The Poor State of Nigeria's Financial Institutions

It took courage of Sanusi to expose the distardly state of almost all our financial instituions. At a time when we thought the issue of unhealthy banks were over, the issue resurfaces again. The poor, incompetent and unexposed management style of our so-called bank czars has yet again raised the issue of the downgrade of merit especiually in sentive institutions like Nigeria's financial institutions. In the absence of a willingness to give local talent a fair chance, the only option left is the eventual take-over of our financial institutions by foreign banks.Another issue that is yet to be properly adressed is the role NDI OKEREKE, the NSE czar, played in this shameful situation that almost led to a systemic collapse. What teh hell was she thinking when she allowed uncontrolled and unmonitored IPOS by many banks. I gues she had her fair share of this unregulated process.The Nigerian govenrment better sit up before we are drawn back into the dark days of indebtedness. In all i praise the braveness of the CBN in bailing out our financial institutions.This discussion is to be continued. Your comments will be greatly appreciated. Thanks Gerald

The Entry of Foreign Banks into The Domestic Financial Environment In Nigeria: Gains and implications

The recent announcement by the central bank of Nigeria (CBN) to ease restrictions on foreign ownership of banks in Nigeria was welcomed with mixed feelings in different quarters. Currently, foreign ownership of domestic banks is restricted to just 5% or less. This prevented inflow of foreign capital into the Nigerian financial environment. The recent announcement by the CBN to ease restrictions must be carefully analyzed before onward acceptance before outright acceptance by the Nigerian public. The decision to ease restrictions appears to be borne out of deperation considering the recent turmoil in the capital market. Foreign ownership of banks should not just be allowed because of a shortage of liquidity in the system.

Foreign ownership of banks comes with a lot of benefits. The success of foreign bank ownership in emerging economies like Argentina, Colombia and Peru highlights benefits that can be replicated in Nigeria. The benefits of foreign bank ownership includes; improvement in the financial rating of domestic banks, access to foreign capital (liquidity), improvement in capital adequacy (CAMEL framework), improved risk management policy and loan portfolio, improved loan absorption etc. Foreign ownership of domestic banks in Nigeria will inevitably lead to the transfer of resources like improved manpower, management, expertise and better policies to the domestic banks. As a result, there is no doubt as to the improved competitiveness of domestic banks. This represents both quantitative and qualitative benefits for domestic banks.

In spite of the obvious advantages of foreign ownership of domestic banks, it would be foolhardy to ignore possible negative implications. For one, while foreign ownership will expose Nigeria's financial environment and economy to the gobal landscape, there is also the danger of macro-economic pressures that may occur as a result. This is more likely to occur bearing in mind that financial and risk management policies in Nigeria are yet to keep up with the recent expansive consolidation exercise in the banking sector. Another risky implication is that there is a danger of for potential foreign banks to snap up the 'lower-risk' clientele from the available domestic banks. This may result in reduced competitivenes of the higher risk banks. Furthermore, the domestic banks that do not meet the requirements of foreign banks may witness a reduction in their overall asset quality. These implications need to be properly assess from the onset of such a policy.

Finally, while foreign bank ownership of banks in Nigeria have obvious advantages, there are possible negative implications. One obvious advantage of foreign participation is that it would go a long way in reducing deposit reliance by domestic banks which puts marketing staff on pressure.

Subject stream to be continued..........

The Truth Behind the Stock Market Crash In Nigeria

The crash of the stock market in Nigeria came as an utter surprise for many. The main casualties of the crash were veteran investors; fathers, mothers and retirees who formed a greater percentage of the fatefuls in Nigerian equities. Overnight, over 70% was wiped out of the value of most shares traded in the Nigerian stock exchange. Top on the casualty list of dissappointing shares were bank equities; banking giants like Zenith, Bank PHB, UBA and First Bank witnessed a downward slide in their market value.

Amidst the massive outcry from the citizenry, many of whom have seen their pensions diminish rapidly, there is little hint at the core of this avoidable problem. What are the Stock exchange itself? Was it managed appropriately? The excuse that is being propagated by some that our exchange is solely dependent on adverse m ovements in international markets and exchanges is completely insufficient. If a finger of blame is to be pointed, then it should be pointed at the guardians of the stock exchange. A failure of stock exchange internal policies was largely responsible for the abnormal and untimely demise of our once fledging stock exchange. The policy of excessive and unmonitored floatation of shares of companies by the Nigerian Stock Exchange (NSE) prior to the crash is inexcusable. Simple economic laws like the law of demand and supply were ignored by the top echelons of the NSE at its own peril. Of course in a scenario were you had most of the Nigerian banks issuing IPOs with reckless abandon was bound to come to its head soon. What we had in the lead up to the eventual crash was a situation of excess supply of various equities. According to the simple laws of economics, the more the quantity, the lower the price.

Those responsible for overseeing the affairs of the NSE displayed an utter lack of professionalism and lack of technical knowledge in the manner in which they certified and approved frequent floatation of shares to the unsuspecting investing community in Nigeria. Again, another scenario played out by this scenario was the prevalence of a undervalued shares in the market. The Securities and Exchange Commission also has a role to play in the crash. Where was the SEC when these transactions were being passed by the NSE. Was it a lack of oversight by appropriate regulatory bodies?

To Be Continued.........

Enter Nigeria

This blog is hosted by a host of professionals who are keen on exposing the insides of Nigeria. Existing business opportunities and exclusive indepth business analysis will be conducted on a regular basis.This blog will give a bird's eye view of the business and political environment within Nigeria.