THE Bankers Committee has sent a proposal to the Central Bank of Nigeria to limit across-the-counter withdrawals to N10,000, following a major drop in customers’ deposit.
The proposal, according to a reliable source, is being considered by the apex bank through the Banking and Payment Systems Department.
A document obtained by our correspondent from the Central Bank of Nigeria on Friday showed that between April 2015 and April 2016, the total deposits of bank customers with the Deposit Money Banks dropped by 5.6 per cent or N1.03tn from N18.54tn to N17.51tn.
The banking sector also recorded a decline of N154bn in total assets within the one year period, from N27.58tn in April 2015 to N27.43tn as of April 2016.
In the same vein, the industry’s gross credit to the private and public sector dipped by N41bn or 0.3 per cent from the April 2015 value of N13.4tn to N13.36tn in April 2016.
According to the document, the Non-Performing Loans ratio for the sector currently stands at 10.1 per cent, which is far above the prudential limit of five per cent.
It attributed the sudden rise in the NPLs to the outcome of the Risk Assets Examination of the DMB, which was conducted by the apex bank in December 2015.
Specifically, the apex bank in the document explained that the sustained low price of crude oil, supply constraints at the foreign exchange market as well as other macroeconomic conditions impacted negatively on the quality of bank loans.
The document said, “The Capital Adequacy Ratio of the banking industry, which was still above the prudential minimum of 10 per cent and 15 per cent for banks with national and international authorisation, respectively as of April 2016 stood at 16.5 per cent compared with 17 per cent as of April 2015.
The CAR deteriorated between April 2015 and April 2016 due to the decline in the total qualifying capital caused by regulatory deductions, retirement of Tier 11 capital, impairment and increase in the total risk-weighted assets.
“The NPLs ratio stood at 10.1 per cent as of April 2016, which was well above the prudential limit of five per cent. The sustained low price of crude oil, supply constraints at the forex market as well as other macroeconomic conditions impacted negatively on the quality of bank loans.”
In terms of liquidity, the CBN in the document explained that the industry was operating above the minimum requirement of 30 per cent.
For instance, it said as of April 2016, the banking sector’s liquidity ratio stood at 46.3 per cent as against 39.79 per cent as of April 2015.
It said the sector also recorded a decline in earnings within the period as unaudited profit before tax for the industry decreased by 10.8 per cent (N24bn) from N222bn in April 2015 to N198bn at the end of April this year.
It added, “The return on assets and return on equity were 2.17 and 16.17 per cent in February 2016 compared with 2.42 per cent and 19.39 per cent in the corresponding period of 2015.
“The decline was driven largely by the decrease in both interest and non-interest income, which declined by six per cent or N50bn and 54 per cent or N259bn, respectively.”
Commenting on the drop in banks’ earnings within the period, a former Managing Director, Unity Bank Plc, Mr. Rislanudeeen Muhammed, told our correspondent in a telephone interview on Sunday that the time had come for banks to refocus their operations in line with their primary mandate.
He attributed the decline in banks’ profit to a mismatch between cost and income.
He said, “There has been a mismatch between cost and incomes. Most of the costs of operations of the sector have gone up because there are two major income lines that have actually dropped.
“The first one is the TSA, which had adversely affected their income line and capacity to create risk assets and the withdrawal of Commission on Turnover charges.
“The economy is also not doing well as it is virtually almost in recession. So definitely, that is why you are seeing some of the actions of the banks such as reduction of branches and sacking of workers happening.”
He added, “If you also check the NPLS, it has also gone up because pet banks have given out a lot of money to oil and gas sector and most of those banks that have lent to oil and gas sector have no option to make provisions for those loans.”
When asked what the banks could do now to increase their profitability in view of the current economic challenges, Muhammed, who is also the Managing Director, Safmur Investment Ltd, said, “The banks need to appreciate the reality of where they are now. They need to begin to operate as banks because hitherto, there had been what I called arms-chair lazy banking. A worker could generate deposits and be promoted, forgetting that most of the employees don’t have a good understanding of the banking system.
“Now is the opportunity for real banking to emerge rather than the liability generation banking that we currently have.”
The CBN, in the document, explained that the banking sector was still faced with a lot of pressure points, some of which it listed as resurgence of inflationary pressures in the face of negative output growth; continuing low oil prices; and lack of fiscal buffers.
Others are capital flow reversals; rising pressure on exchange rate in the face of declining external reserves; huge growth in credit to the government to compensate for declining oil receipts.
According to the document, the bank is faced with policy challenges in the areas of stimulating output growth even with high rates of lending and inflation; and ensuring flow of credit to the real sector of the economy with liquidity trap in the banking sector.
The huge decline in banks’ deposits, according to sources in the banking sector, has forced most of the banks to increase the targets given to bank workers, in a bid to improve their liquidity position.
A top official in the banking sector told our corespondent on Sunday on condition of anonymity that the recent mass sacking in the industry was as a result of the declining rate of deposit mobilisation by some of the bank workers.
The official said while the withdrawal of government funds through the implementation of the TSA had badly affected the amount of bank deposits, the harsh economic climate had made it very difficult for many of the bank workers to meet up with their targets.
This development, according to the source was one of the reasons why many of the banks resorted to mass sacking of their workers.
The source said, “The competition for deposit mobilisation is very high now in the banking sector because since the government withdrew its funds through the TSA last year, a lot of banks were seriously affected.
“So, it has been challenging now for bank workers to mobilise deposits from customers as we used to do because of the economic situation.
“A lot of people are struggling to survive and even many of those that we meet when we go out to canvass for deposits will tell you that they are in need of money.”
A total of about 1,400 workers had so far been sacked by banks within one week in a move to prune the workforce in the sector.