Nigerian banks brace for tough operating year

Nigerian banks brace for tough operating year

By Tasie Theodore

With the economy still caught up in difficult headwinds, Nigerian banks are bracing for a tough operating year, The Difference has learnt.

Feelers from particularly the Deposit Money Banks, DMBs segment of the sector show that the leadership of the institutions are constantly engaged now in strategic forecasting and rejigging activities to ensure that they are not swept off their lanes.

In one such move, Tuesday, Union Bank PLC announced that it was letting go of its UK subsidiary to give it greater elbow room to dive deeper into its home market.

For Zenith Bank and UBA, they also seem to be all braced to move on to the next day even as they have presently served notice to the Nigerian Stock Exchange that their full year performance report for 2019 is ready and has indeed been turned over to the Central Bank of Nigeria, CBN for regulatory vetting.

The Difference checks indicate that given the disposition of the government and the Central Bank to put enormous pressure on the banking system to do more in helping to reflate the nation’s economy, the banks are likely going to have very little head-room to manouvre within the year 2020.

Evidence of this began to come to the fore at the close of last year when the apex bank began to raise the mandatory loan to deposit, LDR ratios. At the same time, the regulators also took effective steps from barring the banks from continued further participation in the then quite lucrative Treasury Bills, TBs market.

This flurry of activities which market watchers say is designed at forcing the banks to channel almost all of the funds they can find into jump-starting the real sector of the economy has continued this year with the hiking of the Cash Reserve Ratio, CRR.

Overall, while many economy watchers say that it is crucial that more funds be deployed into the real sector, they however note that two critical ingredients still need to be addressed. The first is the parlous overall business climate that continues to discourage banks from lending to would-be-borrowers on account of the fact that they do not want to be saddled with huge collection costs for loans and advances that they do not have any solid guarantees would not fail. Second is the fact that the sovereign continues to itself engage in large-scale borrowing that overall places some strain on the system even as it impacts on the medium to long term viability of the national economic arena.

As part of the prognosis that is already being considered by analysts is the fact that as the system pressures continue to build, one or more DMBs may be forced to throw in the towel and accept to be acquired. Should this happen, it would be a recourse to the same solution that the then embattled Diamond Bank took in 2019 when it accepted to be swallowed up by Access Bank.

In all of these, one bright spot that has been noticed is the early January rally of the prices of equities at the Nigerian Stock Exchange, NSE. However, given the long bearish run that the market had endured, the concern is on whether the current surge of glad tidings is going to be sustainable at the end of the day.

But business people being what they are, they will stir up for another day and head out there in every hope that the bulls would surge again.

Emeka Emuwa, MD, Union Bank