Be careful when you are analysing bank stocks and deciding whether to buy, sell or hold as its not everyday your regulator comes out to tell you plainly that banks are basically cooking the books and lying about their Non performing loans (NPL) exposure.
Doyin Salami, an economist and member of the Central Bank of Nigeria (CBN) the apex regulator for banks, monetary Policy committee (MPC), just dropped this bombshell in his statements following the last MPC meeting.
According to Salami:
Between 2014 and 2015:
·The number of banks with NPL ratio in excess of the 5 percent threshold rose from 3 to 8.
·Furthermore, NPL in 3 of these banks exceeded 10 percent.
·NPLs rose in 18 of the 22 buckets into which the CBN classifies Deposit Money Bank (DMB) lending.
Salami says worsening NPLs reflect a combination of external and internal factors which include: Low and volatile Oil prices; uncertainty about severe fiscal imbalance at the sub-national level of government; weak output growth; and eroding investor confidence.
He concludes with this bombshell:
“Reflecting on the nature of these threats, notwithstanding reassurance provided by Bank Staff based on the outcome of various stress and contagion tests,
I cannot help but remain concerned about the possibility of under-reporting of NPLs. The weakened ability of the CBN, represented by the structure of its balance Sheet, to deal with a recurrence of crisis in the banking sector requires heightened vigilance by Bank Staff.”