Nigeria Content Online

The major
ingredient that can sustain any progress in the banking sector is the
return of investor confidence, which finance analysts say has now been
shattered.

“We firmly believe
that a sustainable recovery in Nigerian equities will only come with a
return in investor confidence in the banking sector,” Kato Mukuru,
director, head of African Research at Renaissance Capital, an investing
banking firm said.

“This is
particularly important because when you glance at the solvency
yardsticks of healthy banks, one does not get the sense of crisis, but
we have been living a crisis – a crisis of confidence”

“Investor
confidence in this once exemplary industry was shattered by the Central
Bank / NDIC audit led by Governor Sanusi last summer. During this
forensic audit we saw former banking giants, like Intercontinental and
Oceanic fall spectacularly.”

“When I read about
the CBN’s recent revisions to its previously published prudential
guidelines, I finally began to appreciate what had happened in the
Nigerian banking system during the audit process” Mr. Mukuru said in a
report.

“The differences
between the likes of an Oceanic and GTB before the audit were the same
as the differences between a terminally ill patient (with no clear
symptoms) and a healthy one going into a physical examination. When
pushed and prodded, the healthy patient may still walk out of the
examination with a couple of bruises, while the terminally ill patient
may never make it out of the examination centre.

“With the benefit
of hindsight, this is exactly what the Central Bank did to the Nigerian
banking system last year. Actually, the Central Bank even went a step
further by prescribing medication to the banks before the examination.
The purpose of this medication being that, it would help the auditors
identify the problems regardless of how well the patient thought it was
at concealing them.”

The firm says so
far, the Central Bank governor has asked the banks to disclose all data
related to any loans to Transcorp and Virgin Airline, which were two
systematically important non-performing loans; bring all commercial
papers and bankers acceptances on-balance sheet, which stopped the
banks from repackaging bad loans; disclose all data on energy loans to
define the extent of all exposures to oil and gas, particularly
downstream; and cap all government exposures to 10 per cent, which
forced some banks to de-risk rapidly and expanding the discount window,
which was the primary liquidity support for the ailing banks.

Mr. Mukuru however
said he is optimistic that investors have lots of reasons to patronise
the market. “In this regard, we believe that there are still reasons
for investors to make conviction calls on the market”. The Central Bank
also said investor confidence has started creeping into the industry.

On Monday, the
international Finance Corporation announced that it is increasing its
support to major financial institutions in Nigeria.

Mr. Sanusi said in
a Reuters report on Tuesday that there was still interest from
potential investors in all of the banks rescued in a $4 billion bailout
last year.

“I can confirm that there are parties interested in combining with
each and every one of the banks,” Mr Sanusi told a news conference in
the capital Abuja, “but at this point, it is about interest. Whether we
will link up these deals depends on the negotiations. So far things are
looking positive.”