Banks Face More Daunting Challenges as Sanusi Squeezes ‘Life’ out of System

What many called a perfect storm is gathering more momentum as central bank strong man, Sanusi Lamido Sanusi looks forward to anchoring the boat for another ‘captain’ to take sail in months’ time. The question on the lips of many is that, will he leave the banking system weaker – with little or no profit, high over-head cost, crippled real sector?
The banking sector continues to face challenges as Sanusi who has been at logger-head with the Federal Government gets set for retirement.
The storm is brewing in the form of Central Bank of Nigeria (CBN) public sector Cash Reserve Ratio (CRR) hike further impacts banks margins, reducing Charges on Transaction (COT) costs also adversely impacting fees income, as well as the mandate to contribute 0.5 percent of total assets and one-third of off balance sheet assets to Asset Management Cooperation of Nigeria (AMCON) sinking fund CBN.
CRR debits means an additional N747 billion is mopped from the system
CBN increases CRR on public deposits to 75 percent U.S. Fed initiates tapering of its stimulus program.
“This ends an era of easy money”, Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited surmised.
That rained caused by Sanusi that is devastating the banks and money market, appears to be pouring at the stock exchange. Equity markets had their worst January since the 2008/2009 Crash
The Nigerian Stock Exchange (NSE) All-Share Index (ASI) decreased (1.8 percent) on the month compared with an average January return of eight percent since the crash.
Rewane is convinced that the CBN mop-up should adversely impact banking profit margins, but looks optimistic that banks may become more efficient in the long run.
“The measures introduced are challenging to banks in the near-term. In the longer run, banks will be more creative and efficient in operations as a result banking stocks on the NSE are trading on average at 8.5x earnings compared with the market P.E. at 14.5x”, said Rewane.
Rewane expresses fears that increased finance costs will likely on impact first quarter result of 2014, and that weaker naira may also impair on earnings.
“Also increases risk of default on dollar-denominated loans”, said Rewane.

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