Banks’ seeming systemic stress, creating fresh anxieties

As the first quarter 2017 ends, stakeholders of the nation’s economy and the capital market will be expecting release of periodic unaudited results, while many banks were yet to file their 2016 audited financial statement.
Could there be more revelations as results of financial institutions continue to flood the Nigerian Stock Exchange (NSE), openings on banks needing bailout, acquisition or offering greater volume of hares to new investors?
Recently, Daily Times of Nigeria findings revealed that depositors met with difficulty accessing funds from the machines, in some Automated Teller Machines (ATM) of some banks during weekends, , ostensibly due to shortage of funds.
On Saturday March 25th 2017, at Ikotu Alimosho LGA, bank customers who had besieged banks ATM galleries around 8 pm, to withdraw funds were frustrated as most or all the machines were not dispensing cash, as was discovered in one particular bank.
Most of the bank customers were seen running around in the heavy rain that ensued, to ensure that at last, one of the bank’s ATM could dispense cash to them. By 9.30 pm,an average of 40 bank customers were seen at some of the banks stranded as the machines failed to dispense cash.
The customers deduced various reasons for their predicament, weather condition, storage of Naira to buy dollar from the Central bank of Nigeria (CBN) forex window among other reasons were given by some of the enlightened customers.
The development points to systemic stress heightening anxiety of Nigerians on the safety of their funds in banks and the possibility of accessing them any time they deem fit.
That $100 million foreign exchange offered by the Central Bank of Nigeria (CBN) on Friday 24th March 2017, that weekend, was not fully taken by banks, could lay credence on how liquidity challenge in banks may have starved depositors of their funds in some banks ATMs, and also reflection of performance at the forex market.
Daily Times Nigeria gathered that out of the $100 million offered by CBN, authorized market dealers were only able to clear about $81.35 million dollars.
Mr. Isaac Okorafor, The Acting Director, Corporate Communications, CBN, in a statement, was quoted to have attributed the inability of authorized dealers to pick up the entire offer of the CBN to increasing dollar supply.
He also gave the prevailing sense of apprehension among dealers who anticipate a further crash in the rate of the dollar, as another major cause.

Meanwhile, Fitch, Global ratings agency recently said that Nigerian banks will continue to face challenges in 2017, following an extremely difficult 2016. The Fitch report noted that in 2016, Nigerian banks faced multiple threats from the operating environment, including Nigeria sliding into recession, the economy continuing to suffer from low oil prices and severe shortages of foreign currency (FC). The outlook for the rest of 2017 is not much brighter.
“Banks with foreign currency receivables saw huge windfalls in 2016 as the Naira depreciated but such is unlikely to recur in 2017. It is unclear if the current foreign currency liquidity will persist as CBN’s ability to provide dollars is dependent on crude oil revenues, something entirely out of its control”
SBM Intelligence report, taking a cue from Fitch report, in its recent release pointed that hence a bank’s core business is to lend money to businesses but considering the tough business environment and high interest rates, many banks are no longer confident that they can loan out money and expect it to come back as and when due.
“Any fall in interest rates at the back of falling inflation will also affect profit from investment portfolios. It is indeed a tough time to be a bank in Nigeria” pointed the report.
Mr. David Adonri Chief Executive Officer, Highcap Securities Limited, told Daily Times Nigeria in an interview that 2016 appeared to be better even as mid-tier banks performance would largely reflect poor performances occasioned by macroeconomic challenge of the year, adding that more operating challenges could worsen this year.
Rise in the nation’s inflationary trend, he said would sustain pressure on banks, their inability to recover loans as well as ability to deliver loans with the hope of recouping same when due for repayment, irrespective of the high lending rate.
He told Daily Times that borrowers from manufacturing sector, power sector, fast moving consumer goods and other key sectors of the economy continue to feel the impact of consumers’ lean resources reflecting in low patronage of goods and services as well as reducing ability to meet target obligations.
The Chief Executive Officer Afrinvest West Africa Limited, Mr. Ike Chioke, told Daily Times in an interview in Lags that high rate of none performing loan, may have given course for concern, if the Asset Management company of Nigeria (AMCON) may likely wade into the banking system to save banks weighed down by none performing loans.
“The high none performing loans” Chioke said, “gives cause for concern. That somewhat gives cause for concern and one beginning to wonder if the CBN will begin to do another AMCON backed restructuring”
According to the Afrinvest CEO, the exchange rate gains most tier one banks re leveraging on, are made from fixing foreign exchange with the apex bank regulator at a price and later it will be swapped with the Naira at higher rate.
“This happens sometimes when big banks brought in Dollars then at the rate of N200 per Dollar and then fixes it with the CBN and says, hold it for me when I need it, I do a swap with it. And eventually they go back and give them the Naira and collect their Dollars at N305.00 prevailing rate, there is an exchange gain”
He said that through the foreign exchange Naira swap, some top tier banks have been maintaining profitability and that almost 50 per cent of their profit account for exchange gain.
Patrick Ajudua, a retail shareholder revealed in Lagos at a recent Annual General Meeting of a bank, that ‘shareholders are not happy about how Nigerian banks are being treated,
He said that irrespective of tough economic posture out there that the banks are required to contribute to ‘FG Export’ Fund, and mandatory contribution to Asset Management Company of Nigeria (AMCON), under a demanding cash reserve at Central Bank of Nigeria (CBN)”
The prevailing scenario in the financial industry, coupled with the federal government’s policy on bonds to service deficit budget continue to stress financial institutions, worsening impediments to source funds from the local market.
Sir Sunny Nwosu, founding Chairman, Independent Shareholders Association of Nigeria (ISAN) troubled on why Zenith Bank called off its proposed N100 billion fund raising, said that banks are now at a weaker position to compete against the government which is now in direct competition with the banks for funds in the debt markets, saying that with “the FG saving bond rate of 13.01 per cent how can the banks compete?”
Chukwuma Soludo, former CBN Governor recently in Lagos warned that FG’s new economic recovery and growth plan may crowd the private sector out of the debt market.
Soludo, pointed out that at inflation rate of about 18 per cent, that it becomes almost impossible for businesses to raise loan-able funds from the money market.
From the forex challenge, none performing loan, perceived inability to raise fresh funds from the capital market, depositors anxiety over safety of funds in banks, amongst others, it may become imperative that AMCON may wade in, to save more banks from being consumed by persisting systemic stress.