Stress test: Banks in secret merger talks
Merger and acquisition talks are quietly going on in the banking industry, especially among the seven deposit money banks (DMBs) that failed the mandatory stress test on funding adequacy.
Sources told Daily Sun that two new generation banks started the talks long before the stress test results were out.
“It’s a smart move actually. Mergers and acquisitions will naturally come up soon because the Central Bank of Nigeria (CBN) is working out modalities for the banks to recapitalise. Mergers and acquisitions are inevitable because the apex bank is determined to produce fewer but more resilient banks that can undertake more audacious projects and become more globally competitive.
“So seven banks failing stress test simply deepens the merger talks.
“Obviously, there is economic crisis in the country and this is affecting the banks. It may lead to the merger of at least seven commercial banks because they really are flying against the wind,” an industry source said.
The CBN had mandated commercial banks to conduct stress tests to ascertain their risk mitigation and control systems and where necessary the adequacy of their internal capital and provisions for expected credit losses, to enhance the assessment of their vulnerability to different risk types and external shocks.
Since the news broke, anxious depositors have begun using unprofessional parameters to determine the seven out of the 22 licensed banks that are involved.
Many of them who encountered glitches while using some electronic banking platforms like ATMs, POS and online transfers in recent times amplified those challenges to mean early signs of distress.
Magdalene Ibeh, a budding entrepreneur, lamented, “Which one is seven banks failing stress test again? This is scary. It is almost impossible to make a transfer in the morning via the phone. It’s better at night when network is less busy. The Central Bank of Nigeria (CBN) should do something quickly. If I know the banks, I’ll immediately tell my relatives and loved ones to withdraw their money from them. This is what many of us in Wuse market have agreed to do once we know the banks involved.”
However, the CBN has kept the identity of the seven banks secret to forestall a national catastrophe that could be triggered by nationwide panic withdrawal by ignorant depositors.
Spokesman for the CBN, Isaac Okorafor, told Daily Sun that there was no cause for alarm over seven banks failing the stress test.
“Movements in prudential benchmarks are normal in a bank, depending on the timing of the checks and the tests. If a bank fails a test, it does not mean that such a bank is in distress. A bank that fails any test this quarter may pass it in the next quarter. Normally, the CBN advises any bank that fails any of the tests on ways to correct such and usually things get better during the next period. The story is not a serious thing but people without sufficient knowledge make it look serious,” he said.
On June 24, the CBN governor, Mr. Godwin Emefiele, while unveiling his second tenure agenda, said the apex bank would work with stakeholders to recapitalise commercial banks in the country, make them stronger to undertake greater tasks.
Emefiele said: “In the next five years, we intend to pursue a programme of recapitalising the banking industry so as to position Nigerian banks among the top 500 in the world. Banks will, therefore, be required to maintain higher level of capital, as well as liquid assets, in order to reduce the impact of an economic crisis on the financial system.
“Soludo did it last recapitalisation exercise in 2004 and increased the capital base of banks from N2 billion to N25 billion. It helped the banks and the economy become stronger. We could now take up large ticket transactions.
“But relate the value of N25 billion in 2004 when the exchange rate was about N100/dollar to now when the rate is N360/dollar. That is about $75 million. So, we need to recapitalise.”
Eze Onyekpere, an economic expert and lead director, Centre for Social Justice, said the CBN should have kept quiet rather than revealing the information about seven banks failing the stress test because some banks and their depositors may soon begin to de-market each other out of ignorance.
“As a regulator, (CBN) should look at the areas where the affected banks are deficient and help meet standards quietly. No need to let it out. Merger may be an option for the banks but it should be a last resort,” he said.
Meanwhile, the Nigeria Deposit Insurance Corporation (NDIC) has said it was unaware of seven banks failing a stress test as revealed by the apex bank.
Director, communications and public affairs, NDIC, Mr. Sunday Oluyemi, who spoke at the corporation’s 30th anniversary media briefing in Abuja, said the CBN and NDIC were partners in the task of ensuring financial system stability in Nigeria.
“It’s not usual for CBN and NDIC to make such statements because it can hurt the economy. We didn’t issue any warning that banks are on danger list,” he said.
He added that the NDIC would protect depositors by providing an orderly means of resolution and compensation in the event of failure of their insured financial institutions.
The CBN in its financial stability report published on its website revealed that in less than 30-day period analysis, seven Nigerian banks were not adequately funded, while in the 31-90 day bucket, nine banks had funding gaps.
Overall, the cumulative position for the industry showed an excess of N4.8 trillion assets over liabilities.