CBN reforms trigger fears of African banks stability S&P

CBN reforms trigger fears of African banks stability S&P

The recent intervention by the Central Bank of Nigeria in five ”troubled” banks, which led to the sack of their chief executive officers and revealed significant liquidity crisis, has triggered fears about the stability of African banks, according to a credit rating agency, Standard and Poor‘s. French news agency, AFP, on Thursday, quoted S&P as saying that sub-Saharan Africa faced further obstacles such as increased regulation of financial markets in reaction to the credit crunch and fears about the stability of African banks following the crisis in Nigeria. This, according to experts, is because the Nigerian banks, post-consolidation, had been seen as drivers of financial system growth in sub-Saharan Africa.

The CBN had on August 14 injected N420bn into Intercontinental Bank Plc, Union Bank of Nigeria Plc, Afribank Plc, Oceanic Bank Plc and Finbank Plc on account of liquidity stress that had kept the banks ‘locked’ in the CBN Expanded Discount Window for months. The bank executives had been accused of insider abuses and abysmal credit/risk management, which reportedly threatened the entire banking system. According to S&P, the worldwide economic crisis has stifled Africa‘s growth boom and the region faces further threats even as a recovery gets underway in other parts of the world.

This, experts said, would make the economy feel the impact of the current crisis in the Nigerian banking sector more. A former minister, who asked not to be named, said, ”If we had undertaken these reforms earlier, the economy would have been better able to bear the consequences. If we had faced the reality about our banks at the outset of the global financial crisis, we would have gone steps ahead of this stage. ”We are now doing what other countries had done a long time ago, but that does not mean that we should not act.”

Investigations by our correspondent revealed that lending activities are almost nil now that the banks are struggling to recover their debts to reduce their provision for loan losses. Standard and Poor‘s said, ”Falling commodity prices, remittances, foreign direct investment, tourism and the freezing of global capital markets all combined to stifle the recent African boom.” It said rich economies could also cut aid budgets because of rising debt and vital remittances from African immigrants in wealthier countries in Europe and North America, which could be reduced as unemployment there continues to rise.

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