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Some finance experts have said that the losses declared by some
of the banks in their December 2009 common year end result was not an
indication of a systemic risk in the industry.

According to the experts, majority of the concerns in the
industry have been captured in the joint audit carried out by Central Bank of
Nigeria Nigerian Deposit Insurance Corporation special audit of the banks last
year.

Akintola Akinbamidele, finance research analyst, Renaissance
Capital, West Africa, said there is no systemic risk in the industry.

“A lot of the concern in the banking sector have been captured and
brought into perspective during the CBN/NDIC audit in September 2009,” he said.
“Our outlook is fundamentally positive as we expect real GDP growth in Nigeria
to accelerate in 2010, and now that the expansionary budget has been approved
and the Asset Management Company bill has been passed while oil is still
trading at an average of 80 dollars to the barrel.”

Mr. Akinbamidele said a survey of the banks that have released
results, revealed that a majority of them were in the green.

“First Bank declared a strong set of numbers in the first
quarter, (1Q) and a lot of the other first quarter results from banks have been
in the green,” he said. “We expect concerted effort towards loan recovery in
2010 by the banks and we expect that Nigerian Bank’s 2010 profit forecasts are
well supported, as we forecast robust loan and deposit growth, a wider net
margin, an improved efficiency, lower loan loss provisions and a lower tax rate
of 20 per cent.”

Except for a few banks, majority of banks have declared losses,
especially in their December 2009 common year end results, raising concerns as
to the actual state of the banks and their ability to scale through after such
provisioning.

However, most of the banks have declared profits in their
released first quarter results, in contrast to the losses declared last year,
attributing this mainly to the success in the recovery level of otherwise
non-performing loans.

Diamond Bank Plc released its 2009 results, revealing a loss
before tax of N12.4 billion for the period, due to large one-off provision,
compared to profit before tax of N17.3 billion for the comparable prior year
period (December 2008).

Access Bank also released its 2009 results with a loss before
tax of N3.5 billion Naira.

Eco Bank Nigeria Plc also released its audited results for the
common year end revealing a loss before tax of N5.944 billion and a loss after
tax of N4.588 billion, following a tax rebate, among others.

Managing the risk of
loan-loss provisioning

Razia Khan, regional head of research, Africa Head of
Macroeconomic Research, Standard Chartered Bank said recent measures in
addressing banks’ loan provisioning have included a review of existing
prudential guidelines, in particular the one per cent general loan loss
provisioning regime which was considered to be too pro-cyclical.

“At the end of last year, in order to lessen the burden of the
crisis on banks, the CBN announced that it would be waiving the 1 per cent
general loan loss provisioning requirement for a year,” she said.

“The regime is now being refined further. According to the
monetary authorities, a strong argument exists for implementing a different
provisioning regime for small and medium enterprises financing, agriculture,
and project finance that counters the pro-cyclicality in existing provisioning
guidelines.”

Ms. Khan also added that reforms are aimed at spreading risk
over a longer period of time, which should encourage more lending to the real
sector, despite the economic cycle.

“A framework for collateral adjustments to be taken into account in the
provisioning regime is also being developed,” she said. “With realisable
collateral, transparently valued at regular intervals, the hope is that a more
sound banking sector that is less subject to the volatility seen in the recent
past -when record loan-loss provisioning wiped out the capital of several
banks- will finally emerge.”