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Concerns mount as banks face liquidity challenges

By BusinessNews Staff on November 20, 2013

More banks have continued to look for alternative sources of earning following the directive by the Central Bank of Nigeria that increased Cash Reserve Ratio to 50 per cent.

The CBN, in July, raised the CRR for public sector deposit from 12 per cent to 50 per cent in a bid to reduce the amount banks have for lending.

It was learnt that the hike in the monetary policy instrument is already putting pressure on bank earnings and liquidity in the banking system.

Information obtained from the CBN showed that banks borrowed a daily average of N123.9bn from the CBN in August up from N34.5bn in the prior month, representing an increase of 259 per cent.

Although the banks stayed resilient despite the liquidity issues, the nine-month 2013 results of the banks showed that interest income in most of the banks remained steady while revenues and profitability were affected by the directive.

For instance, the nine-month 2013 result of United Bank for Africa Plc showed that profit before tax rose marginally from N42bn to N43bn.

Also, First City Monument Bank Plc recorded a N2bn increase in profit before tax, from N12bn to N14bn.

It was learnt that a number of banks had been advising oil and gas deals in the country, with several asset sales by oil majors to local buyers in the works in order to create alternative source of earnings.

An investigation showed that some banks were also lining up to finance power projects following the power assets privatisation.

UBA has spent $700m in financing power assets this year and plans to put $2bn into power projects in the next three years.

Fidelity Bank, Access Bank and Guaranty Trust Bank have raised a total of $1bn in Eurobonds for the power sector and oil and gas lending.

First Bank of Nigeria last week announced plans to diversify earnings with the acquisition of ICB’s West African banking assets, with retail customers on the radar.

An analyst at Ecobank, Mr. George Bodo, said the directive by the CBN would continue to have a negative impact on banks’ ability to create earning assets, adding that he expected the fourth quarter bank earnings to decline by 10 per cent.

Bodo noted that the next phase would be consumer lending, saying, “Nigerian banks will have to start consumer lending. Their current lending model is not sustainable at all.”

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