Wednesday, 29 February 2012

S&P say corporate governance and regulatory oversight remain key risks for Nigerian banks

In a report published today, Standard & Poor's Ratings Services examines the progress of Nigeria’s banking reforms and concludes that the sector needs a longer regulatory track record before it stops considering corporate governance and regulatory oversight to be among its key risks.
Sanusi Lamido Sanusi-Governor, Central Bank of Nigeria.

The rating firm however admits that after more than two years of central bank support, Nigeria's commercial banks are again engaging with the domestic economy with fewer, but larger, banks with better corporate governance and regulatory oversight.   

“The industry and its regulation have improved significantly” says S&P

But fewer, larger institutions have emerged following a succession of mergers triggered by the sharp rise in NPLs.

“In our opinion, risk management, particularly in higher-risk lending such as foreign currency loans and retail and access to low-cost funding will be the key differentiators affecting banks' performance going forward”

S&P states that the long-term success for Nigerian banks will chiefly depend on enhancing their risk management, improving their governance, diversifying their loan portfolios, and securing their funding profiles.

In 2009, eight of the Nigeria's 24 banks had to be rescued after weak risk management and corporate governance lapses caused nonperforming loans (NPLs) to rise to more than a third of total loans across the banking system.

The Central Bank of Nigeria (CBN) had responded strongly, removing executive teams from failed banks, fully guaranteeing the interbank market, and setting up the Asset Management Company of Nigeria to purchase a large proportion of nonperforming loans from Nigerian banks.

It also set up sizable intervention funds to support credits to the real economy. Finally, it is facilitating a series of mergers between failed banks and their stronger competitors. AMCON recently announced plans to sell off three banks Nationalized in 2011 within the next 18 months. 

Watch Sanusi Lamido Sanusi speak on Nigerian Banks in August 2009, a few days after sacking five managing directors of weak banks.

1 comment:

  1. Some risk averse Nigerian banks have also started cutting back on credit exposure to their European bank counter-parties, as the Euro zone debt crises persists, financial risks escalate, and global growth decelerates. Have they used relationship banking concept?