(POST NIGERIA) There are strong indications that some top commercial banks might shutdown, or merge with other banks in the coming weeks.
According to financial experts, the myriads of challenges facing the nation’s economy, have adversely affected most commercial banks in Nigeria, with some banks likely to experience some challenges that could only be resolved by mergers and acquisitions.
The Chief Executive Officer, CEO, Financial Derivatives Limited, Bismarck Rewane, has decried that the present economic storm gathering over the country, might lead to a shake-out in the banking sector.
Rewane said, “It will affect their profitability initially, and eventually it is going to affect their liquidity and solvency.
“Because of the squeeze in profitability, there will be a natural consolidation and a shake-out,” He added.
It could be recalled, that most commercial banks had in the past few months, layed off some of their workforce, in a bid to cope with the negative economic figures being experienced in their respective banks.
With the degenerating state of the economy, even as the manufacturing sector is also considering shutting down, most Nigerians are worried about the safety of their funds in the banks.
Although, Rewane, expressed hope that the Federal Government’s stimulus package and other measures, aimed at enhancing growth would work and help tackle the economic storm in a long run, an economist, Professor Pat Utomi, said good mergers and acquisitions strategy, could help prevent crisis in the banking sector, and avoid a regulatory risk.
He said, “There is nothing good or bad about mergers and acquisitions on its own.
“The question is, whether it will amount to creating value or not. It happened in the United States in the 1980s.
”A good mergers and acquisitions strategy can prevent regulatory risk. A situation where the central bank will take action on a bank, and there will be panic and everybody begins to run helter-skelter to withdraw their money, is not good for a bank”.
He added: ”If the fundamentals of a bank are beginning to get challenged, it is better a discussion is held with another bank, and it is acquired. What creates a problem is regulatory risk,” Utomi said.
He added, that what the economy needs to do now, is to begin to produce relevant policies that will enhance productivity.
Utomi, further noted, that banks could be a good agent in helping to stimulate domestic production.
According to Reuters, since the implementation of the flexible exchange regime last month, the currency has lost double digits against the dollar.
Overall, 42 percent of loans extended by Nigerian banks are in dollars. If the naira falls far enough, it will force some banks to recapitalise, in order to have enough naira to stay within financial stability limits.
Non-performing loans are expected to jump to 12.5 percent of the total loans of the banks this year, up from the central bank’s target level of 5 percent at the end of last year, as lenders suffer a hangover from an oil sector credit boom that ended abruptly in 2015, Agusto & Co, Nigeria’s main rating agency, said.
According to a London-based analyst, UBA, Diamond and Guaranty Trust Banks have the highest ratio of dollar loans, at 50 percent apiece.
Top on the list is GTB, which has $1.6 billion in dollar-denominated debt, followed by First Bank of Nigeria, with $915 million, Reuters data said.
On the other hand, Zenith Bank’s shares are a third of their pre-financial crisis figures, Access Bank, a quarter; and First Bank, just 10 per cent.
Financial analysts have argued that if major banks, such as First Bank, Zenith Bank, among several others, are presently feeling the heat, then what is the fate of other banks who have long be struggling to remain afloat.