Banks may experience consistent rise in cost of borrowing

There are indications that the banking sector may soon experience increased cost of borrowing as liquidity continues to diminish in the sector.

The Chief Financial Officer, First Bank of Nigeria Plc, Mr. Bayo Adelabu, disclosed in an interview with our correspondent in Lagos on Monday that liquidity was fast disappearing among banks.

Adelabu said, “Liquidity is fast disappearing and reducing generally, and there is consistent rise in cost of funds. In order for banks to shift these cost away from customers, banks have decided to chase more deposits.”

He added that the high provisioning for bad loans as directed by the National Accounting Standards Board impacted on all the banks in the country.

He, however, said that First Bank’s strength had always been from its cheap cost of funds, noting that cost of fund, according to the just released result of the bank, declined from 6.1 per cent in 2009 to 3.4 per cent in 2010.

The CFO said, “With this cost of fund, we can actually start lending. If you have a low cost of fund, you will actually lend more than your peers.”

Adelabu said that the bank still posted profit despite the odds in the economy.

He said, “Our case is very good because we posted a wonderful result despite economic challenges. Profit after tax stood at N33.4bn for the year ended December 31, 2010, as against N4.9bn recorded in the nine months to December 2009. Pre-tax profit also rose to N43.2bn as against N13.3bn recorded in the nine months to December 2009.

“We recorded net loans and advances of N1.15tn, an increase of 5.5 per cent compared to N1.09tn as at December 31, 2009, while shareholders’ funds stood at N340.6bn, representing an increase of 9.4 per cent from N311.3bn as at December 31 2009. Gross earnings stood at N230.6bn for the 12 months ended December 31, 2010, from N193.9bn in the nine months to December 2009, while total assets and contingents were N3.3tn, indicating an increase of 5.8 per cent, from N3.1tn in December 31, 2009.”

He added, “We have proactively taken the one per cent general provision charge (amounting to N11.4bn) on our performing loan portfolio in spite of the waiver on the general loan loss provision for banks granted by the NASB for the year ended December 31, 2010 – underscoring our return to a strong trajectory of profitability.

Source : Punch