Nigerian Banks - Who is Telling the Truth?

It is time the banking and financial regulators come clean about the current state of Nigerian banks. According to the Nigerian media, a report done by audit firm, PricewaterhouseCoopers (PWC), for the Ministry of Finance indicated that some Nigerian banks might not be as healthy as portrayed by the CBN and the NDIC. PWC in a statement on the global financial crisis and implications for Nigeria said some of the banks have already signalled interest for government intervention in their operational activities. It was noted that “in spite of positive financial statements, some of them have called for the intervention of, or part takeover by the government”. Some commentators have reported that banks are struggling with non-performing facilities in excess N300 billion or N400 billion.

In the last few months, since the evolution of the tsunami that swept across the world economy, we have witnessed allegation and counter-allegation among the nation’s finance and economic managers about the state of the Nigerian banks. Just about three months ago, Prof. Soludo, the CBN Governor came out authoritatively to say that the Nigerian banking system is immune from the current global economic crisis because of the banking consolidation policy. While I have so much regard for Prof. Soludo, I did say at that time that he was talking absolute ‘nonsense’! Just to put things in perspective, since Prof. Soludo’s comments, the nation’s foreign has depleted by about $5billion, oil prices has continued to fall, and the naira has been on a steady slide against the dollar.

It is common knowledge that the health of the commercial banks has been under the spot light since last year, but the CBN and the NDIC had repeatedly given them a clean bill. I also recall that a commissioner at Securities &Exchange Commission (SEC), Mr. Charles Udora, heightened the suspicion when he disclosed a few weeks ago that the meltdown in the capital market was partly caused by the banks. Udora said that the banks sank more than N388 billion loan into the capital market, most of which had not been recovered. Also, an international news media, Bloomberg reported that Nigeria’s benchmark stock index, was the world’s worst-performing equity gauge in dollar terms so far this year. The Nigeria Stock Exchange’s All Share Index as at February lost almost 64% from its 2008 level.

So who is telling the truth? Some economic experts might argue that the state of the stock market is not a true reflection of a nation’s economy. A typical example is the US economy. The US economy was reported to have been in recession 18 months ago, however, the stock exchange was recording phenomenal increase in value. While the US stock market is very much diversified, the situation in Nigeria is very different. Majority (approx 60%) of the shares being traded on the Nigeria stock exchange are bank shares.

As a nation, we can either face up to the reality of the global crisis, or bury our head in the sand and pretend it is business as usual. However, in the interest of the Joe Public it is important now than ever before, that there is strong cooperation between the nation’s financial and banking regulatory authorities in dealing with this economic crisis. The average Nigerian is not interested in the current bickering. The govt should understand that conflicting reports about the state of the nation’s banks does not in anyway help investor confidence.