VZCZCXRO6369
RR RUEHMA RUEHPA
DE RUEHOS #0465/01 3260720
ZNR UUUUU ZZH
R 210720Z NOV 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0314
INFO RUEHUJA/AMEMBASSY ABUJA 9956
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000465 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR DFIELDS, AIERONIMO, RHALL, DPETERS 
STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS 
STATE PASS TDA FOR LFITTS, PMARIN 
STATE PASS USAID FOR NFREEMAN, GBERTOLIN, GWEYNAND, SLAWAETZ 
STATE PASS EXIM FOR JRICHTER, KJACKSON, KJANIK 
DOC FOR 3317/ITA/OA/KBURRESS 
 
E.O. 12958: N/A 
TAGS: EFIN EFIN EAID NI
 
SUBJECT: NIGERIA: 95 PERCENT OF BANK LOANS ARE SECURITIZED, EX-IM 
VISITORS TOLD 
 
Ref: A) Abuja 2180 
B.) Lagos 426 
 
¶1. (SBU) Summary: Over 95 percent of banks' loan portfolios are 
securitized, bank representatives told U.S. Export-Import Bank 
officials during their October 21-24 visit; this indicates that 
banks are unable to conduct risk assessment and project monitoring. 
Retail banking cannot develop due to the lack of a credit system, 
and banks are struggling to recruit, retain, and develop competent 
employees. Despite these problems, Nigerian banks are optimistic and 
see the market's downward slide as a reflection of profit taking by 
investors who captured high yields before the beginning of the 
global downturn. End Summary. 
 
¶2. (SBU) U.S. Export-Import Bank (Ex-Im) officials Katherine Janik, 
Mauricio Milian, and Kyle Jackson, visited to Lagos October 21-24, 
to assess the capacity of Nigerian commercial banks to conduct risk 
assessment and project monitoring.  Ex-Im officials, accompanied by 
EconOff, met with financial experts and with representatives of nine 
commercial banks (United Bank for Africa, Oceanic Bank, EcoBank, 
Diamond Bank, Intercontinental Bank, Bank PHB, Union Bank, Zenith 
Bank, and Access Bank). 
 
Nigerian Problems, Regional Impacts 
----------------------------------- 
 
¶3. (SBU) Bismarck Rewane, Managing Director of Financial 
Derivatives, a Nigerian consulting, told Ex-Im visitors that Nigeria 
is facing a financial crisis given the loss of confidence in the 
domestic market and the global credit crunch.  He also said problems 
in the Nigerian banking system have regional ramifications.  Through 
their aggressive expansion to other African countries, the Nigerian 
banks, he argued, are supporting satellite markets in Africa. 
Problems in the Nigerian banking system, arising from domestic 
sources or from the international financial crisis, are likely to 
affect other regional markets and need to be watched carefully, he 
said. 
 
Local Banks See Market 
Correction, Not Financial Crisis 
-------------------------------- 
 
¶3. (SBU) The banks expressed confidence in the capital market, 
asserting that its downward slide signaled a market correction, not 
a financial crisis. Olamide Shonekan, Director of Global Markets, 
United Bank for Africa (UBA), said international investors began 
pulling their investments out of Nigeria starting in 2007, long 
before the current global financial crisis and downturn in Nigerian 
capital market.  According to Shonekan, international investors had 
captured high yielding investment opportunities from 2006 to 2007, 
and their departure from Nigeria reflected a need to deploy capital 
elsewhere, not a loss of confidence in Nigeria. (Comment: Whether 
the Nigerian capital market is undergoing market correction or 
ailing from a financial crisis is still under debate. The banks 
inevitably painted a rosier picture of the current situation. End 
comment) The nine banks disagreed, however, over the economic 
rationale of commercial banks playing the role of market makers. 
(Ref B)  With respect to the short term future, most of the nine 
banks believe the sector will undergo a second round of 
consolidation in 2009 through mergers and acquisitions. 
 
95 Percent of Loan Portfolios Securitized 
----------------------------------------- 
 
¶4. (SBU) Oceanic Bank, Bank PHB, and Access Bank officials said over 
95 percent of their loan portfolios are fully collateralized or 
securitized, and unsecuritized loans are only available for blue 
chip companies, namely international companies such as Shell and 
Exxon-Mobil. (Comment: The collateralization or securitization of 
nearly 100 percent of banks' loan portfolios signals the banks' 
inability to conduct project risk assessment and monitoring. End 
Comment) For Oceanic Bank, loans for real estate development require 
130 percent securitization.  However, the banks claimed that only 
five to ten percent of their loan portfolios, a very insignificant 
portion, are used for margin lending. (Note: Financial experts, 
however, gave a higher figure; they told EconOff in separate 
incidents that margin lending accounts for around 40 percent of most 
Nigerian banks' assets. End Note) 
 
Bank Growth Unsustainable 
 
LAGOS 00000465  002 OF 002 
 
 
------------------------- 
 
¶5. (SBU) Austen Obigwe, Executive Director of Corporate and 
International Banking, Union Bank, contended the high growth rates 
proclaimed by certain banks are not based on economic fundamentals 
and are unsustainable.  According to Obigwe, these "cowboy" banks 
manipulated the numbers on their balance sheets through maneuvers 
such as inter-bank lending.  Henry Nelson, Head of International 
Banking Group, Oceanic Bank, said Nigerian banks have their dividend 
pay-out ratios of around 70 percent. (Note: Dividend pay-out ratio 
is the percentage of earnings paid to shareholders in dividends. End 
Note) He believes the current ratio is unsustainably high, and hopes 
that it will decline in the medium to longer term future as banks 
undergo a second round of consolidation. 
 
Competition Exacerbates Human Capital Problem 
--------------------------------------------- 
 
¶6. (SBU) Local banks are aggressively recruiting and training 
entry-level employees, and there is fierce competition among the 
banks for the best people.  Most banks have established in-house 
training courses for entry-level employees coming out of the 
universities and have provided their mid-level management with 
training opportunities overseas.  However, poaching is common, 
especially of employees who have been trained and have worked for a 
period of time.  The lack of human capacity, coupled with the high 
rate of employee turnover, jeopardizes the banks' effort to develop 
and institutionalize risk management and project monitoring 
capabilities, bank representatives emphasized. 
 
Retail Banking Needs Credit Bureaus 
----------------------------------- 
 
¶7. (SBU) The absence of credit bureaus has made retail banking 
highly risky and, as a result, costly.  Banks have been considering 
expanding into retail banking, but the costs of obtaining consumer 
credit histories, not generally available in Nigeria, far exceed the 
potential profits.  Currently, banks must rely on corporations for 
credit checks, and no data exists for credit scoring.  Retail 
banking will develop with the right structure, namely the 
development of a credit checking and scoring system, the bank 
representatives proffered. 
 
¶8. (SBU) Comment: Ex-Im visitors, in the debrief with 
CommercialCouns and Econoff, said there is low capacity for risk 
assessment and project monitoring, as evidenced by the very high 
percentage of securitized loan as a part of the total loan 
portfolios, among local banks.  Technology and human capacity are 
the common denominators for the problem.  While some Nigerian banks 
are stronger than others with respect to their risk and monitoring 
capabilities, the Nigerian banking sector, as a whole, is still weak 
by absolute standards. End comment. 
 
¶9. (U) Ex-Im visitors did not have an opportunity to clear this 
cable before departing Lagos.  This cable has been cleared with 
Embassy Abuja. 
 
BLAIR