Nigerian banks and The Africa Report

THERE has been much contention about the source materials and criteria upon which the editors of Africa Report, a Paris-based publication, recently based their opinion regarding the solvency of Nigerian commercial banks. Focusing on the exposure of Nigerian banks, post-consolidation, to the capital market and the oil and gas sector, and their published shareholders' funds and total assets, Africa Report paints the picture of a troubled Nigerian banking sector where only four banks can be considered "strong".
In its view, when the stock market wiped out about eight trillion Naira in value, the major burden of the incidence was to be felt in the erosion of banks' assets. But risk profiling alone does not fully tell the story of a bank's strength. So contend, correctly, the CBN, the NDIC, the Association of Corporate Affairs Managers of Banks (ACAMB) and other stakeholders. The lesson to be taken from the entire controversy is that Nigerian banks can no longer pretend to be insulated from international attention.
With the banks seeking international presence and patronage, in a global, competitive market, they are bound to attract broader scrutiny, including irreverent analysis by intrepid investigators. In recent times, Nigeria's banking sector has been the subject of scrutiny by not only the Africa Report, but also the World Bank, Fitch, a ratings agency, and Forbes magazine.
The banks are up in arms because Africa Report insists that some banks have 'something to hide' and that they can be categorised as follows: Strong (four banks): "Thriving, to profit from the crisis''; Satisfactory (nine banks) - "Margin lending issues but will all survive''; Shaken (seven banks) - ''Serious governance issues need urgent attention''; Stressed (four banks) - "on the ropes, sink or be swallowed.'' The main contention is that a report of this nature may result in a crisis of confidence, and possibly a run on the banking sector and render many Nigerian banks, more vulnerable. This certainly cannot be in the interest of either the regulatory authorities or the affected banks.
The complaint by the banks is obviously because they have received less than their favoured or perceived rating from the publication. Thus far, the ensuing alarm among the banking public, is we believe, unwarranted. Ultimately, ratings are subjective judgements. But the Jeune Afrique - Africa Report equally focused on issues of corporate governance, and the fact that the regulator "still has work to do." No doubt about this, as indeed regulators worldwide have a lot to do on the heels of the global financial crisis.
Ordinarily, the basic norms of assessment for banks prescribe a review of the institution's capital adequacy for the quantum of risks it carries, whether the quality of assets it creates justifies the risk, the quality of available human skills and elements of management, the texture of the earnings stream and the institution's liquidity profile to meet immediate and future obligations. The Africa Report publication does not seem to have considered other indicators. It is not helpful that the editors have refused to disclose their parameters of assessments, for, they insist, legal reasons. What cannot be controverted though is that questions continue to be raised about some Nigerian banks and the country's financial system.
Both the appearance of this edition of the Africa Report and the recently declared objectives of Mr. Lamido Sanusi at the Central Bank, call for concerted and urgent action to establish the truth about the trading of the post-consolidation years and then provide a transparent state of bank balance sheets. The possibilities open to Mr. Sanusi's tenure include CBN-inspired ratings and models of all financial institutions in the Nigerian market. In the main, it can no longer be that of relaxed rules and governance benchmarks in the banks, a challenge worsened by the emergence of owners-managers in this sensitive sector.
It is, therefore, in order that the CBN is insisting on full disclosures and more diligent reporting standards by the banks. The banks must support this internal audit in order to prevent alleged misrepresentation. Individual banks also need to reassure their customers by raising their level of performance, while the regulatory authorities must embark on the task of rebuilding market confidence and standards.