Nigerian banking system still highly risky – Rating agency

Nigerian banks are extremely risky, despite a N620bn bailout of the sector in 2009, a global rating agency, Standard & Poor, has said.

“The Nigerian banking system is still highly risky. The ratings we have for the banks are in the single ‘B’ category, it‘s a very very low level compared to most banks in the world,” Mr. John Gibling, Managing Director (financial institutions) at S&P, said in London on Monday.

Gibling told the audience at an ongoing conference on Nigeria that there was still a long way to go in the ongoing reform of the banking sector by the Central Bank of Nigeria.

“We continue to see the Nigerian banking system as very high risk. In regulatory reform, there is still a long way to go,” he added.

Gibling spoke just as the CBN Governor, Mr. Lamido Sanusi, reaffirmed that the apex bank would from mid-July begin to receive offers from investors interested in acquiring majority stake in the five banks it rescued in August 2009.

The banks are Union Bank of Nigeria Plc, Oceanic Bank International Plc, Intercontinental Bank Plc, BankPHB Plc and Afribank Plc.

The CBN, according to Bloomberg, is hoping that investors will recapitalise nine banks that were weakly capitalised due to lax risk management.

Gibling, however, praised Sanusi and his predecessor, Prof. Chukwuma Soludo, for the banking sector reforms, saying the bailout had been a ”very, very brave move” which had prevented a catastrophe.

But he said that the banks needed to improve their risk management to boost the confidence of foreign investors.

The S&P boss said, ”What Nigerian banks really need is to continue improving their risk management culture, particularly in developing strong asset quality measures.

”They are very dependent on short-term funding ... They need to develop more long-term funding, which will help them in funding more long-term financing projects for the economy.”

in Basel, Switzerland, Lamido said on Monday, that the CBN expected three international lenders, a number of private equity houses and local lenders to submit offers for the rescued banks.

Sanusi said the interested parties were already undertaking ”detailed” due diligence,

The CBN governor, on the sidelines of the Bank for International Settlements annual meeting in Basel, said, “We‘ve got three international banks that have remained in the serious running to acquire banks.

“There is also a number of local banks and private equity firms. By the middle of August we should actually have clear visibility on at least five of the banks.”

The financial crisis left the banks with toxic assets of over N1tn, New York-based Eurasia Group had estimated a year ago.

Sanusi added that securing a future for Union Bank, Oceanic Bank, Intercontinental Bank, Bank PHB and Afribank was the priority of the CBN since they (the five banks) were the most ”systematically important” banks to Nigeria.

The CBN is waiting for presidential approval for a law that will create the Asset Management Corporation of Nigeria, a government entity that will buy bad debts from the banking sector, using funds raised through government-guaranteed local bond issuance. The approval is expected early in July.

The bonds will be issued on a deal-by deal-basis.