IMF Cautions against Hasty Celebration of Nigerian Banks’ Recovery


IMF president,  Christine Lagarde

Goddy Egene
Despite an impressive performance posted by Nigerian banks for the financial year ended December 31, 2012, the International Monetary Fund (IMF) has said the banks are not out of the woods yet.

The Financial Times of the London quoted the IMF to have made this assertion  in report released this week after taking an in-depth look at the  banking sector.
Based on the report, IMF was said to have recommended further tightening of regulation.

A review of the performance of the banking sector by THISDAY had shown tremendous improvement in all performance indicators by banks.
In terms of profit after tax, for instance, the banking industry total profit rose remarkably by 537 per cent to N497.043 billion in 2012, as against the N78.069 billion it was at the end of 2011.

Similarly, Capital Adequacy Ratio(CAR)  is currently above the minimum requirement of 10 per cent (industry average of 17.7 per cent for first half 2012 and compared with five per cent for first half 2011).Also non- performing loans  stood at 3.8 per cent as at April 2013,  which is below the mandated threshold of five per cent.

In terms of  assets, the total assets of Nigerian banks climbed to N20.231 trillion as at the end of December last year, from N17.851 trillion the previous year, while loans  to customers rose  by 18 per cent  from N6.877 trillion in 2011 to  N8.111 trillion in 2012.

With average capital adequacy ratios close to 20 per cent and average expected 2013 return on equity in Nigeria’s 10 largest listed banks running above 20 per cent (according to a Renaissance Capital report this year), bank shares have climbed steadily over the past year.

These positive developments notwithstanding, the IMF said major risks remained.
According to the member of the World Bank group, apart from  Nigeria’s entrenched economic problems ,  a volatile, dysfunctional oil industry and conflicts in the north and the Niger Delta regions, the banking system itself has a few problems of its own.

“The financial system continues to suffer from weak governance, including some non-transparent ownership structures, deficiencies in financial reporting, and endemic perceptions of corruption… Nigerian financial institutions operate under a framework of laws, regulations, circulars, and guidelines that are not all well-understood, and do not seem to provide a coherent overall framework,” the organisation said.

The IMF has therefore recommended  updating the Banks and Other Financial Institutions Act (last amended 1999); better communication and contingency planning from the regulators; more publicly-available financial data; stamping out insider trading; paying attention to cross-border supervision; and, a tougher approach to rule-breakers.

“There is a concern that the authorities may lack the resolve to fully apply the intervention framework and finally resolve a bank which is hopelessly insolvent. The authorities should apply zero tolerance and act promptly, resolutely, and forcefully in relation to actions or inactions which put financial stability at risk, as well as in relation to corporate governance transgressions,” IMF said.

Tags: Business, Nigeria, Featured, Nigerian Banks


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