Auditors raise alarm on Nigerian banks - “We doubt their state of health”
Nigerian Tribune 25.02.2009

IF the verdict of a renowned auditing firm on Nigerian banks is true, then many depositors may soon be in trouble. The auditing firm, PriceWaterHouseCoop er (PWC), on Tuesday gave a damning verdict about some Nigerian banks, saying they might not be as healthy as being portrayed by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC).


The auditing firm, known for its uncompromising stand on financial matters, stated in Abuja that many of these banks were not actually healthy.


The renowned audit firm said in a statement on the global financial crisis and implications for Nigeria that some of the banks had already signaled interest in government’s intervention in their operational activities.


“As at the beginning of February 2009, none of the banks has publicly shown any signs of needing intervention. “However, in spite of positive financial statements, some of the banks have called for the intervention or part takeover by the government.


“Various industry commentators have reported that banks are struggling with non-performing facilities in excess of N300 billion to N400 billion,”the firm told the News Agency of Nigeria (NAN).


The PWC discussion paper, obtained from the Ministry of Finance by NAN, said that there had been concerns that the CBN’s assurances that the 23 banks in the country were liquid and operating well might not be entirely accurate.


“Western governments have taken stakes in banks in order to prevent their collapse. Whilst this has not yet happened in Nigeria, there is speculation that large underlying bad debts accumulated by banks could force government to intervene,” the PWC said.


According to PWC, banks in the country had all but stopped granting loans and credit terms had been cut to mere months and that their interest rates were among the highest in the world.


“In order to avoid government intervention in the event that bank balance sheets weakened, a second round of bank consolidation may still occur,” the PWC added.


The audit firm said that Nigeria’s reliance on oil and its falling price in the world market had exposed it to the vagaries of the global financial crisis, adding that “Oil prices recently fell to their lowest point in four years, having peaked at 147 dollars.


“As a result of the reduced prices, OPEC has instigated a reduction in quotas, through which Nigeria’s quota has been reduced by 18 per cent to 1.97 million barrels per day,” the PWC said.


Apart from dependence on oil, the PWC listed other areas of vulnerability to include reduction in global capital outflows, retrenchment of foreign investors towards familiarity and safety and Nigerians’ reliance on foreign investments.


On the capital market, the PWC said that the decreased investment levels caused a 46 per cent fall in the Nigerian All Share Index in 2008, partly driven by foreign divestment and exacerbated by a devaluing naira.


“Over the last year, foreign investors divested more than N1 billion from the Nigerian capital market, driven by the reduced availability of financing and concerns on liquidity.


“The Nigeria capital market lost N2 trillion in one month. Unsustainable capital borrowing and spending in 2007 helped drive Nigerian share prices to record highs.


‘’However, as investors began to see companies as overvalued, 2008 saw a severe cool-down in investing,’’ the PWC said. The audit firm added that the NSE lost N5 trillion market capitalisation in 2008 and in January 2009 alone, it dropped to a further N2 trillion.


“A confidence crisis in the Nigerian economy, coupled with prohibitive business environment, had caused international corporations with Nigerian operations to relocate to more sustainable and friendlier markets,‘’ the PWC said.


The devaluation of the naira over the last quarter, according to PWC, would further limit capital flows into the economy. The PWC said that there was the need for deeper cooperation between the Ministry of Finance and the 21 public institutions that work on the economy.

These institutions, it said, included the CBN, the NDIC, Securities and Exchange Commission (SEC) and the Debt Management Office (DMO), adding that they should work in harmony in handling the effects of the crisis.


“Co-operation between key stakeholders is important. However, existing links are highly bureaucratic, informal or inefficient resulting in poor management of the economy and slow response to the crisis,” the PWC said.


The health of the commercial banks has been under the spotlight since last year, but the CBN and the NDIC had repeatedly given them a clean bill.


A commissioner at SEC, Mr. Charles Udora, heightened the suspicion when he disclosed a fortnight ago that the meltdown in the capital market was partly caused by the banks.


Udora said that the banks sank more than N388 billion loan into the capital market, most of which had not been recovered. Quoting a report by Renaissance Capital, a Nigerian investment company, the PWC said that the country’s stocks were unlikely to recover this year, predicting a further fall in the All Share Index.