After more than two years of reform, Nigerian banks are now fewer, larger and supporting the economy, foremost rating agency, Standard & Poor’s, has said.
In a report published yesterday, entitled: Strong regulatory action proves its worth for the Nigerian banking system, the rating firm noted: “After more than two years of Central Bank support, Nigeria’s commercial banks are again engaging with the domestic economy. Nigeria now has fewer, but larger, banks, with better corporate governance and regulatory oversight.”
The report, which examined the progress of the country’s overhaul of its banking system, however, said the sector needs a longer regulatory track record before we stop considering corporate governance and regulatory oversight to be among its key risks.
The Central Bank had in 2009 sacked the managements of eight banks – Afribank, FinBank,Intercontinental Bank, Oceanic Bank and Union Bank. Others are Equitorial Trust Bank, Springbank and BankPHB – over the huge non-performing loans of their banks and other alleged financial abuses.
The apex bank injected over N620 billion into them, saying lax governance had left the these banks dangerously undercapitalised.
It responded strongly, removing executive teams from failed banks, fully guaranteeing the interbank market, and setting up the Asset Management Company of Nigeria (AMCON) to purchase a large proportion of non-performing loans from banks. It also set up sizable intervention funds to support credits to the real economy. The banking watchdog is also facilitating a series of mergers between failed banks and their stronger competitors.
S&P, which totally endorsed the banking reform, noted that the industry and its regulation have improved significantly.
“In our view, long-term success for Nigerian banks will chiefly depend on them enhancing their risk management, improving their governance, diversifying their loan portfolios, and securing their funding profiles.”
Commenting on S&P’s endorsement of its reform, spokesman of the CBN Abdulahi Mohammed, said: “We are satisfied with the report, which confirmed the gains of the reforms embarked upon by the CBN. We will continue to sustain our efforts to improve corporate governance and risk management in the industry, while we build on the gains achieved so far.”
Meanwhile, the CBN Governor Lamido Sanusi said the surge in inflation last month was in line with policy makers’ expectations and doesn’t require an interest rate response.
“We front-loaded most of the tightening in anticipation of these policies and thus can afford to hold so long as inflation behaves in line with our forecast,” Sanusi told Bloomberg news in an e-mailed response to questions on Tuesday.
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S&P: Nigerian banks now supportive, bigger