BANKS’ LOSSES: Shareholders to lose dividends for 5 years - Depositors’ funds safe - CBN

WITH the growing declaration of huge financial losses by some of the rescued banks by the Central Bank of Nigeria (CBN), there were suggestions at the weekend that shareholders of the troubled banks might wait for five years before they could enjoy dividends again.

Nigerian Tribune findings showed that the recent records of losses by the banks presented to the Nigerian Stock Exchange (NSE) for vetting on Friday had virtually eroded both the banks’ shareholders fund and eaten into their operational funds too.

Further investigation revealed that apart from the N620 billion injected into the troubled banks by the CBN, which to them is a far cry from what they needed to run their operations, all the money recovered by the banks from their debtors was not directly remitted to the banks.

Speaking with the Nigerian Tribune, a director of one of the new generation banks, which submitted its scorecard to the NSE, who pleaded for anonymity, said that as a cost-cutting measure, the bank and others had decided to reduce their workforce drastically as well as close down some branches.

He said the money recovered from banks’ debtors were not remitted to the banks directly just as they were not allowed access to it by the apex bank. He noted that this explained why the money recovered by the banks so far was not being disclosed by banks which had made public their financial statement for the December 31 deadline on disclosure of financial positions of banks as directed by the CBN.

Mr. Boniface Okezie, President, Progressive Shareholders Association of Nigeria (PSAN), in his contribution, said the continued losses by the banks were increasing on a daily basis the fears by shareholders that there would not be dividends for sometime to come.

He said the shareholders had, from the time the Economic and Financial Crimes Commission (EFCC) stepped in to help recoup the banks’ exposure to huge loans, been sceptical that the money recovered would not be directly remitted to the banks to aid their operations.

Okezie, who said that they were already in court to challenge the inclusion of the anti-graft agency in the recovery of the banks’ toxic debts explained that losses by the banks had impacted negatively on their finances, and that it was expected that their return on investment would greatly be hampered.

In the results made available to the NSE by six of the nine rescued banks, Intercontinental Bank Plc made a provision of N436 billion and a loss after tax of N328 billion; Bank PHB Plc made a N232 billion loan loss provision and declared a net loss of N338 billion; Oceanic International Bank Plc made loan loss provisions of a whopping N315 billion and a loss after tax of N286 billion; while FinBank Plc wrote off N95 billion in bad loans and declared a net loss of N121 billion.

Also, Spring Bank Plc posted a net loss of N16.3 billion following a loan loss provision of N123.3 billion, while Union Bank of Nigeria Plc made provision of N148 billion and declared a loss of N223 billion. Afribank made a loss after tax and exceptional items stood at N71.2 compared with profit after of N11.9 billion in 2008. The bank provided for risk assets of N647.84 billion and exceptional items of N83.5 billion.

Though banks have turned out an unimpressive third quarter results, the Federal Government has assured depositors of the safety of their funds. The Minister of Finance, Dr. Mansur Muhtar, gave the assurance in a statement.

According to the minister, the government had reviewed the recent financial reports presented by the commercial banks and the associated measures to adjust their balance sheets, in line with the new rules and procedures.

Noting that these might present short term challenges to the banks, the government said they, however, provided an opportunity to draw the line and begin afresh.

“We remain optimistic that steps being taken will put the financial sector on a sounder footing, which is pivotal to strengthening our economy,” Muhtar said. The minister reiterated the government’s commitment to ensuring, along with the Central Bank of Nigeria (CBN), that depositors funds and creditors interests were fully protected in an orderly and sustainable manner.

Dr. Muhtar said the Federal Ministry of Finance and the CBN would continue to work with the National Assembly to secure a speedy passage of the bill establishing an Asset Management Company (AMC).

The bill, he said, would provide a vehicle and suitable framework for addressing the toxic assets of the commercial banks, while helping to restore liquidity and facilitate flow of resources to the real sector.

On the banking sector reform, the Federal Ministry of Finance commended the apex bank for the progress made so far in addressing the challenges facing the sector, stressing that the efforts being made to restore stability to the financial sector and strengthen the banking system were on the right track.

“The ministry is particularly supportive of the improvements being made to the accounting and financial reporting system of the sector, which will enhance transparency and accountability, strengthen corporate governance practices as well as provide a better platform for more effective risk management,” Dr. Muhtar noted.

Meanwhle, the CBN has resolved to inject additional liquidity into the troubled banks. The CBN, in a press statement signed by the Head, Corporate Affairs, Mr. Mohammed Abdu-llahi, said the new management drafted to the troubled banks found more serious situation in the banks than was initially thought.

As a result of this, the statement added that the apex bank would inject additional funds into the affected banks to see that the interests of both their depositors and creditors were safeguarded and to ensure that the banking system ran smoothly.

‘’As part of our mandate of preserving the integrity of the Nigerian banking system, the CBN will continue to support efforts towards restoring good governance, best practice, liquidity and capital in the affected banks. To this end, the Tier 2 capital injected in the banks in August and October to help bolster their capital positions will remain in place. Furthermore, the CBN will continue to stand by its inter-bank guarantee issued in July this year,” the statement added.

To further improve the banks’ situation, the CBN said it was actively supporting management of the banks in their efforts to recover outstanding loans and improve corporate governance in their respective institutions.

The apex bank said “for us at the CBN, it is important that the previous lapses in corporate governance are not allowed to repeat themselves.” Reiterating its determination to transfer the affected banks to institutions and people that will safeguard the interests of depositors, the CBN said it would be placing a great deal of emphasis on the technical capabilities of such interested parties.

Also, the CBN said Nigerian banks, like other banks in countries around the world, had faced a very challenging operating environment this year. Meanwhile, the CBN’s new disclosure standards for banks in the country have begun to have negative impact on government’s revenue and has also been compounding shareholders’ woes.

Investigations by the Nigerian Tribune showed that the tax authorities were greatly miffed by the mind-boggling losses currently being posted by banks, a development that had made their tax remittances to government completely eroded.

The tax authorities are said to be exploring other avenues to make up for the shortfall since the huge remittances from the banks have dwindled greatly. A financial analyst and chief operating officer, Landmark Investments, Mr. Okechukwu Amadi, has predicted that it would take the banks a long time to return to the path of profitability because of provisioning and the consequent huge losses made by the banks in recent times.

“Shareholders expecting dividends, particularly from the rescued banks, should start thinking something else. Unless the banks merge or they are acquired, it would take them a great deal of time to recover from these losses,” he said.

Alluding to this, the chairman, Stanbic IBTC, Mr. Atedo Peterside, said some banks mounted pressure to set aside a strict application of the prudential guidelines with a view to delaying the recognition of the accounting losses on their books, adding that they were also “shooting themselves in the foot” in the process because a failure to recognise losses meant that they were bleeding cash flows by paying taxes and dividends on non-existent profits, thereby compounding their liquidity woes.

Peterside observed that the level of non-existent profits the various banks would have continued to declare through 2009 and into 2010 in the absence of the regulators’ audit examination would have been mind-boggling, adding that the compulsory stress tests saved the industry from collapse.

He made a case for a financial system that has the ability to withstand exogenous shocks to the system, stating that only financial institutions that had in-built checks and balances would have the ability to withstand the shocks.

He charged the monetary authorities to use the opportunity presented by the ongoing domestic banking crisis to immediately put in place, the building blocks that would enable them to structure a coherent approach to systemic risk management in order to reduce financial instability; and institutionalise a strategy to respond promptly and efficiently to a future financial crisis.

In a related development, the raging feud between the two major professional accounting bodies in the country, the Association of National Accountants of Nigeria (ANAN) and the Institute of Accountants of Nigeria (ICAN) was re-ignited at the weekend over who is responsible for the current crisis in the banking sector.

Speaking at the sixth annual corporate financial reporting summit and dinner in Lagos last week, a former national president of ANAN, Dr. Samuel Nzekwe, noted that the current banking sector crisis had exposed ICAN, stating that its members were involved in the various misdemeanours in banks.

Apparently reacting to an earlier statement at the event by the second Vice President of ICAN, Mr. Dotun Owolabi, that the body had all it took to discipline any of its erring members, as its disciplinary tribunal had the status of a federal court, Nzekwe described it as a hoax, stressing that they were not capable of doing so.

The former ANAN boss regretted that none of the auditors that falsified the various accounts had been prosecuted, stating that calls for new rules to curb the excesses of the banks’ officials and external auditors were unnecessary, as the prudential guidelines had always been there.

“I am surprised that nothing has happened to the auditors which are part of the problem in the banks. What we see today is that individuals are becoming larger than institutions,” he said.

He called for the adoption and implementation of the International Financial Reporting Standards (IFRS) as it would enhance accounting standards in the country.