Nigerian youths protesting against police brutality

BY OKEY ONYENWEAKU

 Banks are beginning to count their losses after attacks on their branches by hoodlums in the crisis that has since greeted the poor management of the recent #EndSARS protests.

The Deposit money banks whose branches were looted and vandalized include GT Bank, First Bank, Access Bank and Polaris Bank. Though no value has been revealed as regards the level of losses, but many think it might run into multiple billions of naira.

A breakdown of the number of branches affected across the country showed that

about 10 branches of FirstBank Nigeria Limited were damaged; Union Bank of Nigeria- 10; Guaranty Trust Bank – nine; Access Bank Plc – eight; Fidelity Bank – seven; and six branches of First City Monument Bank (FCMB).

Also, three branches each of Wema Bank and Sterling Bank were damaged; two of the branches each belong to Stanbic IBTC and Unity Bank respectively while Heritage Bank, Ecobank and Polaris Bank lost a branch each respectively.

Whereas it seems that the banks may not have lost much in material terms, there is consensus that other types of losses that they have incurred which may not be quantifiable are heavy.

These losses have however been listed to include loss of confidence emanating from the volatility in an insecure operating country; reputational losses which implies that the integrity of the country is at its lowest ebb; a feeling of instability which has prompted a loss of confidence in the financial system; and operational losses which may cause high non-performing loans in banks in the near future.

The banks have in fact, began to assess the extent of damages in those branches, while the Central Bank of Nigeria (CBN) is also carrying out an assessment of the banks losses that were incurred on account of the series of attacks unleashed on them.

Whereas the banks have kept sealed lips and stoic face as to the immediate, long term effect and cost of the destruction, analysts believe that the losses incurred by the financial institutions are not only physical or material, but also a partial loss of confidence in the financial system.

 Looking critically at the issues, the reputation of the country is almost at the lowest ebb as fear, anxiety and insecurity are strongly seeping into the minds of many who live and want to invest in a country with increasing high country risk factors.

 This appears to make habitation, business transactions, social connections among other things to remain very unattractive to both domestic and foreign investors, given the country’s inability to manage, control and provide adequate security and avoid the mayhem and terror unleashed on private and public properties that were destroyed by hoodlums.

With the losses estimated to run into trillions of Naira, as estimated by experts, given the damages recorded during the #EndSARS protest, banks fear that the scepter of non-performing loans may rise and now come to pose serious threat to their top and bottom lines at the end of the day.

There is also huge damage to commercial enterprises into which banks have various levels of investments in one way or another especially through credit lines to those businesses that have been damaged. Many Nigerian business men and women whose wares were carted away and destroyed have become helpless as some may never return to business due to the huge losses.

Analysts also fear that the financial markets may be living in denial since the recent colossal disruption, which constitutes huge losses in the system, did not seem to reflect in its performance correspondingly. For instance, the debt, forex and equities are still seemingly stable.

 Despite what seemed to come as a response by the CBN through the reduction of interest rates and other measures against the impending recession, there is a consensus that the market would lose some weight to recognize and reflect recent shock.

They further explained that the market must experience a correction sooner or later given that the bullish trend was not a result of strong fundamentals but was rather an artificial one.

An aggregation of these challenges, it is believed, would impose serious discomfort on the banks at various levels and the financial system at large.

Fears have emerged that the volatility might have negative impact on deposit money banks emanating from the environmental risks pervading the country.

  The development which is linked to the continued harsh operating environment for business in Nigeria appears to have reached unbearable levels for stakeholders.

 The banks seem also weary with the rough circumstances which have overwhelmed them. The implication of this is that non-performing loans will grow above regulatory limits this year.

 ”If the damages are extensive, it means that the challenge is enormous and it will definitely affect the bottom lines of those banks, but not materially because most of their assets are not in those physical infrastructure.

They have floating financial assets and most of the information that drives their operations is hosted in the cloud,’ said Highcap Securities Limited boss, Mr. David Adonri.

 According to him, beyond direct damage to the banks, the other damages were quite extensive to commercial enterprises into which banks have various levels of investment by way of extending credit to them so that would increase the incidence of non-performing loans within the system. Preliminary estimate says that the damage runs into trillions of naira.

”Those are physical damages but the more critical damage is the damage to confidence. Customer confidence has been seriously damaged. For some customers of the banks, their confidence will be eroded as a result of the unprovoked offenses against that sector. Confidence in the country too, both internally and internationally has also been eroded as a result of the violence that later characterised the peaceful protest, along with the alleged genocide and state-sponsored terrorism against innocent and defenseless protesters. This may have also led to serious reputational damage to the country, and that also has economic impact. ”So when all of these are aggregated, the financial economy could take a very serious hit. My only fear is that the financial sector is apparently acting in denial that nothing has happened.

Because if you look at the position of the capital market and the value of assets in the market there has been no correction to reflect the hit or what has happened both physically and otherwise.

Even the banking industry has also not reflected the disruption and if you also look at the various markets including the equities market, the foreign exchange and debt markets are also not having a correction as to the weakness that the economy has suffered so far. But with time, it might be a delayed reaction, everything will crystalise.”

Similarly, a financial analyst, Olisa Egbunike of The Renaissance Group, who shares the same views with Mr. David Adonri, spoke to Business Hallmark on the issue, saying though the extent of damage to the banks during the #EndSARS protest was not material enough to make any negative impact to their performance explained,

”With what I have read so far and seen I don’t not think the extent of damages will affect their bottom lines. The area you will be looking at is the perception of the international investors, because the effect of Covid-19 and the global economic depression has made it incumbent that bigger banks in the world and financial institutions look for collaborations in areas where you have large population and economic potentials and Nigeria is one of such areas.

”But with this kind of bottled up anger in the polity the international community investors will be highly sensitive to it, although they say that areas where you have high risk mostly attract investor, but this kind of one it is going to be a negative thing for an average investor or institutional investor or financial institutions that want to come and partner with Nigerian banks or financial institutions it is going to be a setback. They will try to look for a calmer area where the government understands and appreciate the dynamics of the economy. They will reassess the risk involved in Nigeria”

Analysts at Cordros Capital Limited said, “Nigeria’s PMI remained in the contractionary territory for the sixth consecutive month, as the economy continues to grapple with the lingering impact of the COVID-19 pandemic. The manufacturing PMI for October improved to 49.4 points (September: 46.9 points) while the non-manufacturing PMI rose to 46.8 points (September: 41.9 points). Business activity index which is an indicator of non-manufacturing business activities, remained in the contractionary region (48.7 points vs. September: 43.7 points) while new orders (+4.8 points to 51.2 points) leapt into the expansionary zone for the first time since March (52.3 points). We highlight that suppliers’ delivery time (-1.7 points to 51.8 points) was affected by the feedback effect arising from the nationwide #EndSARS protests.”

Many are seemingly certain that the economy is headed for recession. Despite IMF’s reversal of the Nigeria’s 2020 economic growth forecast from -5.4 per cent to -4.6 per cent, the harsh conditions that were there before Covid-19 are still strong and pervasive  in the operating environment. However, it is believed that IMF may revise earlier forecast to reflect the further weakening of the economy by the recent activities of hoodlums in the country.

Analysts believe it has become hard for firms to fly in such weak economies as Nigeria where the economy which has already shrunk by -6.1 per cent in the second quarter 2020 is expected to slide into recession ; where inflation is hitting the roof top at about 14 per cent; where the Naira has lost value and vigour; where the budget deficit stood at -4.69% of GDP; where insecurity has halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; where economic policies are done to favour a section of the country.

Of course, some banks especially some of the big banks like GT Bank Plc, Access Bank and UBA have already reflected that the times are hard in the profit margins which declined marginally.

 Nevertheless, some banks have already released fairly strong results for the second quarter ended June 30, 2020. But the field is clearly uneven.

 On its part, the Nigerian lender, Unity Bank is not immune to the vagaries of the times and its management has presently moved to alert its base of what it is seeing ahead of it.

According to reports emerging from its corporate suites, the bank which had posted a seven per cent increase in profit before tax in half-year (H1) 2020, is currently projecting a huge loss of about N2billion in the approach to Q4 2020.

According to the forecast which was recently turned in to the Nigerian Stock Exchange (NSE), the bank expects to post gross earnings of N4.975billion and a loss after tax of N1.800billion

The forecast document also revealed that its expected interest expense would now stand at N3.821billion as against the interest income of N3.359billion that had been expected in Q4.

And while impairment for credit loss is expected to close negative at – (N829million), operating expenses is expected to be N1.984billion.

Despite the gloomy expectations which may have been prompted by the ravaging effect of the Coronavirus pandemic that had forced a complete lockdown for five weeks both in Nigeria and other countries of the world, questions are however still being asked as to why Unity Bank is forecasting such huge losses in Q4 of the year? This is more so as economic activities have presently begun to open out all across the country.

The overly bearish trend is already affecting some of the bigger banks in the system, whose results, though not very weak, are however still showing signs of weakness. For instance, GT Bank, Access Bank and UBA posted profit decline in the half year results ended June 2020. These banks are now so jittery that the end of year may not be too good for them.

Details show that Access Bank Plc which came third in the ranking of banks with the highest profits in H1 2020 recorded a decline in profit year on year amidst lower economic activities. The lender recorded a profit after tax of N61.034 billion, representing a marginal decline of 1.4% when compared with N61.874 billion in the first half of 2019.

 GTBank’s after tax profit actually declined in absolute terms. The lender’s profit after tax printed at N94.231 billion in the first half of 2020, representing a 5% year on year decline when compared with the N98.916 billion reported in the comparable virus-free earnings season in 2019.

United Bank for Africa also reported year on year decline in profitability in the first half of 2020. UBA’s profit declined 21.6% year on year to N44.431 billion in the first half of 2020 as against the N56.739 billion reported in the comparable period in 2019.

This is indeed the lot of many other banks. However, not all of them will forecast or go on to post outright losses but there are compelling reasons to believe that they may review downward their earlier forecast given the prevailing volatile operating environment.

There is also a consensus that, given the current scenario, the core economic dynamics in the sector have not only been altered but that the developments signal an uncertain future. And that for whatever it is, is not very flattering.