached cash and liquidity ratios. The regulator made the announcement before a three-day holiday and after the market had closed. The stock tumbled to a record low when trading resumed on Friday.

The intervention is stirring memories of when Nigerian regulators bailed out 10 banks, fired eight CEOs and stepped in to buy bad debts during the financial crisis. While authorities are telling depositors the banks aren’t in distress now, an increase in unpaid loans, an economy heading toward a recession, a weakening currency and tumbling oil prices are raising risks of an industrywide slump.

“There’s a chance we’re going back to several years ago when banks were taken over,” Zoran Milojevic, a frontier markets analyst at brokerage Auerbach Grayson & Co., said by phone from New York. “There are still way too many banks. Some of them have to go.”

More banking shares fell than rose on the Nigerian Stock Exchange All Share Index.

Diamond Bank Plc slid 9.5 percent, the most since January 2015. Ecobank Transnational Inc., Fidelity Bank Plc and Union Bank Nigeria Plc all dropped about 5 percent to their lowest levels in almost two months, while Access Bank Plc, Sterling Bank Plc, United Bank for Africa Plc and Guaranty Trust Bank Plc also declined. Stanbic IBTC Holdings Plc, a unit of Africa’s largest bank by assets, FBN Holdings Plc, the nation’s largest lender by assets, Zenith Bank Plc, and Unity Bank Plc gained.

There are “a few” lenders that probably are not meeting prudential ratios in terms of liquidity, bad loans or capital, Tokunbo Martins, the Central Bank of Nigeria director of banking supervision, said in an interview with Lagos-based Channels TV. The regulator monitors banks on “an ongoing basis to make sure it doesn’t get out of hand.”

Systemic Importance
FBN’s First Bank of Nigeria and Diamond may come under closer scrutiny from the central bank, Adesoji Solanke, Renaissance Capital’s head of research in Nigeria, said in a note on July 5. Solanke in an e-mail on Friday said that neither FBN or Diamond are under liquidity pressure at this point, so the regulator’s Martins is probably referring to other banks not covered by the brokerage.

While First Bank may escape the measures imposed on Skye, an intervention cannot be ruled out given the lender’s systemic importance, Solanke said in the note. Regulators may give the company’s new management team, which started in January, time to turn around its performance, he said.

Diamond’s capital ratios may come under “notable pressure” because of loans in foreign currencies, Solanke’s note said. The naira weakened 30 percentagainst the dollar this year after the central bank last month dropped a currency peg. Diamond had a capital adequacy ratio of 16.2 percent at the end of the first quarter, compared with a 15 percent regulatory minimum.

It’s not correct that the bank’s capital levels are a concern, a spokesman for Lagos-based Diamond said by phone. Diamond is not borrowing from the central bank’s liquidity window, the spokesman said.

‘Very Strong’
First Bank said in April it plans to cut 1,000 jobs and reduce its exposure to the oil industry in a bid to restore profit, which slumped 82 percent in 2015 as non-performing loans jumped to 22 percent from 3.8 percent a year earlier. 

“FBN does not need to raise more capital,” acting Chief Financial Officer Ini Ebong said in an e-mailed response to questions. “Our‎ liquidity ratio remains very strong.”

While problems are mounting, Nigeria isn’t headed for the crisis it had in 2009, said Robert Besseling, a Johannesburg-based executive director at business risk consultancy Exx Africa.

Bailouts provided to some of the country’s state governments may be a “mitigating factor” that could help debt repayments, he said. “Nigeria also now has a freely floating naira, which has released some pressure. Government doesn’t have the ability to bail out banks anymore, but the regulators do have more oversight.”

‘Under Pressure’
Nigeria’s central bank moved to assure depositors and investors that its lenders are safe, saying in a statement on July 6 that there is no need forpanic withdrawals and neither Skye or any other bank is in distress.

“The whole banking sector is under pressure in Nigeria given slowing growth and average loan-book exposure to oil and gas of 30 percent,” said Oyin Anubi, a London-based economist at Bank of America Merrill Lynch. “Skye Bank was particularly weak.”

Source: Bloomberg Business News