Beyond Numbers and External Validations
Several years back, at the time when most of the Nigerian banks and a few corporate organisations were caught with the craze of rushing abroad to purchase awards from some influential financial publications, I had gone to visit a highly placed Nigerian who was the country managing director of a global consulting firm then. He has always been self-effacing and on the quiet side but with impact that could not be overlooked. And I admired that virtue. I wanted to know why he wasn’t too visible , why he wasn’t a beneficiary of some the awards that were being thrown at people. Two statements he made to address my question have been ingrained in my spirit ever since. “The moment an individual, or an organisation or a country starts to depend on external third parties to validate his or its worth, that individual or organisation or country is doomed’ he said. And he added: “Ayo, watch those banks and their CEOs collecting awards all over the place; it is just a matter of time, they would be out of the system.” It was a like a prophetic declaration in a hurry for self-fulfilment. One after the other, as he had predicted, the banks started to vanish from the banking landscape. Some of their CEOs were arrested and clamped into detention while their banks were forcefully taken over either by government or by other perceptive investors. Between that time and now, the rough water in the financial services industry has shuffled out more than 100 banks out of the system, leaving fewer than 20 operating at the moment.
The twin brother of that malaise is the obsessive focus of banks, regulators and investors on numbers as against what those numbers are supposed to reflect or mirror. I want to suggest that this tendency only reflects what is happening in the country as a whole; so the banks are only acting to type. Otherwise, what is the sense in the government rushing to the press to tell us how Nigeria has become the largest economy with the highest GDP in Africa, when patients are dying daily in the hospitals for lack of bed spaces; when universities are churning out half baked, ill-trained graduates wrongly equipped to fit into the job placement market; when successive governments have spent billions of dollars on the power sector with the hope of giving us uninterrupted supply of electricity only to bring us into thickening darkness.
All is Not Well!
Back to the banks. Regardless of what the Central Bank of Nigeria is saying regarding the health of the banks, the truth is that all is not well with the Nigerian banks. It does not mean they are collapsing; it is even more serious than that. The 5-year survey of the Nigerian banks conducted by THISDAY Financial and Economic Intelligence Unit in association with some leading research firms confirms this: When all the top-line numbers from the results posted by all the 15 banks are put together the obvious conclusion we were able to draw was that all the banks were struggling to keep afloat profitably. As the table below indicates, all the banks, without exception, witnessed progressively declining profit margins meaning the rate at which they were able to convert their earnings to profit has remained on a downward slide. Also, of the 15 banks surveyed over a five -year period most were not able to post an increasing profit margin and while some recorded inconsistent movements on this indicator. Our survey also indicates that only four banks (UBA: GTB: Access: and Zenith: were able to create wealth for their shareholders in 2016 when we combined the dividends they paid plus their share price appreciation to get total returns. The rest even created financial erosion for their shareholders. Expectedly this is not surprising because the economy itself has been on a downward trajectory with many factories closing shop while a few warehouses are being taken over by spiritual houses.
What is happening in the banking industry is a perfect reflection of the Nigeria’s economic realities. That the banks are not declaring sterling results is not the issue; the problem is the way they have responded to the economic realities. I will make few observations quickly and then 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
55.8%; 19.6%) 44.3%; 37.8%
follow with a few suggestions on what I think the banks ought to do, reflecting the outcome of my interaction with analysts on the state of the Nigerian banking system.
On the Wrong Path
One, most of the banks with the exception of a few have virtually abandoned their core banking role which according to a World Bank report involves “accepting funds from those with surplus (depositors) and lending them to those with ability to use additional funds for productive purposes (borrowers). Borrowers must be able to use the funds to create products or services that generate adequate income to repay the principal plus a usage fee (interest, mark-up) at a rate high enough to provide the bank with interest differential income”. The first transgression by the majority of the 15 banks is that most of their loans are not in 18.6
18 25.5 31.7 -9.5 2.4 15.8 4.6 6.4 6.4
1.6 4.8 8.1 production, not in locally dependent businesses but in speculative lending activities that fuel high level of bad loans recorded by most of the them since most of those transactions are usually at high interest rates which make loans to go bad.
Related to this is that while banks charge high interest on those few speculative transactions, the interest they pay on deposit is ridiculous or even punitive making most individuals to look at another direction . Some even put their money under their pillows or even in uncompleted building! Some had to resort to some ponzi schemes which, of course, have pushed many into financial losses and avoidable sorrow. And when depositors hide their money from the banks, banks will then depend on charges instead of interest income to grow their revenues. As we have seen, most banks have survived by patronising government and its agencies for easy monies. The economy is the loser as banks are not channelling their loans to productive sectors which could create employment and beef up the country’s GDP.
The third game we discovered from our survey is the across -the- board tendencies of the banks to squeeze salaries and overhead to grow profits. When we computed the ratios of staff cost to the number of employees for the banks, almost all have cut their staff costs to half over the past five years without considering the consequences. Some have continued to sack staff giving all manner of excuses. When banks increase the sizes of their operations and then man those operations with poorly remunerated staff (most even prefer contract staff) what you get is what is happening in the banking halls these days when some tellers don’t even know how to operate the computers in front of them!
Options for Progress
First, the CBN should modify the way it assesses the contribution of the banks. While declaring huge profits is important, there should be a guided enforcement on the banks to perform the role they were set up to perform. Over the years, any time the CBN introduced the policy of getting the banks