CBN And Health Of Banks

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The Central Bank of Nigeria (CBN) has continued to reassure Nigerians that the banking sector is healthy. The apex financial institution insisted that no deposit money bank (DMB) was on the verge of going under. It also said that like in every other business engagement, negative profit can and do happen and is rarely a sign that a burst is about to take place

To buttress the point, CBN made reference to Citigroup, JP Morgan Chase and Wells Fargo, among the biggest banks not just in the United States of America but also in the world which were reported to have made negative profits or what is generally known as losses. This performance, in the third quarter of this year, led to a decline in their earnings and naturally it is generating ripple effects around the banking industry.

The CBN  acknowledges that it is a serious issue for the nation’s banking industry which could be vulnerable particularly as the economy grapples with the challenges of recession especially if there were exposures in terms of loan agreements which anyway must have exit clauses; as well as correspondent relationships. It also noted that even if these conditions exist, the fundamentals are still positive for Nigerian banks for them to be able to maintain their robust growth. The apex bank had earlier issued a clean bill of health to the industry in Nigeria regardless of the impact of the Treasury Single Account (TSA). It maintained that the industry in Nigeria was coping very well with the sudden movement of public funds from their custody to the Central Bank of Nigeria (CBN) under TSA. Other than this, he said, the industry is in good condition.

It is imperative to take a look at the performance of these foreign banks in the third quarter of this year. Just as Citigroup’s net income fell 9.5 percent to $3.8 billion, from $4.2 billion the same quarter a year ago, revenues were also down 3.8 percent to $17.8 billion during the July-September period, from $18.5 billion the same period last year.

Expectedly, after the release of the results, shares of Citigroup fell 2.4 percent to $48.39 after opening at $48.60 on the U.S. stock market. At JP Morgan Chase, net income fell 7.3 percent to $6.3 billion. That’s was down from $6.8 billion. Revenues, however, rose 8.5 percent to $25.5 billion after posting $23.5 billion in the third quarter of 2015. Shares of the bank fell 2.2 percent to $67.30 after they began the day at $68.80. Stirred with illegal banking activities, Wells Fargo’s earnings were highly anticipated. The bank said recently that its net income fell 3.4 percent to $5.6 billion in third quarter of 2016, from $5.8 billion during the same period a year ago. Revenues were up 1.8 percent to $22.3 billion from $21.9 billion. After opening at $45.17, shares of Wells Fargo fell 1.8 percent to $44.33.Even with this result, the bank in a statement said that it was committed to restoring the trust of stakeholders, including customers, shareholders, and community partners. And that is where we, in Nigeria, must borrow a leaf as we assess our own banks because profit and loss are not all there are in the management of a bank.

The CBN noted that the key task that faced monetary authorities in Nigeria is to use effective policy tools to ensure that the shocks arising from instability in the global economy such as recorded recently in Citigroup JP Morgan and Wells Fargo were not fully transmitted to the domestic economy. To achieve this, it is pertinent, in our view, to state that while the apex bank continues to ensure that the stability of the financial sector is maintained and confidence in the system sustained, Nigerians owe themselves a duty not to over play the challenges.


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