how about 6 months duration.
@ Ofo: I have always been a log termer hence I lost a lot when all the companies were fiddling their results and manipulating their shares. I think the nse is now on the right track and we should concentrate on good dividend yielding stocks for long term. In my view the nse will take another 18 - 24 months to get back to it's peak.
@ NNs: A review of the banks:
"Have banks actually returned to profit?
By Kingsley Ighomwenghian Finance Editor
It is no longer news that every Nigerian bank ? -weak, rescued or strong ? announced gleefully its return to profit at the end of nine months ended September 30, 2010, after a long season of uncertainty and confusion in the industry arising from the bank audit commissioned by the Central Bank of Nigeria (CBN) to whip them back into line after a 40-month season of madness.
That was the time the stock market indices ballooned to all time highs of N12.64 trillion for equities capitalisation and 66,371.20 basis points for the bench mark All-Share-Index of the Nigerian Stock Exchange (NSE), helped significantly by most funds illegally sourced from the banks. This was not however without the connivance of the bank chiefs, going by the revelation of the Securities & Exchange Commission (SEC) that directors of Union Bank gave over N30 billion to Peter Ololo, chief executive of Falcon Securities Limited to manipulate the bank?s shares ahead of the then planned public offering.
Now, the banks have in the past 15 months had to restate their financials from 2008, realising that a lot of the figures pushed into the public space since then were cooked and spiced to reflect more than the reality.
Following the return of forced sanity, the banks, have reported heavy undercapitalisation, after being forced to make huge provisions for loans previously tagged ?performing.?
The managements of the banks, especially the rescued ones, have since engaged in huge recoveries to breathe life into their books, sometimes relegating the core business of deposit mobilisation and credit extension to the background. As a testimony of this effort, a national daily recently stated that Nigerian banks had at the end of September 2010 recovered N540.7 billion of loans previously tagged ?lost.? The recovery led by Intercontinental Bank?s N140 billion represents 35.6 per cent of the aggregate non-performing loans of the rescued banks and 18.8 per cent of total loan book of the industry.
The banks have also reported huge profits before and after tax in the third quarter, despite the fast-dwindling earnings from incomes arising from their daily operations.
Commenting on the situation some weeks ago at a workshop for finance reporters in Ijebu-Ode, Ogun State, Sonnie Ayere, chief executive, Dunn Loren Merrifield, a financial markets operator, blamed the dwindling earnings on the ?drop in interest rates, affecting banks? short term interest income and; slowdown in banking transactions, affecting banks? non-interest income.? Continuing, he noted that the profit reported by the banks so far has been the result of write-backs arising ?from loan recovery and reduced loan-loss provisioning? within the period.
Going by the various results, Nigeria?s banking industry remains dominated by Zenith, First Bank, United Bank for Africa and Guaranty Trust Bank. While First Bank, the biggest in terms of its N177.065 billion earnings income, dropped from the previous third quarter?s N197.988 billion and profit after tax of N32.562 billion, compared with its loss of N7.992 billion. It has had the largest deposit base, going by figures submitted to the Nigeria Stock Exchange (NSE) with N1.55 trillion in its vaults from N1.339 trillion, a year earlier.
Commenting on the First Bank result, analysts at Afrinvest (WA) noted recently that the nation?s indigenous financial institution ?continues to leverage on its strong brand to grow deposits at a remarkable rate while also leveraging its large and strong balance sheet to translate scale into profits. Although, we expect that the bank to focus more on driving its operating expenses further down.?
Zenith was however the most capitalised within the period, having N358.248 billion shareholders? funds, up from N337.793 billion, enough to set up six other international banks going by the CBN?s latest licensing regime. The bank is also the sector?s biggest by market capitalisation (N458.074 billion), ahead of First Bank (N422.585 billion) and GTBank (361.416 billion); but way behind Dangote Cement (N1.912 trillion); and Nigerian Breweries (N584.207 billion) at the end of trading for November on Tuesday. While Zenith reported N139.6 billion earnings driven largely by technology, UBA, reputed as the biggest by branch network (750 across the country), followed with N136.366 billion, as against the N146.411 billion reported in the preceding third quarter. UBA returned to profit, netting N6.648 billion from a N18.108 billion loss, while its deposit base stood at N1.338 trillion up from N1.246 trillion.
According to a report by FSDH Securities Limited, in its review of Zenith Bank?s nine months? score card, ?the balance sheet shows that it continued its deposit generating drive with low cost of fund at 82 per cent, dominating the deposits in Q3 2010. The bank is expanding its loan books to take advantage of financing opportunities in the economy.?
An analysis of the gross loans of N754.08 billion as at September 2010, the report continued, ?shows that oil & gas (upstream & downstream) accounted for 16.78 per cent followed by cement & other manufacturing at 13.10 per cent. The gross loan to deposit ratio stood at 59 per cent in Q3 2010, lower than 59.49 per cent in December 2009 and below the regulatory requirement of 80 per cent, showing additional room to grow risk assets. In addition 72.2 per cent of the interest income was derived from loans and advances in Q3 2010. The non-performing loans stood at N48.38 billion as at September 2010, while non-performing Loan ratio stood at 6.4 per cent as at September 2010, down from 6.5 per cent as at June 2010.?
UBA with shareholders funds of N189.763 billion, was however next in size to GTBank with N199.339 billion.
GTBank reported N119.807 billion earnings and N26.499 billion net profit within the period.
Rescued banks
All eight of the nine rescued banks listed on the NSE have also published their results for the period, with all, including Spring Bank, reporting profit.
Spring Bank?s profit was the first since nine legacy banks (Fountain Trust, Guardian Express, Omega, Citizens, ACB International) fused together.
Intercontinental Bank, for example, earned N74.822 billion, representing N49.467 billion or 66.11 per cent slide from the previous N124.289 billion, out of which net profit stood at N10.186 billion, as against N161.68 billion loss earlier, representing earnings per share of 54 kobo.
Oceanic Bank reported N13.09 billion PBT in the third quarter ending September 30, 2010, as against N88.4b billion loss posted a year earlier, besides reporting a rise in customer confidence gauged by the rise in deposit base to N626.04 billion from N545.92 billion in 2009.
Group?s total assets stood at N906.17 billion for the bank and N901.09 billion overall Group position, compared with total liabilities of N1.024 trillion for the Group in the same period, while total bank liabilities was N997.22 billion and N1.019 trillion for the Group. The said liability is inclusive of the N100 billion ? convertible loan advanced by the Central Bank of Nigeria (CBN) last year.
In what many see as ambitious and yet fantastic, Oceanic Bank has projected PBT of N60.779 billion by this year end, a huge improvement compared with the N116.147 billion actual loss in the corresponding period of 2009. The estimated N16.917 billion tax is billed to bring forecast profit attributable to shareholders for the period to N43.862 billion, representing a earnings per share of 197 kobo, as against an actual net loss of N89.007 (despite the tax rebate of about N27.139 billion enjoyed within the period), or 400 kobo loss per share.
According to Idowu Ogedengbe, a stockbroker and chief executive officer, Vintage Wealth Managers Limited, the announcement initially elicited positive reaction from traders who swooped in to take position before being overpowered by profit takers who muscled the price downward again.
Union Bank however remained the biggest in the group with its N85.565 billion earnings, which represents a huge slide from N142.618 billion reported a year earlier; with net profit at N6.8 billion, as against a loss of N127.886 billion in the nine months of 2009.
With N816.776 billion deposit base, which also stands it out, despite the decline from N979.102 billion, the bank reported that its shareholders? funds got more negative in the nine months at N244.152 billion from N238.328 billion.
Finbank?s gross income fell from N59.542 billion to N34.798 billion, while net profit was N3.723 billion from a N122.717 billion loss.
Spring Bank was also among the very few that reported a rise in earnings for the period, as its income rose to N18.643 billion from the previous N15.484 billion, while profit stood at N3.284 billion as against the previous N28.638 billion loss. Deposit base also rose to N189.986 billion from N142.697 billion. The CBN appointed management could however not stop the erosion in shareholders? funds from worsening to N201.049 billion from N146.313 billion.
AMCON and the banks? need for N1.534tr
Despite these seemingly impressive numbers however, investors while believing that the results would remain good to the end of the year, have however expressed fear for the coming year after the ?recovery euphoria? must have dried up.
The argument is: after the Asset Management Corporation of Nigeria (AMCON) reinvigorates the banks, what is the safeguard against their returning to the pre-Lamido Sanusi madness?
While AMCON will acquire N2.2 trillion worth of assets using various valuation models, it is estimated that the banks require N1.534 trillion fresh capital injection to return to ground zero from their current red zones, according to figures from their third quarter performance score-cards. The AMCON intervention is expected to return life to the balance sheets of the banks and make them attractive for both foreign and local acquisitions. So far, six of the rescued banks are holding talks for mergers & acquisitions expected to materialise in the coming months.
Afribank, for example, has disclosed N249.89 billion negative capital in its books; Intercontinental, N368.881 billion; Union Bank, N235.223 billion (as of June 30); Bank PHB had N189.449 billion. Spring Bank reported N90.653 billion, and Wema, N43.901 billion within the period under review.
The situation would have been worse, just as many would have folded up, it is further believed, but for the quick intervention of the CBN in June 2009. The outcome of the stress test on the 24 banks, showed that the nine were in grave danger as a result of their having between 19 and 48 per cent ratio of non-performing loans to total loans, besides revealing that a large chunk of their total N2.8 trillion loans went to margin loans and the oil/gas industry.
To ensure that the banks continue to meet their maturing obligations, he recalled that the CBN offered them a N627 billion lifeline, rather than withdrawing their licences with grave consequences for millions of citizens as in the past.
But President, Chartered Institute of Stockbrokers (CIS), Mike Itegboje, blames the banks, regulators and other operators for not managing the fallout of the banking consolidation well. The lack of capacity, on all sides, he regrets, resulted in the banks entering into every kind of business in the name of universal banking licence, even when they knew nothing about the new venture.
The impressive results, although helped by recoveries, the initial moves by AMCON and the M & A discussions have helped to increase investors? confidence and commitment. Incidentally however, this has created opportunities for robust profit taking by investors.
Despite the profit taking, the banks? share prices still closed in positive territories, led by Spring Bank, for example, it led the league of banks, chalking 45.33 per cent between November 1 and 26, followed by Finbank?s 36.36 per cent; while Bank PHB closed 33.57 per cent up; ahead of Wema Bank?s 22.22 per cent.
Afribank gained 18.89 per cent; Union Bank, 16.14 per cent; Intercontinental Bank, 11.11 per cent; and Oceanic Bank, 9.52 per cent.
Other banks however closed positive also within the period, led by Unity Bank?s 20.18 per cent gain; Zenith Bank jumped 13.44 per cent up, a move that lifted its market capitalisation to N469.377 billion, behind Nigerian Breweries? N576.276 billion; but better than First Bank?s N424.217 billion. First City Monument Bank followed on the price movement table with 13.38 per cent; Sterling Bank, 12.3 per cent; Skye Bank, 11.78 per cent; Fidelity Bank, 8.33 per cent; and Access Bank, 7.4 per cent.
According to data available on the website of Cashcraft Asset Management Limited, the rescued banks took the lead in terms of returns on investment between October and November 30, led by Oceanic Bank?s 133.37 per cent; followed by Bank PHB?s 107.37 per cent. Spring Bank witnessed 89.09 per cent returns; Intercontinental Bank, 86.78 per cent; Afribank, 86.78 per cent; Unity Bank, 78.57 per cent; Finbank, 74 per cent; Wema Bank, 65.48 per cent; Sterling Bank, 51.03 per cent; Zenith Bank, 46.78 per cent; First City Monument Bank, 43.76 per cent; and GTBank, 38.09 per cent.
The rescued banks have been significantly helped by the news that six of them are holding high-level talks with both local rivals and international investors, including an existing foreign investor to inject additional capital that would enable them swim off troubled waters.
Reactions
For Tola Odukoya, vice president and head, research at Dunn Lorren Merrifield, the trend is likely to continue into the fourth quarter, as banks? profitability will continue to get boost from write-backs of recovered loans initially termed ?lost? for which provisions have been made, besides the reduction in the loan loss provisioning.
Victor Ogiemwonyi, chief executive of Partnership Investment Plc, a senior Stockbroker, agrees with Odukoya that the banks are going to remain profitable, going forward. He noted, ?the AMCON intervention should assist them clean their balance sheets and write back most of their provisions. The year should end well for them.?
The take-off of AMCON has thrown up new challenges in the words of Ayere, whoexpressed fear that Nigerian banks do not seem adequately prepared to utilise fresh capital to be injected after AMCON takes over their troubled assets, in terms of capacity building. At the time of the intervention last year, he recalled, some of the banks were found to be in grave condition, following which they would have collapsed leading to a systemic problem if the Central Bank of Nigeria (CBN) had not intervened with N627 billion and a guaranty to ensure they remained going concerns.
?I am sceptical of the capacity of the banks to use the money reintroduced into the system by the AMCON judiciously, because those running the banks today are deposit takers. If they do what they are supposed to do, I think (AMCON) will clean most of the banking sector, and put cash into the system. But for me, the issue is: How will the banks utilise the funds. That is where the issue of capacity comes in. How do you ensure that the cash is deployed in a sustainable manner??
To address these issues, speakers at a recent workshop entitled: ?Disclosure, conflict of interest: the very thin line,? organised by the IoD (Institute of Directors) Centre for Corporate Governance, agreed that the failure to take corporate governance beyond the level of mere sloganeering is at the heart of the recent crisis in the nation?s financial system.
Immediate Past Chief Executive, Nigeria Deposit Insurance Corporation (NDIC),Ganiyu Ogunleye, lamented for example that although the regulators ?knew there were problems in the nation?s financial sector, we didn?t quite take the actions we needed to take? at the time. If such actions were taken as appropriate, he continued, the nation?s financial services industry would not be where it is today.
Even today, he lamented, there is yet no zero tolerance to infractions in real terms, as punishment depends on who is involved at any particular time.
Fola Adeola, another discussant and founding chief executive, Guaranty Trust Bank, stressed that the issue of corporate governance cannot be taught, and that ?only people who fear God and learn godliness while growing up, rather than those who talk God, will practise good corporate governance.?
?Even when the CBN has removed eight bank CEOs and put new management in place, what has changed...I don?t know.? He also lamented the tendency of CEOs to play God within the period they are in office, praising the 10-year maximum tenor imposed by the CBN for bank CEOs. He called for an extension of such to the public sector.
Conclusion
With the conclusion of the M & A arrangements involving the various banks and the banks coming out of the woods, there is a consensus around the need for the CBN to check excessive rivalry and unhealthy competition among industry players, which in the first instance resulted in over-bloated salaries, dividends and other things that put the industry under pressure. Such dividend craze, analysts say, should stop, just as the thinking that only companies that pay dividend are healthy, as exemplified by the National Pension Commission (PENCOM) Act. The Act only allows pension funds to be invested in shares of companies that have paid dividends for a minimum of five consecutive years. To qualify for investment of pension fund assets, many companies, even engaged in borrowing to pay dividends yearly. There are fears also among analysts that unless banks and other organisations are built around ideals, structures and processes, rather than individuals, the economy may soon return to the days of madness. But must we all wait till then?"
Samstone4
