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Banks’ status bright despite global headwinds

Banks’ status bright despite global headwinds
With declined earnings in three of the world’s biggest banks- Citigroup, JP Morgan Chase and Wells Fargo – in the third quarter ended September, analysts insist that notwithstanding the global financial interrelationship, the Central Bank of Nigeria (CBN) is standing by the locals, assuring stakeholders of stability and growth following the gradual rise in crude oil prices, writes COLLINS NWEZE.

Nigerian banks are safe and stable, Central Bank of Nigeria (CBN) Director, Banking Supervision, Mrs. Tokunbo Martins, stated at the 329th meeting of the Bankers’ Committee held last week in Lagos.
The apex bank’s assurance came despite unfavourable performances of top global lenders. Earnings by three of the world’s biggest banks- Citigroup, JP Morgan Chase and Wells Fargo – declined during the third quarter, ended September.
Mrs. Martins assured customers that Nigeria’s financial sector is safe and sound, although she admitted that the nation’s banks are facing economic challenges. She said the lenders have strong capital buffers to weather the crisis.
She dismissed reports published by Arqaam Capital, a foreign Investment and Research firm based in UAE insisting that some Nigerian banks are in crisis.  “Yes there was discussion around the stability of the banking sector. But even without the discussion, as Director Banking Supervision of the Central Bank of Nigeria, I can tell you that the report is false,” Mrs Martins said, adding, “ the banks are adequately capitalized, so the report is not true. That does not mean that the banking sector is not feeling the economic headwinds. The headwinds are also in every other jurisdictions. It is not strange. So, non-performing loans at 11.7 per cent is not what we should focus on”.
She assured that Nigerian banks have the capacity to absorb whatever losses that  may arise from the level of non-performing loans in the industry. “But the fact is, do the banks have the capacity to absorb any further loses that would arise? The answer is that they do. They have very strong capital buffers. Another thing that is important is, do the banks have the capacity to generate huge income to absorb those loses? “Yes they do,”she said.
“The underlying assets of the banks are still there and they are good. So, I think you should totally dispel or ignore that type of story. It should be expected to have Non-Performing Loans (NPLs). It is not the reason why any jurisdiction should be demonised. There are other jurisdictions that have NPLs as high as 15 per cent, 35 per cent and so on,” she argued.

Global banks’ earnings decline
Citigroup’s net income fell 9.5 per cent to $3.8 billion, from $4.2 billion the same quarter a year ago. Revenues were also down 3.8 per cent to $17.8 billion during the July-September period, from $18.5 billion the same period last year.
After the release of the results, shares of Citigroup fell 2.4 percent to $48.39 after opening Friday at $48.60 on the US stock market. At JP Morgan Chase, net income fell 7.3 per cent to $6.3 billion. That’s was down from $6.8 billion. Revenues, however, rose 8.5 percent to $25.5 billion after posting $23.5 billion in the third quarter of 2015.
Shares of the bank fell 2.2 percent to $67.30 after they began the day at $68.80. Stirred with illegal banking activities, Wells Fargo’s earnings were highly anticipated. The bank said Friday its net income fell 3.4 percent to $5.6 billion in third quarter of 2016, from $5.8 billion during the same period a year ago. Revenues were up 1.8 percent to $22.3 billion from $21.9 billion. After opening at $45.17, shares of Wells Fargo fell 1.8 percent to $44.33.
“I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners,” new President and CEO Tim Sloan said in a statement. “We know that it will take time and a lot of hard work to earn back our reputation.”
The Consumer Financial Protection Bureau issued a $185 million fine for the illegal banking practices at Wells Fargo that dated to 2011, after employees opened millions of accounts and applied for half a million credit card accounts that were not authorised by consumers, in order to boost sales figures and meet sales targets.
Wells Fargo fired 5,300 of its employees involved in the scandal. Then-CEO John Stumpf agreed last month to forfeit his equity awards valued at $41 million and retired Wednesday from the company.
Wells Fargo & Co’s profit dropped for the fourth straight quarter as it set aside funds for potential legal costs from a bogus account scandal that cost former Chief Executive and Chairman John Stumpf his job. The bank still posted net income that topped analyst estimates, helped in part by lower-than-expected loan-loss provisions.
Revenue rose two per cent to $22.33 bilion in the third quarter ended September 30, while non-interest income fell 0.4 per cent to $10.37bn. Net income applicable to shareholders fell 3.7 per cent to $5.24bn, or $1.03 per share, from $5.44bn, or $1.05 per share, a year earlier.
Stakeholders speak
Former Executive Director, Keystone Bank, Richard Obire, said the decline in earnings of some leading global banks should not affect Nigerian banks because many of those lenders had already cut their dollar credit commitments to Nigeria due to the ongoing forex crisis.
He said: “I do not see a strong link between these banks and the local banks and with the rise in crude oil prices, and continuous backing of the CBN, Nigerian banks will rise above the storm,” he said.
He said that local banks have to shore up their capital positions to continue to surmount whatever economic-induced challenges that confront the banks.
Oils sector analysts, Michael Stephens, said that Brent crude, the international oil price benchmark, initially dropped by 1.3 per cent to a little above $51 a barrel, while US benchmark West Texas Intermediate (WTI) dipped back below $50. The oil price recovery from below $43 per barrel a month ago, he said, represents positive dimensions to oil dependent economies including Nigeria.
But other analysts expect oil to remain in a relatively narrow, if volatile, range until the next OPEC meeting in November and are buying and selling on any significant price movements higher or lower.
Oil’s major producers and traders are betting that market optimism over a supply deal being agreed next month will prove to be misplaced. Investors have pushed the oil price above $50 in the past two weeks, but Reuters says “the people who produce, refine, ship or trade the real stuff on a daily basis” are putting their money on the rally continuing.
Health of the banks
The CBN has also reiterated that no bank in the country is in distress, just as it reassured bank customers that their deposits are safe. The acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said the attention of the central bank was drawn to the malicious rumours and unfounded speculations that some banks might have gone or be going into distress.
He condemned the report as been totally false, saying, “in the strongest terms that these rumours and speculations are untrue and do not reflect the actual health of the individual banks and, indeed, the entire banking industry.”
It, however, pointed out that no bank in the industry is in distress. “Therefore, the CBN would like to request the public to ignore speculations or rumours to the contrary as they could only be the handiwork of mischief makers who do not mean well for the Nigerian banking system and its economy. As the regulator of the industry, the CBN hereby reassures the banking and general public that their deposits remain safe in any Nigerian bank. There is therefore no need for panic withdrawals from any bank.
“Going by both the CBN’s Examination Reports as well as analysis from market watchers, International Credit Rating Agencies, and Development Finance Institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices. We therefore urge the banking public to remain calm and go about their normal businesses without panic. It is important that we do not create problems when none exists,” it added. Therefore, there is need for the central bank to take urgent step to arrest harmful marketing strategy because of its likely negative consequence on the industry.
“The CBN wishes to state, and emphatically so, that it has not liquidated Skye Bank or any other deposit money bank for that matter. The bank also wishes to reiterate its earlier assurance that Skye Bank is not in distress and remains a healthy bank in the Nigerian banking system. Indeed, the health of the Nigerian banking system remains strong, all banks in Nigeria are safe and depositors have no cause to fear over their deposits,” further statement from the apex bank said.
Banks boost non-oil export
CBN Director, Research and Development, Dr. Uwatt Uwatt said banks remain engine block of the economy and is doing everything possible to boost economic recovery.
Speaking at the seminar for finance correspondents in Abakaliki, Ebonyi State, he said there is need to reduce the cost of loan-able funds to non-oil exporters as such would raise production volumes and boost the country’s foreign exchange earnings.
He explained that to check this trend, the apex bank canvassed for improved cheaper credits to everyone on the agric-value chain and also introduced the NIRAL scheme to de-risk agric lending.
He also said the N200 billion Commercial Agricultural Credit Scheme and N220 billion Micro, Small and Medium Enterprises (MSMEs) were also instituted to enable small businesses access cheap funds.
Uwatt who spoke on the theme: ‘Overview of non-oil sector in Nigeria’, said the drop in prices of crude oil in international markets has rekindled the need to revamp the non-oil sector. “Declines in global crude oil prices have triggered major headwinds for the economy. Continued dependence on oil poses a big threat to economic stability. The nation is now trying to retrace its steps from over dependence on oil for major part of its revenues,” he said.
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