•Projection contrasts with CBN’s September target
Full recovery to profitability of the embattled banks under the management of the Central Bank of Nigeria (CBN) is likely to take up to three years.
Recent revelations of further abuses by the turn-around managers of the banks and discovery of hidden pockets of toxic assets are seen as factors that may prolong the recovery period well beyond the September 2010 projection of the CBN.
Financial experts at the Lagos Business School Breakfast Session where Bismarck Rewane, chief executive of Financial Derivatives Company Limited, presented a report on the bailed out banks said their prospects for recovery is significantly less glittering than the optimism of the apex bank.
Regarding the banks as going through a transitional stage through CBN’s injection of funds and tier two bond issues, the experts, in the March edition of Monthly Economic News and Views, at the session posited that “it is usually a 24 to 36 month painful process with some lumps of non-performing loans to be swallowed.”
The report was presented by Rewane.
The revelations are at variance with the position of CBN that all issues related to the troubled banks may be resolved by September. Mohammed Abdullahi, spokesperson for the apex bank, was quoted as saying that the bank is making progress on the final resolution of non-performing loans and recapitalization issues of the banks in the second quarter, while efforts will be made to secure the approvals of the shareholders and regulators in the third quarter.
“Our (CBN) estimation is that by September 30, 2010, the CBN would have restored the issue with all banks”, Abdullahi said.
The 10 banks, under the watchful eyes of CBN are Afribank, Finbank, Intercontinental Bank, Oceanic Bank, Union Bank, Bank PHB, Spring Bank,, Equitorial Trust Bank and Wema Bank.
The report also quoted Merrill Lynch apocalyptic picture of N9 trillion toxic assets in total with N1.5 trillion taken care of, while also projecting further consolidation for 2010/11 period, adding “that Nigerian banks were slow to recognize and deal with anticipated asset quality problems.”
But the turn-around managers have been battling opposition both from within and outside their institutions, with some opponents accusing them of non performance and in most cases engaging in extravagant expenditure. But, the appointed chief executives have been trying to convince the public that they are capable of returning sanity to the embattled financial institutions.
The experts, in the report, identified some short term challenges to include the risk of policy failure in handling the crisis, particularly, in view of the current political crisis. Besides, both the apex bank and the turn-around managers are saddled with the medium term challenge of building foreign investors’ confidence.
“Further news of abuse of some of the interim managers has thrown more flies into the ointment. Political risk presents a clear and present danger to CBN autonomy and could derail the entire process,” the report said.
The report further observed that lending rates will remain high due to banks’ reluctance to lend to the real sector, adding that “inter-bank market will remain relatively liquid, rates is likely to remain low. Increase in banks’ reluctance to lend outside the inter-bank market will keep the market liquid, demand for Federal Government bonds continues to soar as there are no outlets.”
Giving the outlook of the economy, the experts said that higher oil prices will boost accumulation of external reserves, which will be supported by increased sale of forex by oil majors.