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MARCH 5, 2007 VOL. 20. NO 21 |
Mega Profits and Poverty
By Ganiyu Obaaro One year after a recapitalisation binge which saw the emergence of 25 brand new banks out of the 89 that existed, Nigerian banks have every cause to smile. Their celebration results from the unprecedented huge profits they made from the recapitalisation exercise which expired on December 31, 2005. The 25 banks, including Zenith Bank Plc, Wema and Access which overcame the N25billion recapitalisation hurdle, have since been in joyful mood, following the mega bucks and impressive infrastructures, including branch networks and Information and Communication Technology, ICT, they have put in place from the rigours of mergers/acquisition and Initial Public Offering they went through. Huge baskets of funds have indeed, been their lot, inspite of the difficult economic environment they had to contend with across the country. Banks whose financial positions have leap-frogged from their previous precarious pulses included Zenith, Equatorial Trust Bank Plc, Wema, Oceanic and Afribank. Figures emanating from their financial statements have been encouraging. From a paltry minimum capital based of two billion naira prior to 2004, these banks now post billions of naira as a demonstration of their financial leverage and cutting-edge strategies. Similarly, their branch networks and asset base including building infrastructure, have witnessed quantum increases to the delight of their investors. The road to the current development in the competitive Nigerian banking market began on July 16, 2004, when the Central Bank of Nigeria (CBN) Governor, Charles Soludo, a Professor of Economics, reeled out a 13-point agenda on banking reforms. Soludo, in doing so, reasoned that Nigerian banks as it were, were not competitive in operation, enough to meet the challenges of modern terms. Consequently, he ordered the 89 banks to recapitalise to the tune of N25 billion each, or be prepared to face liquidation. Soludo said they could achieve this target through mergers and/or acquisition. He also charged them, among other things, to be I.T.- enabled, transparent and prompt in the declaration of their financial statements. Sadly, these were no familiar issues to the banks as before then, they simply ignored these critical requirements, which, however, are international norms. The Bankers’ Committee, an umbrella body for the banks initially opposed the idea. But Soludo’s uncompromising stance compelled the 89 banks to brace up to the challenges, even inspite the initial hiccups, such that today, the banks are reaping bountifully, while the economy in general still suffers from some form of haemorrhage. As they face the on-going consolidation with seriousness, notable banks have been turning out mega bucks, even as some have surpassed the N100billion minimum capital required by the apex bank of each bank to manage the nation’s foreign reserves. These strategies, the CBN said, were designed to make Nigerian banks rank with those of South Africa, Germany, France and other developed countries. Although the totality of the over three trillion naira funds in the vaults of the banks is a far cry from those of ABSA of South Africa and elsewhere in the developed world, which post several trillion of dollars, for the Nigerian banks, it certainly can never be the same again. For instance, in its half year financial report ended 31st December, 2006, Zenith Bank Plc, headed by Jim Ovia, posted a profit-before-tax of N10.4 billion, representing 62 per cent increase over the N6.4 billion it garnered in the same period in 2005. Profit-After-Tax rose by 62 per cent, from N5.14 billion in 2005 to N8.35 billion in the period under review. Similarly gross earnings rose by 54 per cent, to N40.49 billion in 2006, even as the bank has deployed Automated Teller Machines (ATMs) across its branches to enhance its operations. For Oceanic Bank Plc, it has also been a season of smiles. The Cecilia Ibru-managed bank has been impressive in its performance than a year after recapitalisation. Described as one of the fastest growing banks in the country, ranking fifth, its first quarter result for the period ended December 31, 2006, shows that gross earnings stood at N12.53 billion, representing 45 per cent over the 2005 result. Profit-before-tax rose to N4.11 billion, showing 46 per cent increase, while post tax profit was N3.42 billion as against the 2005 result of 83.82 percent of gross earnings; profit after tax which rose by 62.7 per cent to close the year at N9.6billion. Similarly, customers’ deposits rose to N310.33 billion, representing 86.3 per cent, as against N167.5 billion posted in the year 2005. Among the banks whose results are impressive is First Bank of Nigeria Plc, headed by Moyo Jacob Ajekigbe, group managing director/chief executive officer. The bank posted impressive results, emerging as the banker of the year for 2005, its Profit-after-tax rose to N17.38 billion in 2006 as against N13.23 billion recorded in 2005 financial year. Afribank Nigeria Plc and Fidelity banks also made great impacts. For the Reginald Ihejiahi-led management, Fidelity Bank declared a profit-before-tax of N3.5 billion as at June 2006, as opposed to N1.56 billion it declared over the same period in 2005. Gross earnings rose by 88 per cent, from N6.16 billion to N11.57 billion during the period under review. Apart from Intercontinental Bank Plc whose shareholders’ fund as at February 28, 2006 was N54billion, Union Bank of Nigeria Plc’s results were equally heart-warming for its investors. Under the leadership of Barth Ebong, group managing director/chief executive officer, Union Bank’s half year result ended September 30, 2006 showed that it recorded 41.2 per cent increase in profit-before-tax, rising from N6.5 billion in 2005 to N9.2 billion in 2006. Profit after tax also rose to N7.2 billion in 2006 from N5.2 billion in 2005. The performance also showed that gross earnings rose by 43 per cent from about N21 billion in 2005 to about N30 billion in 2006. The United Bank for Africa, Access, and Unity Banks also declared mega profits. While assuring shareholders that they will not rest on their oars. UBA, managed By Tony Elumelu following the merger of the old UBA and Standard Trust Bank Plc, has grossed over 60 billion naira in shareholders’ funds; just like First Bank, Union, Access and Intercontinental Bank Plc. But inspite of these huge profits at the disposal of these mega banks, however, observers say, the Nigerian economy still remains in the woods. They reasoned that the industrial sector still continues to wobble as unemployment, poverty and diseases still steer Nigerians in the faces, while agriculture and Small and Medium Enterprises (SME’s) remain in limbo. Various groups including key members of the organised private sector such as Chambers of Commerce and Industry and the Manufacturers Association of Nigeria say the impact of these mega billions are yet to be felt in these critical sectors of the economy. For example, the industrial sector, which is described as the engine of growth because of its linkages in the economy, especially in terms of employment generation and products manufacturing, remains on its knees. They contend instead, that the Nigerian society is under banked, while denying over 75 per cent Nigerians who live in the rural areas access to banking facilities, including loans. For the industries particularly the SME’s, it has been a story of woes. Apart from lacking access to loans and other banking facilities, the sector is daily confronted by epileptic power supply and or lack of it, multiple taxation by the various governments including states and local councils, as well as over-stocked warehouses due to low purchasing power of the average Nigerian. Due to lack of adequate capital, the operators say they are often confronted with the hard choice of laying off workers. Such is the case with the industrial centers across Nigeria such as Nnewi in Anambra State, Apapa, Ikeja and Ilupeju in Lagos; Kano, Kaduna and Aba in Abia State. In Kano State, over 300 industries were reported to have collapsed as a result of these problems, leaving the landscape with unemployed but employable people, while abject poverty continues to steer them in the face. In Kaduna State, textile firms such as the Kaduna Textiles Limited, Arewa Textiles Limited, had long lost their glory as their machines have stopped rolling. The Source learnt that lack of capital to put their wheels running was their bane, even though all the banks are located in the city. Operators in the industrial sector say the road remains rough. Peter Popoola, chief executive officer of Lisbon Industries, said his inability to raise enough capital has hindered a planned expansion of his firm Popoola, whose firm produces fruit juice at the Technology Incubation Centre, Agege, Lagos lamented that apart from high interest rates which the banks charge, his inability to access the 10 per cent equity fund which the banks are supposed to set aside from their annual profit before tax, had been problematic. For the employer of labour, he would have employed more youths in addition to the about six workers in his employ if these “serious constraints are not there.” Inspite of assurances by Fidelis Tapgun, commerce and industry minister, that government was “talking to the banks to help the industrial sector,” Sam Ohuabunwa, chairman of the Nigeria Economic Summit Group, was not impressed. He lamented at a recent function in Lagos, that “the benefits of consolidation in the banks were yet to impact on the SME’s.” According to him, “one could count the number of SME’s that have benefited in terms of better funding.” Yet, the Nigerian economy is one in which banks would need to partner with the industries through equity participation. A senior official of one of the banks who preferred anonymity told The Source that the operators in the industrial sector are to blame. According to the official, “as long as businesses remain, only open to the families of those who set them up, banks may not be very willing to help. The official, however, advised owners of businesses to open up and allow other interested investors to partake in their businesses. For the official, “bank money is not free fund.” But Livinus Okwara was to dismiss the bank’s claim, saying if loans are given without stringent collateral, the economy will be rejuvenated. According to the Lagos-based businessman, the rising unemployment and hopelessness in the land will be drastically reduced when more people get work and earn a living. He regretted that there is no synergy between the government and the private sector, so as to reduce tension arising from hopelessness. “The government lacked good policy initiative to partner effectively with the private sector”, he said.” Modupe Adelaja, director-general of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), says her institution would seek to reduce unemployment and poverty by empowering Nigerians. This, however, remains to be seen. According to the CBN, as at July 2006, the 25 banks invested N16.63billion in SME’s under the Small and Medium Enterprises Equity Investment Scheme. But John Odeyemi said this is like a drop in the ocean, given that over N40 billion that has been realised through the scheme. And, whereas he said the industries are still groaning, Odeyemi also lamented that there was much to be done. According to the past president of Lagos Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), banks are still stiffing the industries. He said that rather banks find joy in funding commerce and imports where they derive quick returns while there is virtual stagnation in the economy. Agriculture does not fair better. The Source gathered that as an employer of labour engaging over 75 per cent of Nigerians, access to loan in this critical sector is evidently lacking. Millions of peasant farmers are said to lack access to facilities offered by the banks. Regrettably, some of these loans, both local and international (World Bank and African Development Bank), usually find their way into the hands of politicians who disguise as big-time farmers but who do not utilise them for agricultural purposes. Union Bank towered above other banks in terms of agricultural financing as investigations revealed that in 2005, the bank granted a total of 30, 847 loans, valued at N2.46billion, to farmers in 35 out of 36 states of the federation, including the Federal Capital Territory. Under its Agricultural credit Guarantee Scheme, the bank also granted over four billion naira under the scheme in the current financial year, to demonstrate its commitment to the critical sector. Analysts believe that though Union Bank’s record is impressive, it still remains a minute fraction of the billions of naira which it has in its vaults, and as such, it could have done more. The problem of lack of linkages in the Nigerian economy obviously created the grinding abject poverty in the land. Which is probably why the World Bank’s Poverty Development Index ranked Nigeria as the 47 poorest nation in the world, with an average worker earning less than $1 per day. Also, the lack of matrix between the banks and the critical sectors of the economy, observers say, has created an army of unemployed youths, armed robbery cases and homelessness. Even organised labour lent credence to this stand-point when Jarvis Eromosele, General Secretary of Association of Banks, Insurance and other Financial Institutions, ASSBIFI, told The Source that the banks have sent more workers to the saturated unemployment market than they have absorbed. He said well over 10,000 bank workers including over 3,000 sacked by UBA Plc, have lost their jobs to recapitalisation and consolidation. Eromosele decried the mode of the sack of his members, saying it negates the industry’s “collecting agreement.” For him, therefore, the banks are not helping the economy but themselves, given the huge funds they have. Whereas, the visions of the new Millennium Development Goals, MDGs, and the New Partnership for African Development, NEPAD, seek to better the lot of the people, the scenario in Nigeria can only worsen them. This, industry watchers insist, calls for a more pragmatic approach. |
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