Banks record N25.6b fraud in 2014

In from Ali Smart…

The nation’s banking sub-sector lost a whopping N25.6 billion to bank related fraud and forgeries in the last one year.

This is the outcome of a report compiled by the Nigerian Deposit Insurance Corporation (NDIC) in its 2014 annual report.

According to the NDIC report, Deposit Money Banks (DMBs) “reported 10,612 fraud cases in 2014 compared with 3,786 cases reported in 2013, representing an increase of 182.77 per cent with a combined value of ₦25.61 billion.

Also the expected/actual loss to banks as a result of fraud and forgeries increased from ₦5.76 billion in 2013 to ₦6.19 billion in 2014 representing an increase of 7.57 per cent.

This, the NDIC said was “mainly due to the astronomical increase in the incidence of web-based (online banking)/ATM and fraudulent transfer/withdrawal of deposit frauds.”

Despite the huge loses, the NDIC in its annual report said the country’s banking industry remained sound as at the end of 2014.

According to the NDIC, “the banking industry’s financial soundness indicators revealed that the industry remained generally sound during the year under review. The banking industry recorded significant growth in assets of 11.84 per cent, credits to the economy grew by 25.73 per cent, and deposit liabilities rose by 7.45 per cent, while unaudited profits of the industry showed a growth of 11.31 per cent in 2014.”

The Capital Adequacy Ratio (CAR) of the Deposit Money Banks (DMBs) declined by 1.26 percentage points from 17.18 per cent in 2013 to 15.92 per cent in 2014, but exceeded the minimum capital adequacy threshold of 10 per cent.

However, the NDIC noted that the Asset Quality of the banking industry significantly improved during the period under review.

The banking industry total loans and advances stood at ₦12.63 trillion in 2014, showing an increase of 25.73 per cent over ₦10.04 trillion granted in 2013 while the industry’s volume of non-performing loans increased by 10.26 per cent from ₦321.66 billion in 2013 to ₦354.84 billion in 2014.

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The banking industry non-performing loans to total loans ratio improved from 3.20 per cent in 2013 to 2.81 per cent in 2014 and was within the regulatory threshold of 5 per cent. The observed improved asset quality the NDIC said “could be explained by the improved process of loan underwriting as well as the continued purchase of non-performing loans (NPLs) by AMCON.

The unaudited profit-before-tax (PBT) of the banking industry in 2014 was put at ₦601.02 billion, representing an increase of 11.31 per cent over ₦539.97 billion reported in 2013 while Return on Assets (ROA) and Return on Equity (ROE) declined marginally by 1.70 per cent and 1.76 per cent from 2.33 per cent and 20.71 per cent to 2.29 per cent and 20.34 per cent in 2013 and 2014 respectively. Yield on earning assets declined to 11.71 per cent in 2014 from 13.10 per cent in 2013.

The NDIC report also stated that the banking industry liquidity risk was moderate during the period under review with the industry average liquidity ratio rising from 50.63 per cent in 2013 to 53.65 per cent in 2014 “showing an increase of 3.02 per cent over the 50.63 per cent in 2013. Individually, all the DMBs in the industry had liquidity ratios in excess of the minimum prudential requirement of 30 per cent, as at December 31st, 2014, indicating that all DMBs were sufficiently liquid.”

The maturity profile of the banking industry’s assets and liabilities continued to show mismatch and investor preference for short-tenored investment. Short -tenured investments maturing below 180 days accounted for 51 per cent of aggregate assets investment, while that of liabilities stood at 88 per cent.

According to the NDIC, “assets maturing within one year stood at ₦10.85 trillion or 55.98 per cent of the industry assets while ₦8.53 trillion or 44.02 per cent would mature over one year (˃ 365 days). On the other hand, liabilities of ₦17.85 trillion or 91.58 per cent of industry total liabilities would mature within one year, leaving only ₦1.64 trillion or 8.42 per cent to mature over a year.”

The NDIC report noted that a review of the banking industry sectoral distribution of credits to the various sectors of the economy indicated that top ten (10) sectors out of 22 accounted for 87.35 per cent of total credits in 2014 compared with 81.99 per cent in the previous year. The other sectors accounted for 12.65 per cent in 2014 as against 18.01 per cent of the total credits extended by the DMBs in 2013. Credit to the Oil and Gas sector accounted for the largest share of 25.74 per cent; followed by manufacturing with 13.19 per cent.

Based on these indicators, the NDIC reported that “the banking industry performance and level of soundness in 2014 indicated that twenty three (23) DMBs were rated sound and satisfactory during the period under review. Overall the banking industry was safe and sound in 2014.”

Of the 882 Micro Finance Banks (MFBs) in operation, only 679, representing 77 per cent, rendered returns to the NDIC as at 31st December, 2014. Their paid-up capital increased by 23.46 per cent from ₦44.16 billion in 2013 to ₦54.52 billion in 2014. However, their reserves declined from ₦0.41 billion in 2013 to negative ₦1.47 billion in 2014, “due to poor asset quality and declining profit.

Consequently, the shareholders’ fund of the MFBs increased by 19 per cent from ₦44.57 billion in 2013 to ₦53.04 billion in 2014.”

The MFBs total assets increased by 12.26 per cent from ₦197.44 billion in 2013 to ₦221.65 billion in 2014 just as their total loans and advances increased from ₦85.44 billion in 2013 to ₦114.70 billion in 2014. Although their quality of assets improved marginally as indicated by the NPL ratio of 17.20 per cent in 2014, compared with 18.49 per cent in 2013, the ratios exceeded the prudential threshold of 5 per cent.

The report added that the liquidity position of the microfinance subsector was strong as reflected by the average liquidity ratio of 80.37 percent compared with the prudential threshold of 20 per cent. “Total deposits slightly increased by 5.70 per cent from ₦104.71 billion in 2013 to ₦110.68 billion in 2014.

In the same vein, the loans to deposit ratio increased from 81.59 per cent in 2013 to 103.63 per cent in 2014, indicating significant overtrading” said the report.

The challenges faced by the Microfinance sub-sector in 2014, included Weak Capital Base, Poor Asset Quality, Lack of Microfinance Banking Knowledge and Experience, High Operating Costs, Scarcity of Loanable Funds, Low Literacy Level, Inadequate Management Information System, and Poor Corporate Governance Practices, the NDIC reported.

With regards to Primary Mortgage Banks (PMBs), the NDIC noted that “following the sanitization and recapitalization of primary mortgage banking sub-sector, the number of PMBs decreased to 42 in 2014 from 83 in 2013. The PMBs paid-up capital increased from N39.7 billion in 2013 to N59.05 billion in 2014, an increase of 48.74 per cent. Their reserves also grew from a negative N6.08 billion in 2013 to N12.59 billion in 2014, while the shareholders’ funds rose by 80.45 per cent to N71.64 billion in 2014. Consequently, the average capital adequacy ratio of the PMBs stood at 75.95 per cent as at 31st December, 2014.”

During the year under review, the NDIC paid a total of ₦6.832 billion to 529,046 insured depositors as at 31st December, 2014 as against ₦6.824 billion to 528,277 insured depositors as at 31st December, 2013. It also continued with the payment of insured deposits of closed MFBs in 2014 through the Agent Banks. “A cumulative payment of N2.772 billion was made to 80,178 verified depositors of closed MFBs in 2014 as against N2.524 billion paid to 75,571 verified depositors in 2013, and a cumulative payment of N2.02 million had been made to 30 verified depositors of closed PMBs in 2014.”

The payment of liquidation dividends to the uninsured depositors of closed DMBs continued in 2014. The sum of N94.74 billion was paid as liquidation dividend to 250,592 depositors in 2014 compared to N93.51 billion paid to 250,497 depositors as at December 31, 2013. That amount included the uninsured portion of private sector depositors of 11 out of the 13 banks closed post-consolidation which was funded by the CBN.

The payment of liquidation dividends to shareholders of banks-in-liquidation also continued in 2014. The sum of N1, 728.4 million (N1.7 billion) was declared as dividends to 1,284 creditors of nine banks. Out of that amount, the NDIC paid the sum of N1, 247.77million (N1.247 billion) to the 889 creditors who filed their claims as against N1, 191.54 million paid to the 424 creditors as at 31st December, 2013.

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The cumulative liquidation dividend declared for shareholders of 3 banks-in-liquidation remained at N2.56 billion in 2014 as in the previous year. The total liquidation dividends paid to 453 shareholders of Alpha Merchant Bank, Pan African Bank and Nigeria Merchant Bank stood at N2.03 billion as at 31stDecember, 2014.

In 2014, the sale of three (3) accounts for the total offered sum of N262.64million was concluded and the proceeds paid by AMCON. The sum of ₦163,859.70 million and ₦6,997.42 million were due from the various customers of the 46 DMBs and 187 MFBs in-liquidation, respectively as at 31stDecember, 2014. The cumulative recoveries from the debtors of the DMBs and MFBs as at 31st December, 2014 were ₦26.75 billion and ₦127.64 million compared to ₦25.31 billion and ₦44.98 million, respectively, as at 31st December, 2013.

NDIC’s Total Operating Income increased by 28.73 per cent from ₦66.94 billion as at t December 31s, 2013 to ₦86.17 billion as at 31st December, 2014. Total Operating Expenses also increased by 22.77 per cent from ₦24.73 billion as at 31st December, 2013 to ₦30.36 billion as at 31stDecember, 2014. The net surplus of operating income over operating expenses for 2014 and deposit insurance fund stood at ₦138.81 billion as against ₦114.18 billion in 2013, after remittance of ₦15.38 billion to the FGN Consolidated Revenue Fund Account.

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