Written by Omoh Gabriel, Business Editor   

Foreign direct investment in Nigeria bank stood at $1billion in 2007 showing the high level of confidence the outside world has on the banking system in Nigeria. This is contained in the just released 2007 annual report of the Nigerian Deposit Insurance Corporation(NDIC).

The non- interest income also increased by 75.51 per cent from N233.02 billion to N408.97 billion during the same period”. According to the report “recoveries from delinquent facilities showed an appreciable increase of 170.84 per cent from N9.50 billion to N25.73 billion over the same period.

Operating expenses rose by a lower percentage of 57.23 per cent from N367.67 billion at the end of 2006 to N579.2 billion at the end of 2007. Given the higher increase in income relative to expenses, the industry’s total profit before tax stood at N395.75 billion or 109.76 per cent over the 2006 performance of N181.04 billion”.

“During the year, six (6) Nigerian banks namely: Access Bank PIc, First Bank of Nigeria PIc, Guaranty Trust Bank PIc, United Bank for Africa PIc, FCMB PIc and Diamond Bank PIc accessed the capital market and raised a total of US$2billion through the Global Depository Receipts Channel.

Generally, in 2007 there was significant improvement in the earning capacity of the 24 banks. The enhancement in earnings was driven mainly by increased capital base, larger balance sheets and enhanced deposit growth as a result of the consolidation exercise”.

According to the report “total assets of the industry grew by 61.53 per cent between December 2006 and December 2007. Growth in total deposit liabilities was about 56.6 per cent which was higher than the 38% growth experienced in the previous year.

On a similar note, the ratios of total assets to the GDP as well as that of total deposits to the GDP also increased during the period under review suggesting that the industry’s contribution to the economy was better than it was in the previous years”.

Continuing the NDIC said “in the previous year, the nation’s banking sector witnessed a robust growth in 2007 even though the number of banks reduced from 25 to 24 following the successful merger between IBTC Chartered Bank PLC and Stanbic Bank Limited to form Stanbic IBTC Bank PLC.

The industry recorded a significant increase of 52.71 per cent in total assets from N6.83 trillion in December, 2006 to NI0.43 trillion (exclusive of Off-Balance sheet Engagements) in December, 2007.

“Assets quality witnessed a slight improvement as the ratio of non-performing credits to total credits reduced from 7.92 per cent in 2006 to 7.39 per cent as at the end of 2007.

On a similar note, total deposits rose by 55.36 per cent from N3.45trillion to N5.36trillion whilst shareholders’ funds increased by 58.65 per cent from N1.04trillion in December 2006 to N1.65 trillion as at the end of December 2007.

The performance of insured banks, proxied by profitability, recorded an appreciable increase of over 109.76 per cent in 2007 as their un-audited profit before tax rose from N181.04 billion in December, 2006 to N3 79. 75 billion in 2007".

The report stated that “There was a significant increase in the industry shareholders’ funds during the year under review as the funds increased by 58.65 per cent from N1.04 trillion in December 2006 to Nl.65 trillion by the end of December, 2007.

“That phenomenal increase was as a result of continuous recapitalisation efforts of the banks through fresh capital from the Stock Market and re-investing part of profits declared during the year.

In spite of the significant increase in shareholders’ funds, the average capital to risk-weighted asset ratio in the system declined from 22.75 per cent to 21.09 per cent due to a large increase of 78.08 per cent in risk-weighted assets compared to a lesser increase in total qualifying capital of about 66.4 per cent.

Three banks recorded capital adequacy ratio of less than 10 per cent. That was in contrast to the situation in the preceding year where only one bank had capital adequacy ratio below the minimum requirement. Table 9.1 presents some statistics on insured banks’ capital adequacy as at December 31, 2007 with comparative figures for the previous year”.

The NDIC further said that the economy “witnessed a significant improvement in the banking industry’s total credit in 2007. The major reason could be adduced to increased shareholders’ funds, significant deposit growth and expanded branch network.

The total credit granted by insured banks increased by 84.86 per cent from N2.84 trillion to N5.25 trillion between December 2006 and December 2007.

“Insured banks’ nonperforming credits increased by about 72.4 per cent over the one year period from N225.08 billion in December 2006 to N387.99 billion in December 2007.

In spite of the significant growth in non-performing credits, there was a slight improvement in banks’ asset quality as the ratio of nonperforming credit to the total credit decreased from 7.92 per cent in 2006 to 7.39 per cent in 2007 following a higher percentage increase in total credits.

That perceived improvement was however, contradicted by another indicator, non-performing assets to shareholders’ funds which deteriorated from 22.5 per cent to 2
3.98 per cent between 2006 and 2007.

“Two insured banks as against three (3) in the preceding year did not meet the minimum liquidity ratio of 40 per cent as at December 2007. Insured banks’ financial condition was generally satisfactory during the year under review. Out of the 24 banks in the industry as at the end of 2007, four were rated sound, seventeen were rated satisfactory, two marginal and one was rated unsound.

The market share of assets, credits and deposits of the unsound bank represented 1.63 per cent, 1.97 per cent and 1.68 per cent of the industry’s total respectively during the period under review. The bank’s non-performing credits to total credit ratio was as high as 88.35 per cent.

The two marginal banks’ total market share of assets, credits and deposits were 3.95 per cent, 3.81 per cent and 3.86 per cent of the industry total respectively. Their average non-performing credits to total credits ratio stood at 21.11 per cent with an average capital to risk-weighted assets ratio of l1.74 per cent”.