The maiden edition of The Citizen Bank Performance Handbook 2015 has been released.

A statement issued on Tuesday in Lagos by the Editor, Mr. Ezra Ikpeama, said that the research report, the first by THE CITIZEN online newspaper, is an x-ray of the Nigerian banking sector and takes a look at the unfolding effects of the general economic slowdown on banks and the financial markets.

Ikpeama said: “The painstaking analysis was embarked upon for the purpose of drawing government and regulators’ attention to the critical issues in the economy deserving urgent attention. It is also aimed at unveiling the effects of these macro-economic developments and regulatory policies on the banking sector that constitutes the nerve centre of the economy.

“The banking sector is yet to recover fully from the damaging effects of the last global financial crisis and has come under operating and regulatory pressures once again. Many banks that have been trying to find the recovery and growth path now have to begin struggling for survival once again.”

Ikpeama further said that regulators have, as usual, continued to give assurances of good health for the banks, noting, however, that such assurances did not stop the financial distress and the eventual closure of a number of a number of banks in the heat of the last financial crisis.

“This report,” according to him, “provides a timely observation that the adverse operating trends that hurt the financial health of banks before are in force once again.

“It calls for both strategic and innovative actions on the part of banks to shield their operations from the adverse economic trends and supportive regulatory actions to ensure adequate liquidity in the economy generally and prevent excessive competition in the banking sector.”

Noting that nothing hurts banking operations as much as liquidity shortfalls, THE CITIZEN Editor added that loss of liquidity was the cause of the financial distress that led to the closure of many banks during the last financial crisis.

“Regulatory policies have again been moving in the direction of curbing bank liquidity over the past two to three years. The result is a general cut-down on investment portfolios and constrained growth in other earning assets,” he said, adding: “Inability to grow earnings assets is affecting bank income statements adversely by way of slowing revenue growth. Hardly has any bank been able to achieve accelerated growth in revenue since 2013.”

Ikpeama observed that against decelerating revenue, two major cost lines were growing rapidly and these have been weakening profit capacity significantly.

He said: “These are loan loss charges and interest expenses, which are claiming rising proportions of bank gross earnings. Rising loan losses reflects the general operating difficulties facing the economy, which calls for an urgent action on the part of the government to prop up economic activity generally.

“Rising cost of funds is a problem for industry, banks and businesses as well as consumers generally. A sustained move in the direction of low interest rates is needed to spur production and consumption forces in the economy.”

Ikpeama said that the policy of single treasury accounts has limited the ability to grow the asset side of the balance sheet.

His words: “Banks are applying various approaches such as rights issue, profit retentions and outright borrowings to meet the funding gaps created. There is a renewed effort to cut down operating cost, mostly through workers layoffs in order to compensate for the rising cost of funds and credit losses. The multiplier effects of declining corporate and government spending portends a serious danger to the economy.

“The report shows details of how each bank is responding to the operating and regulatory challenges and the prospects for the full-year performance. It used a five-year track record of income statements and balance sheets of banks to establish the major operating trends. It also used the current year’s interim reports to project the likely full-year earnings outcomes.

“With average industry ratio benchmarks, the report makes it clear how each bank’s figures compare or contrast from the general industry picture.

“The general industry trends as well as individual banks conditions should guide regulatory policies towards ensuring stability and healthy growth in the banking sector.

“They also provide a reliable guide to strategic decisions and actions on the part of the banks themselves.

“The study also shows the various competitive leagues in the industry such as leadership by the size of the balance sheet, gross income and profit.

“The performance charts show the ability to convert assets into revenue and revenue into profit. Banks that are leading by assets but are lagging by profit are losing asset profit margin more than the others. The analysis brings out clearly each bank’s cost to income relationship and shows how it is either helping or hitting the bottom line.

“A major worrisome trend defined by the report is that both asset turnover and profit margin are declining in the industry. This is an unhealthy trend that needs to be checked otherwise declining profit capacity could degenerate into losses and rising loan losses could hurt bank capital adequacy ratios once again.

“The bearish trend the stock market has taken on banking stocks is a reflection of the growing uncertain outlook of the sector and regulators cannot afford to ignore this signal.

There is no room for pretence in a situation where the banking industry giants are fast becoming penny stocks.

“Individuals, institutions and organisations who are interested in obtaining copies of the handbook are kindly requested to call the number: 0810 698 7846; or visit www.thecitizenng.com for more information.”

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