Expert Highlights Looming Risk in Banking Sector

The Managing Director, Afrinvest Securities Limited, Mr. Ike Chioke has expressed concern about the possibility of banks not being able to recoup their investment in the power sector and its likely consequence on the financial system.

Chioke noted that with the current revenue profile of the power companies, if they are not able to service their debts, the indebtedness would have severe consequence on the banking system.

Speaking at the launch of the ‘2014 Nigerian Banking Sector’ report by Afrinvest, Chioke said: “Our view, as you think about the issues in the industry, with the lending that the industry has done, particularly to the power sector, if there is a problem in the problem in the power sector and they are not able to service all these loans they have taken, we are definitely going to see a problem in the balance of the Central Bank of Nigeria (CBN).”

The CBN balance sheet, he added, “may not

be able to accommodate another bailout because we just gone through one.”

He argued that the CBN's balance sheet as at November 2013 raises crucial questions that require urgent attention.

According to him, over 40 per cent of CBN's asset portfolio is unmarketable, comprising principally of AMCON bonds, intervention funds and development finance loans.

These, he pointed out are long term investments without a discernible exit time frame other than the eventual performance of the loan portfolio.

“For instance, the 190.5 per cent surge in other liabilities from N2.1 trillion in December 2009 to N6.1 trillion in November 2013, traceable to the acquisition of AMCON's debt by the CBN, is alarming.

“In the event of another crisis in the banking space, the CBN may not have the capacity to bail out the banks without avoiding the option of printing money, which will have significant consequences on price stability,” he argued.

Therefore, he predicted that the central bank may be forced to raise the AMCON levy on banks. This, according to him, would exert further pressure on industry bottom lines, as AMCON's fee as a proportion of total operating expenses rose from 4.6 per cent 2012 to 7.6 per cent in 2013,  and is expected to cross 10 per cent in 2014.

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