Controversy over The Africa Report Rating of Nigerian Banks: HOW BANKS CREATED THE MONSTER

The damning report by France-based The Africa Report that only four Nigerian banks are strong is creating ripples in the industry and banks are struggling to refute the story, fearing customers’ reaction. But are Nigerians actually listening? Asuquo Ekeng writes.

At this moment it seems like a bomb has been let off on Nigerian banks, following the recent damning report on some banks by The Africa Report, which was extensively quoted in The Punch newspaper of Tuesday, 30 June, 2009. Passing such a verdict that suggests failure on any Nigerian bank could be equated to making an error of judgement, especially in the face of the landmark consolidation of 2004, which seemingly injected so much vigour and splendour on the industry.

Since then we’ve had a flood of foreign media reports and adverts praising the banks to high heavens. They are either celebrating an award, a global partnership or some quick-fix investments in Nigeria. Yet, amidst the buzz, the loathsome aroma of crisis, or what the experts have termed stress, precariously bubbled under the surface. While the local media lingered over the matter, apparently fearing a backlash, a French business magazine, The Africa Report, pulled the trigger. Only four Nigerian banks are strong, the report said. And surprisingly only one of the four belongs in the top five according to previous ratings. Expectedly, the classification has created much panic among Nigerian banks, especially those classified as “shaken” and “stressed,” as reports indicate that bank customers are most probable to make sudden decisions based on the strength or weakness of their banks.

But as much as the banks try to discredit the ratings and the criteria used by the magazine, they seem not to be achieving much, given the fact that the magazine is a globally respected and credible business intelligence source. While it is still too early to compute the real cost of this media negatives on the banks, one question that must be answered is: How did the banks get into this mess?

Rush for Foreign Awards and Recognitions

One would wonder why the report of a journal which, hitherto, has not been popular in Nigeria should be creating so much uproar. But it is Nigerian banks that created the monster. Before now, these banks have engaged in a desperate rush for awards and recognitions from foreign media organisations, fighting to outdo one another. The saddening thing about this craze is that some of these organisations are relatively unknown even in their operational bases, and, invariably, do not posses the clout required of award and recognition-bestowing institutions. Yet many Nigerian banks have relied on them for conferring of status.

While some banks have argued and disputed over the source of The Africa Report’s submissions, stating that neither the banks nor the CBN were contacted for inputs, the report which was compiled in March 2009 came on the heel of an equally frightening remark by the CBN governor Sanusi Lamido, who confirmed concerns about stress in the industry and hinted about a possible merger to trim the banks down to 15.

Perhaps, the report may not have generated as much ripples if the banks themselves had not given so much credibility to the foreign press by their rush for awards and recognitions. In a desperate self-seeking race to enrich their award cabinets and tell off the competition, Nigerian banks have jumped at different awards from all kinds of foreign organizations, including those whose reputation has an asterisk. The craze for awards and recognitions by the banks, and the frenzy with which they are celebrated, even fuels speculations that they are money induced. Sometimes up to three or four banks are named bank of the year from different foreign organizations, giving conflicting impression about the state of the banks. Added to that are the several rating organizations across the globe. Curiously, some of the awards never existed until after the consolidation, giving an impression they were only conceived to take advantage of the buzz in the Nigerian banking industry, yet when they come they are celebrated loudly on page two and three of newspapers. “The competition, or what I prefer to call the war of the banks, is so fierce that it is almost turning into a comedy of errors,” Dele Momodu, publisher of Ovation magazine and Thisday columnist, said. “Every bank now enjoys being described as Nigeria’s biggest, or Nigeria’s largest, or Nigeria’s most customer friendly, or Nigeria’s most capitalized, or Nigeria’s most security-conscious bank, or whatever adjectives remain in the lexicon. Smart companies in Nigeria and abroad are hastily setting up all manner of award ceremonies, and we are told the awards mostly go to the highest bidders or in lieu of patronage,” he added. But while they have celebrated these awards from foreign media, they have almost violently rejected The Africa Report’s verdict of stress, questioning the criteria used in the rating and lampooning it for not contacting them.

Lack of Transparency

Over the last few years there have been calls on the banks to come up with more information on their transactions. That clamour has only yielded little result. Given the level of banks’ exposure to the just recovering stock market, where they lost trillions, and to other sectors hit by the global economic meltdown, they have felt very reluctant to declare all their assets and liabilities. Analysts have reasoned that lack of transparency and non-disclosure of exposures to margin loans have subjected the Nigerian banking system to conflicting ratings by some financial rating institutions in recent times. This has left depositors and investors at a loss about the state of their investments in the banks. For example, till date, the true worth of bank exposure to the Nigerian Stock Exchange before the crash is still a subject of speculation. The CBN have put the level of exposure to between N800million and N1.2billion as at the end of 2008, but some insists that it could be more, given that the Capital Market is believed to have lost over 65% of its market value or an estimated ?8 trillion ($54 billion) since March 2008. According to The Africa Report, a Paris-based publication of Groupe Jeune Afrique, reputed as France’s third largest press export, an estimated N8trn ($54bn) has been wiped off bank stocks, which represents two-thirds of total market capitalization. Two of the banks described in the report have shown more worrisome signs of stress than the others. Wema Bank has not presented audited accounts since 2007 and Unity Bank has not even released its 2007 accounts.

Though Most Nigerian banks are public liability entities and hold public funds in trust, they have operated like family businesses and keep information from the public. Even shareholders are not privy to certain information on the transactions of the bank and this has expectedly given room for rumour. Some of the depositors that spoke with M2 argued that if members of the public could conveniently confirm the state of their investment in banks without been lied to, this report could not have meant much. “If our banks could be honest with their regulatory declarations, there wouldn’t be so much room for speculation in the first place. Who are we deceiving? The report, though without any known basis, voices out the some of the fears we’ve had about some of our banks. Maybe this would make someone sit up and do the right thing,” Ayoka a Lagos based depositor said.

Poor Coporate Governance

Ayoka’s comment sure echoes the thoughts of most stakeholders. Though efforts were made by former CBN governor Charles Soludo to enforce strict corporate governance, the measures were far from adequate. It is believed that Soludo’s over familiarity with the CEOs undermined his ability to caution on certain excesses. Like their American counterparts, the last couple of years have seen bank executives abuse their privileges and put depositors and shareholders funds at risk. Analysts have partly blamed the current troubles facing the banks on the recklessness of the bank chiefs. Lack of transparency, abuse of insider loan, unnecessary expenditure, round tripping and other unwholesome practices have greatly stressed depositors and waned public confidence.

Lack of Full Disclosure

At the end of the year, according to a CBN policy, all the 24 banks are expected to publish their balance sheet, stating clearly all asset and liabilities. Though the move has been applauded, some experts are taking it with a pinch of salt giving the penchant of banks to be smart. But Fitch Rating, an international rating company, insists that full disclosure is necessary to boost public confidence in the sector. The organization noted that the present disclosure requirements of Nigerian accounting standards lag behind other emerging markets which make it difficult for investors to assess the overall level of risks related to local Nigerian banks, as banks have sought to access the international capital markets. “The financial markets tend to reward entities that disclose more information than others,” says Anthony Walker, a Senior Director in Fitch’s Financial Institutions Group. “Investors would like to see Nigerian banks improve the level of disclosure in their annual reports by presenting supplementary information over and above the minimum accounting standard requirements,” he said.

Customer Response

What is the response of the average Nigerian banker in the face of this recent bad press for Nigerian banks? Customers’ reaction will vary, depending on the level of education and exposure. While some more informed customers are raising questions of the indices for The Africa Report’s ratings, is there any likelihood that the Alaba trader will let his millions of Naira lie in some of these banks that have been classified as shaken or stressed?

“This is not the time to argue about indices or figures,” Bobboyi Lawal Saidu, a troubled customer, said. “The truth is that most Nigerian banks are hollow, superb buildings, cars, well dressed staff, but no ethics, dubious processes, and above all, looking for government money and stolen funds from politicians as deposit. The truth is that it is better to act now and safeguard your money. If the report turns out to be a hoax, fine. If not, you are home, clean and dry,” he added.

Saidu’s sentiment was better expressed by Stanley Nta, a journalist, who still regrets the carelessness that cost him his deposit in the now resurrected Savannah bank. “When I heard the rumour that Savannah bank was going to fold up I didn’t take it serious and before I knew it, my deposit was gone,” he said, still feeling a dint of regret.

Sanusi’s silence on the issue has not helped matters. Rather, it has enhanced the panic. On another hand, the corporate affairs managers of these banks who have issued statements to clear the mess do not cut across as very believable, giving customers cause to act in fear. From all indications, this may just be the first scene in a soap opera that is likely to have many captivating parts.