Banks in another heavy exposure…may not pay dividends for 2011
By KELECHI MGBOJI
Monday, February 20, 2012
Smarting from over N800 billion exposure to equities market crash in 2008, banks may have been exposed to yet another round of huge losses in 2011, this time through operations in fixed income market.
Whereas the 2008 losses was occasioned by inevitable equities bubble burst after unprecedented boom, the losses for 2011, which have already impaired financial performance of the concerned banks, is attributable to inconsistency in the Central Bank of Nigeria (CBN) monetary policy rate (MPR).
Daily Sun reliably gathered that the banks, which invested in sovereign bonds and treasury bills early last year at low coupon rates, are now making heavy provisioning for expected losses from the debt instruments that are yet to mature.
Our investigations showed that some banks over exposed themselves to treasury bills and government stocks. Because they were buying to hold, they bought some of the instruments at lower coupons rate. When government eventually came out again with some high yielding coupon rates, the effect was that everybody holding 7 per cent, 6 per cent, government bond or TB was rushing to sell.
Consequently the prices came tumbling. And since some of the banks had entered the transactions as short term loans, they were said to have made huge provisioning for anticipated losses which in turn, affected their bottomline. An analyst who spoke to our correspondent on condition of anonymity said “Because government kept on coming out with higher coupon rate TB and government bonds, that means the banks had to provide for the ones they bought at lower coupon rates.”
He continued: “When they started early in January buying government stocks and TB at 7 per cent to 8 per cent coupon rate, they did not envisage that government could come out with more attractive coupon rates. At the middle of the year, govt started issuing at 15 per cent. “And because of the greedy nature of banks, instead of lending out their money, they started pumping their money into buying the debt instruments. And when the high yield coupons came out there were no buyers for the low yielding coupon,” he added.
According to the analyst, more banks are going to declare losses in the weeks ahead, a factor that has given rise to declining performance of most banking stocks trading at the Nigerian Stock Exchange.
He explained that investors had started reacting to the development by offloading equities of some of the banks so exposed and likely to end up with sharp decline in their financial performance for 2011.
As to whether shareholders would be paid dividends or not, he quickly retorted that a good number of banks were trapped in the fixed income market debacle, pointing out that only few banks might eventually pay dividends for the 2011 financial year.
He also added that the possibility of merger banks paying dividends was slim in view of the rescued banks’ damaged balance sheet which he explained had ruined the otherwise fair performance of the acquiring banks.
Among the acquiring banks are Ecobank Transnational Incorporated (ETI), Access Bank Plc., First City Monument Bank Plc., and Sterling Bank Plc., which merged with Equitorial Trust Bank.
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