The Paradox of Bank Ratings
Shortly after the 2004 consolidation exercise, there was an unusual rush by Nigerian banks for awards and other forms of international recognition. No bank wanted to be outdone in the mad rush. Then the rating agencies got involved. Every bank was adjudged to be in great condition. But the ongoing shake-up in the industry has proved that the whole exercise was not a true reflection of reality. Even with recent developments in the banking industry, the rating agencies are busy turning out what appear to be curious reports. Joseph Ekeng wonders whether the recent bank ratings can be relied on.
Most Nigerians remember The African Report (TAR) quite well for its controversial mid-year ranking of Nigerian banks. The report, which came at the take off of Sanusi Lamido’s tenure as governor of Central Bank of Nigeria (CBN), rated only four Nigerian banks as strong, while nine were said to be satisfactory. The TAR rated seven banks as shaken and four stressed.
The rating came at a time rumour of crisis in the sector was rife, yet no bank wanted to admit having any problem. The banks violently rejected the report, protested to the French publication that it was trying to destabilize Nigerian banking sector and they also blacklisted Punch newspapers for reproducing the article.
Yet the effect of the publication did not go away as the banking public remained apprehensive. Now, a couple of months after the brouhaha, it is clear their findings were not really off the mark, though many adjudge it far from accurate. Again, few weeks back, the TAR hit the public with another ranking. This time, capturing the strengths of Africa’s strongest banks, unlike the evaluation done before the reforms; Nigerian banks are missing in the top 10 banks in Africa.
At no. 12, Zenith Bank made the list as the highest ranked Nigerian bank! Zenith Bank, according to the report has a total asset base of $15bn, net earnings of $1.3bn, loans profile of $3.8bn and total deposits of $10bn.
Closely following Zenith on that list is First Bank of Nigeria (FBN) on no. 13. Intercontinental Bank, United Bank for Africa (UBA), Union Bank of Nigeria (UBN), Oceanic Bank and Bank PHB occupy the 15th, 16th, 20th, 21st and 24th positions respectively. Other Nigerian banks in the new ranking are: Diamond Bank (30th), Guaranty Trust Bank (32nd), Access Bank (36th), Skye Bank (38th), Fidelity Bank (53rd), Ecobank (60th), Afribank (61st), StanbicIBTC Nigeria (63rd), First City Monument Bank (71st), Sterling Bank (84th), and City Bank Nigeria (108th).
But how reliable are these rankings given the revelations from the Nigerian banking sector reforms which made a complete mess of previous rating? Just before the CBN reforms which declared as much as 10 banks out of the 24 unfit and sacked directors in eight of the banks, foreign and local agencies gave pass marks to the banks. Some of the sanctioned banks were even praised as the biggest banks. For instance, Forbes named Intercontinental Bank as one of the 2000 biggest companies in the world. The bank was one of the only three from Nigeria. The others were FBN and UBA. Explaining the methodology adopted in arriving at the final compilation of the 2000 biggest companies, which was published April 2009, Forbes said that companies must have a publicly traded stock in order to qualify for the Global 2000. The Global 2000 companies have the top composite scores based on sales, profit, assets and market value.
The report went further to single out Intercontinental bank for special praise, saying that it incredibly returned a higher sales figure than the other two Nigerian banks on the list with its $1.48 billion position and a profit position of $0.29 billion with assets calculated at $11.90 billion and market value adding up to $0.88 billion.
In another rating by the highly respected Banker magazine, a subsidiary of Financial Times of London, in 2009 Intercontinental Bank, FBN, UBN, Zenith Bank and UBA were listed as one of the world’s top 500 banking brands. This rating also described Intercontinental Bank as the second fastest growing bank in the world.
Other awards include the Pearl Award for Sectoral Leadership in Banking and the best performing bank in the Nigerian Stock Market as at 2006. Also in the Intercontinental Bank resume is a Fitch Rating of B+. According to Fitch, Intercontinental Bank is a “low risk financial institution”. This was in October 2008.
The African Banker Magazine further named Intercontinental The African Bank of the Year 2008 and, as recently as October 2008, it became the Financial Brand of the Year 2008, according to the World Bank/IMF/ Renaissance Group awards. Buoyed by this, the managers of the bank boasted about becoming the number one bank in Nigeria and among the top 100 in the world by the year 2010.
Another bank that was said to be in a grave situation by the CBN and also had a plethora of impressive ratings prior to the reforms is Oceanic bank.
From 2006, 2007 and 2008 Oceanic Bank was named the Bank of the Year in Nigeria by the Banker Magazine, which has been in the business of monitoring global financial intelligence since 1926. Also In 2008, EMEA Finance, a UK based financial intelligence magazine, also named Oceanic the best bank in Nigeria. Other achievements advertised by Oceanic Bank include being the 5th bank in Africa and 310th in the world in terms of Tier 1 Capital. Oceanic is also a recipient of CBN awards, and of an AA rating by both Agusto and Co and Global Credit Rating (South Africa).
Similarly, UBN paraded a Fitch Ratings classification of A+ and F1 with the remark that this was for the bank’s “strongest capacity for timely payment of financial commitments.” The same Banker Magazine that seemed to feature in nearly every Nigerian bank’s award list gave UBN an international rating of 502. From all the revelations that came out of the reforms, it is clear that the awards were at best a mirage. The banks didn’t really deserve them.
The awards may either have been bought or the judges were misled. “Some of these award-giving bodies have approached us to bring some money for an award but we rejected, because we believe in merit,” a top official of Skye Bank, one of the banks declared safe by the CBN, said. He noted that the reforms have vindicated his bank.
“The boys have been separated from the men,” he concluded. But could a reputable organisation like Forbes or Bankers’ magazine compromise the integrity of it awards? M2 investigation shows that The African Banker Award is usually made up of distinguished judges around the world. For example, the 2008 edition was administered by a distinguished panel of judges; the nominees included banks from Morocco, Mozambique, Tanzania and South Africa. Yet analysts have doubted if indeed the parameters used by the award panel are reliable.
“Unfortunately, it is a practice we have seen even in the USA where a company is positioned solid today, and tomorrow is found sinking in debts. Many people in the USA and around the globe have lost their retirement savings to deflated companies because these same companies were presented as cash cows,” Phil Umoh, an economist said.
However, Jamiu Hakeem, a public commentator and journalist, pointed out that the misleading annual report offered by the banks may have misled the rating agencies. “My view of the scenario of the five banks is that Nigeria has become a nation of deceit. This culture of deceit became worse with the April 2007 elections in Nigeria when the majority of state governors and National and State Assembly members did not win elections but were declared winners by INEC. Rigging has become endemic in everything we do, as nothing we do is transparent,” Hakeem said.
But other stakeholders have blamed the regulatory bodies for the deceit in the system and are urging them to turn their searchlight inwards. “But even if outsiders were fooled, how about CBN Directors, who also took tables at the special dinners where those awards were presented? Didn’t they know the truth? Or the truth did not matter since those trips came with fat estacodes? Subsequently, they watched as the same awards were used to win public confidence and brand equity,” Reuben Abati, a journalist said in his column.
Comrade Sunday Salako, Acting President of the Association of Senior Staff of Banks, Insurance and Financial Institutions corroborated this view, adding that the CBN should investigate the auditors that were sent to the banks to look into their accounts, who after spending close to six months in the banks gave them a bill of health. “It is imperative that we specifically call the attention of the regulatory body to do a soul searching of the activities of its own house because it has conducted several routine and special examinations of these banks and gave them clean bill in recent years, yet the rot in these banks have been on-going for years,” he said.
Speaking further, he asked: “How come these CBN officials did not discover all these toxic loans or assets? Even the external auditors to these banks also have questions to answer because they also gave these banks clean bill of health.”
Yet Abati added that awards and rating of the banks was a proof that the award-giving institutions and the rating agencies reputed as financial intelligence organizations fell short in their assessments. “Their ability to look beyond the offered statements and ratios, provide correct forecasts and consider unstated qualitative factors is now suspect,” he said. He also noted that one of the initial lessons that should be learnt in all of this is that those awards which formed the substance of pages of advertorials and self-congratulation cocktails may not be so true after all. Depositors and shareholders must now learn that what the banks, stock market managers, external auditors, and all those rating agencies say can no longer be taken too seriously. The golden rule, despite the CBN’s current assurances, is a caveat emptor: let the buyer beware,” he concluded.
