‘Too big to fail’ banks lag behind in new quality ratings (Nigeria)

By Hope Moses | BusinessDay, Nigeria March 15, 2016

Nigeria’s ‘too big to fail’ deposit `money lenders lag behind other countries in quality, as universal banks continue to struggle worldwide, Lafferty Bank Quality Ratings (LBQR), reveal.

London-based Lafferty Group, is and a major provider of knowledge services to the banking industry worldwide, from benchmarking research and councils to professional education.

Out of the 100 financial institutions in 28 countries surveyed, only Sterling Bank plc came among the 15 institutions receiving the highest Lafferty new ratings.

Nigerian banks had last year ranked well above other countries in terms of quality, in the Lafferty Bank Quality Ratings.

Financial analysts see Nigerian banks as gradually losing the confidence of customers, as the lenders deviate from their intermediary role, to subjecting their clients to excessive transaction and service charges.

The analysts see foreign exchange related losses, exposure to the oil and gas sector, implementation of Treasury Single Account (TSA) and the zero COT, impacting heavily on banks’ earnings.

The rating report revealed that major UK, German, French, Spanish, Swiss, Australian, Chinese, Japanese, Canadian, and US banks typically have 3-star or 2-star Lafferty quality ratings.

Using quantitative and qualitative criteria and looking at areas such as strategy, culture, customer care, brand promise and financial performance, Lafferty Group uses the banks’ annual reports to arrive at a quality rating (from one to five stars) for each of the 100 financial institutions in 28 countries.

However, Nigeria’s Sterling Bank Plc, which was rated a four-star lender, was among the 15 institutions receiving the highest Lafferty ratings among the 100 banks from around the world, rated in the first issue of LBQR.

Others include Capitec and Barclays Africa from South Africa, HDFC from India, Discover from the US, Public Bank and Hong Leong from Malaysia, OCBC from Singapore, TSB from the UK, Swedbank and Handelsbanken from Sweden, National Bank of Kuwait, ADIB from the UAE, Arab National Bank from Saudi Arabia, and BCA from Indonesia.

Analysts had expressed worries over the likely poor outings by the banks on their financial year-end 2015, as they release their results this week. The report showed that different banking models in different parts of the world rank well in the ratings, evidence that there is no one ideal model for a bank – whether it is based in emerging or developed markets.

Michael Lafferty explained that LBQR uses the annual report because of its unique status. It is the primary vehicle used by bank management to communicate and give account to shareholders and other stakeholders.

He explained, “The methodology is founded on extensive conversations with senior bankers, regulators and shareholders and can be viewed as an antidote to excessive focus on traditional measures such as ROE (return on equity) or EPS (earnings per share) favoured by securities analysts. ROE can easily be manipulated. Before the financial crisis, traditional bank valuation ratios failed to highlight banks that were overtrading. Like the Max Plank Institute in Berlin and many central bankers, we think that simple rules of thumb are often more useful for judging banks.”

Lafferty also stressed that banks that score well on Lafferty Bank Quality Ratings, tended to trade at a premium price to their tangible book value.

He said, “There is evidence that investors appreciate and will pay for quality. Our ratings explain what the stock market is rewarding and why.”

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