The Nigeria Deposit Insurance Corporation (NDIC) released its 2018 annual report on the state of banking industry in the country. In this write up, AMAKA IFEAKANDU looks as the performance of the sector and the implications of increased cases of fraud.
The recent report released by the Nigeria Deposit Insurance Corporation (NDIC) has shown that the nation’s banking industry is relatively stable and sound.
The NDIC in its 2018 report said the nation’s banking industry exhibited resilience amidst the macroeconomic and socio political factor that impacted on its financial conditions.
According to the Corporation, the recapitalisation requirements declined from N1.57 trillion in 2017 to N704.88 billion in 2018 while total credit extended by the Deposit Money Banks to the domestic economy amounted to N15.29 trillion, representing a 3.90 per cent decrease from the N15.91 trillion recorded in 2017.
Similarly, the industry non-performing loans (NPLs) decreased by 25.15 per cent to N1.79 trillion in 2018 from N2.36 trillion in 2017.
It further explained that banking industry within the period exposed to high credit risk as depicted by the high NPLs ratio of 11.70 per cent , though, an improvement compared with NPLs ratio of 14.84 per cent recorded in the corresponding period of 2017.
The industry NPLs ratio which stood at 11.70 per cent exceeded the maximum prudential threshold of five per cent for DMBs.
In the same vein, the NPLs to Shareholders’ Fund Ratio improved from 69.21 per cent in 2017 to 57.50 per cent in 2018.
Analysis of the report for the period showed that the banking industry was liquid with liquidity ratio above the minimum threshold, showing that the average Liquidity Ratio was 51.87 per cent at the end of December 31, 2018 compared with 45.56 per cent for the same period in 2017.
Equally, loans to deposit ratio was 72.30 per cent in 2017 but reduced slightly to 64.69 per cent in December 2018 and it was within the maximum prudential threshold of 80 per cent.
The sectoral allocation of credit by Deposit Money Banks (DMB) indicated that the sector with highest credit concentration in 2018 was the oil and gas, as the level of DMBs exposure to the Oil & Gas Sector stood at N4.66 trillion or 30.46 per cent of the industry total credits of N15.29 trillion as at 31st December, 2018.
The second in the level of exposure was the Manufacturing Sector with N2.25 trillion or 14.71 per cent of total credits. It was followed by the Government with N1.34 trillion or 8.78 per cent. The General Commerce accounted for N1.14 trillion or 7.44 per cent while the Finance & Insurance and General sectors received 6.49 per cent and six per cent of total credit, respectively.
On the general financial condition of the 26 Deposit Money Banks’ operating in the country within the reviewed period, based on Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and sensitivity to market risk, NDIC revealed that the overall condition of DMBs in the year was relatively stable and sound, recording an increase in the average capital adequacy ratio from 10.23 per cent in 2017 to 15.26 per cent as at December 2018. The liquidity ratio stood at 51.87 per cent as against 45.56 per cent recorded in 2017, an improvement in NPLs ratio from 14.84 per cent in 2017 to 11.70 per cent as well as improvement in earnings & profitability.
But in spite of the stability and soundness of the nations banking industry, there is still a growing concern about the increase in the incidence of frauds in the financial system.
Rising incidences of fraud
The NDIC current report showed that the actual amount lost to fraud incidences in 2018 stood at N15.15 billion as against N2.37 billion and N2.40 billion in 2017 and 2016, respectively.
The corporation attributed rising fraud incidences to the increase in the sophistication of fraud related techniques such as hacking, cybercrime as well as increase in Information Technology related products and usage, fraudulent withdrawals and unauthorised credit.
The total of fraud cases reported during the reviewed period went to 37,817 against 26,182 in 2017 while the amount involved stood at N38.93 billion in 2018 compared to figure of N12.01 billion in 2017.
Meanwhile, frauds and forgeries perpetrated through internet and technology had the highest frequency of sources of fraud in the system, accounting for 59.2 per cent of fraud cases and 42.83 per cent of the actual total loss suffered.
But the number of ATM/Card-related fraud cases declined from 16,397 in 2017 to 10,063 in 2018.
Another area of concern in the report is the increase in the staff involvement in the fraudulent activities.
According to NDIC a total of 899 staff were involved in frauds and forgery cases in 2018 compared with 320 in 2017. The number of temporary staff involved in fraud was 394, accounting for 43.83 per cent of the total number of staff involved in frauds. This was followed by Officers & Executive Assistants’ cadre with 206 or 22.91 per cent. Supervisors and Managers accounted for 119 or 13.24 per cent of the total fraud cases.
The NDIC while expressing concern on the rise in the number of temporary staff involvement in fraud cases, the Corporation said there was need for DMBs and regulators to address the problem of contract/temporary staff in terms of welfare and permanent employment in view of the risk their current status poses to banks operations. The corporation also urged banks to strengthen their internal controls and validate their recruitment process.
Report good but…
Financial analysts who commented on the NDIC report regarding banks activities in 2018 commended Central Bank of Nigeria and NDIC for their active role in maintaining stability in the financial system.
They pointed out that the decline in frauds using ATM cards was because there have been significant advances in the world of payment processing, adding that with the increased needs for security and protection, a number of measure have taken place to protect card holders and encourage electronic banking in the system.
They, however said that the advent of EMV chip-based and use of pin code and other data authentication has provided added security to the cards.
Increased fraud cases ‘worrying’
A financial analyst, Mr Odumegwu Okolo while commenting on the increase fraudulent activities in the banking system said that it was indeed worrisome that as banks are constantly trying to grapple with the stress of recovering their non performing loans, fraudsters are always at work threatening and defrauding their customers.
He said that more worrying was the rise in the number of employees who are involved in the act as well as the ease with which many escape detection thereby encouraging many others to join in perpetuating fraud.
He said that the rise in the incidence of frauds is becoming an embarrassment to the country because of the inability of the law enforcement agents to successfully track down culprits.
Okolo said the activities of armed robbers are published widely especially during major thefts , but it is an irony that what they took away from banks is only a slice of what fraudsters quietly remove from banks using sophisticated means of technology.
Improved customers’ awareness
The Chief Research Officer, Invest data Consulting Limited, Mr Ambrose Omordion said the reduction in ATM/Card frauds could be attributed to improved security features of the card as well as security awareness on the part of users.
He said that most banks have strengthened their internal control and engaged in customer education on the important of safe keeping of ATM cards and pin number.
A teacher and a bank customer, Mrs Florence Okeke said the adoption of Bridge Bank Mechanism by the NDIC in resolving banks destress has helped to protect depositors funds, worker jobs and reduced disruption to the payment system.
She said the NDIC resolution mechanism gave bank customers assurance and confidence that they can keep their money in the bank and went to sleep.
She said that the bank NPLs is becoming high on daily basis, stressing that although the industry NPLs declined by 25.15 per cent according to the report, there was need for the NDIC and apex bank to mount pressure on banks to ensure they adopt strong recovery strategies to further reduce NPLs.