Banks bounce back.

Author:Thompson, Jato

After the recent series of crises, Nigerian banks are getting a clean bill of health. The banking sector is now expected to be one of the growth sectors in the economy during the next financial year.

Recent ratings surveys by finance and consultancy firms such as Pharez, KPMG, Thomson BankWatch and Anderson Consulting all indicate that there has been unprecedented growth in assets, earnings, profits and capitalisation. These growth factors are viewed by the consultants as having produced healthy competition and helped move the banks away from dubious deals and other non-core banking activities.

According to them, the industry will get a further boost as foreign banks such as Barclays and Standard Bank of London begin full operations in Nigeria.

The sector is also looking to new changes in government policies as a boost to their business. The proposed privatisation schedule of government parastatals, increased trade financing, energy project development, basic investment financing and venture capital demands are all set to increase business and profitability.

The relative stability of the sector is buying it valuable time to get organised and become pro-active. Although there are already some 89 banks operating in Nigeria, some observers argue that the nation's economy has the capacity to admit more. The reality is that as computerisation and enhanced information technology systems make an impact in developing the banking sector's services, competition will hot up. There is also little desire to have a repeat performance of the early 90s which saw the eventual liquidation of 26 banks.

But even without more banks opening there could be problems in the future. The executive chairman of First City Merchant Bank (FCMB), Otumba Michael Balogun, warns that the N500m capital adequacy requirement (CAR) for banks may soon become inadequate and some institutions were already doubling their CAR to prepare for any future hiccups. Problems can come from non-performing loans which have to be coveted by the banks own cash (its CAR) and as the economy grows, so loans are expected to increase. Problems could also arise from forex complications, a possibly heavier drain on the bank's CAR as the naira continues to devalue.

But the sector is generally optimistic and expects foreign investors to renew their interest in Nigeria. Bankers say the liberalisation policy, coupled with the transparency of the present administration is helping confidence return to the...

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