The Nigerian
Accounting Standards Board has waived the general loan loss provision
for banks financial year, which ended 31 December, 2010.
The board, in a
statement on Monday, said this was due to the fact that banks’ have
subjected their loan portfolios to extensive review since the beginning
of the current Central Bank reforms to up to the end of last year.
“The Council
recognises that the level of provisioning over the period 2008 to 2010
is adequate for the individual DBMs. For this category of banks, council
believes that with such level of provisioning, compliance with the
provisions of paragraph 55 of SAS 10 has been met in an unusual context
as at year ended December 31, 2010. DBMs which are so affected by the
aforementioned CBN/NDIC review are excluded from making the general loan
loss provision for financial year ended December 31, 2010 only,” the
statement read.
Under the Statement
of Accounting Standards (SAS) 10, paragraph 55, Nigerian banks are
required to make general loan loss provisions of at least 1% of risk
assets not specifically provided for (i.e. their performing loans).
“The much awaited
publication from the NASB to clear the air on the 1 per cent general
provisioning (GP) for Nigerian banks YE10 results is finally out. This
was in line with our expectations, so no surprises in there.
“More importantly,
we now have clarity on the way forward and strongly expect YE10 results
this week – tomorrow at the earliest, with Zenith Bank, GTBank and
Access Bank being the first 3 out, in our view,” Adesoji Solanke,
banking analyst, renaissance Capital, an investment bank, said.
How the waiver works
The waiver is only
for the 2010 year end results, and Nigerian banks are expected to
re-commence the General Provisions in 2011, on a quarterly basis. While
YE10 results will be free of the general provisions and the
earnings/dividend train will now arrive without any hitches, 2011
numbers will now feature the general provisions.
“So, when we see
2011 quarterlies, expect a higher figure on the provisions line.
Nevertheless, following Nigerian banks’ massive asset quality
improvement post-AMCON, this figure will be general provisions for the
most part,” Mr. Solanke further said.
According to him,
the expected rise in provisions year on year in 2011 does not imply that
Nigerian banks’ loan books have suffered another deterioration.
“We are careful not
to expect general provisioning to be dropped under IFRS, as accounting
standards boards in their local jurisdictions, have the final say on
IFRS convergence. Also, IFRS introduction in Nigeria is still in a
transition phase, thus making it pertinent to focus on the
decisions/actions of NASB and/or the proposed Financial Reporting
Council (FRC),” he added.
The Central Bank and
Nigerian Accounting Standards Board have been at loggerheads over
general provisioning by banks for their December 2010 results.
The crux of the
dispute was based on whether the general provisioning of banks should be
observed for the banks’ 2010 results, or suspended due to the huge
provisioning the banks have made in the last two years.
General provisioning
was one per cent of performing loans while a two per cent controversy
came up when the Central Bank released the first revised version of the
Prudential Guidelines, which the banks argued against and was
subsequently dropped in the final one.
Finance experts had
urged the Central Bank and the National Accounting Standard Board to
address the issue for industry clarity and investment decisions, adding
that the enforcement of the general provisions for 2010 will be negative
for the banking sector.
Banks are expected to submit their results to the Central Bank before March 31 and publication should be before April 30.
