Hold to Maturity Disguises Loan Impairment
Hold-to-maturity Accounting Disguises Bank’s Loan Impairment Kingsley Ughe
With the near completion of the latest Central Bank of Nigeria’s banking “stress tests”, the sharp rise in earnings of the banks in the last quarter of 2012, and the growth in Nigerian Stock Exchange All-Share Index, there lingers the temptation to luxuriate and relapse into lethargy yet again, in the idle belief that the Nigerian banking industry is clearly out of the woods and out of crisis. Defining and putting a closure on the economic crisis when conceived in this way will not only amount to a misinterpretation of the core issues involved but a charmed and distant illusion. For what many have been regarding as a single credit crisis is in reality the tale of a twin, closely related but different crises, each with its own pace, duration, and demand on banks to rediscover operational discipline in a harsh economic and regulatory environment.
Burying the Credit Crisis In A Shallow Grave
The banking crisis that almost brought the Nigerian economy to its knees, centred on the aggregate percentage of non-performing loans (NPLs) of banks that stood at an alarming 49.87 percent. Almost all the banks were chronic borrowers at the Expanded Discount Window (EDW) of the CBN, which is a depressing indication that they had little cash on hand.
In actual fact, the last credit crisis started around Year 2000 and became noticeably worrisome by 2003 and 2004. In 2004, the banking industry of Nigeria consisted of 89 banks. The industry was fragmented into relatively small, weakly capitalised banks with most banks having paid up capital of $10 million or less. The best capitalised bank had capital of $240 million, compared to South Africa where the least capitalised bank had capital of $636 million at the time. Recapitalisation of the banks and consolidation of the industry under Prof. Charles Soludo (then CBN Governor) in 2004 notwithstanding, impaired credit portfolio ultimately resulted in
With the near completion of the latest Central Bank of Nigeria’s banking “stress tests”, the sharp rise in earnings of the banks in the last quarter of 2012, and the growth in Nigerian Stock Exchange All-Share Index, there lingers the temptation to luxuriate and relapse into lethargy yet again, in the idle belief that the Nigerian banking industry is clearly out of the woods and out of crisis. Defining and putting a closure on the economic crisis when conceived in this way will not only amount to a misinterpretation of the core issues involved but a charmed and distant illusion. For what many have been regarding as a single credit crisis is in reality the tale of a twin, closely related but different crises, each with its own pace, duration, and demand on banks to rediscover operational discipline in a harsh economic and regulatory environment.
Burying the Credit Crisis In A Shallow Grave
The banking crisis that almost brought the Nigerian economy to its knees, centred on the aggregate percentage of non-performing loans (NPLs) of banks that stood at an alarming 49.87 percent. Almost all the banks were chronic borrowers at the Expanded Discount Window (EDW) of the CBN, which is a depressing indication that they had little cash on hand.
In actual fact, the last credit crisis started around Year 2000 and became noticeably worrisome by 2003 and 2004. In 2004, the banking industry of Nigeria consisted of 89 banks. The industry was fragmented into relatively small, weakly capitalised banks with most banks having paid up capital of $10 million or less. The best capitalised bank had capital of $240 million, compared to South Africa where the least capitalised bank had capital of $636 million at the time. Recapitalisation of the banks and consolidation of the industry under Prof. Charles Soludo (then CBN Governor) in 2004 notwithstanding, impaired credit portfolio ultimately resulted in