December 31 FYE: Implications for the Nigerian banks

 With the drive of the current administration of the Central Bank of Nigeria, CBN, to take the Nigerian financial sector to be at par with international standards, the recent pronouncement for all banks to have the same financial-year-end comes as no surprise. In more sophisticated economies, the financial institutions usually close their books at the end of the fiscal year. With this, regulators, analysts, investors and other gamut of interested parties in between have a clear cut idea of what their economy is doing.

The last 3 years since the CBN handed down the shore-up-your capital declaration, the financial sector, especially the banking industry, has witness a rapid growth. But that hasnt come without its own baggage of issues. With banks closing their FYE at different times, each was clamming one flag-post position or the other while the average Joe sits there bewildered; not knowing who is where.

The new FYE directive will solve that problem once and for all. 

For one, competition would be keen and cut-throat. Now that the end has come for year-end-deposits balances would be adjusted by markets which would now force bankers to look for deposits more aggressively. Competition is not really a bad thing as customers could now call the shots. Since deposits would be in short supply, any bank that wants to close the year on a positive note must find a way to delight its customers. 2009 would probably be a good year to be a banks customer. This could induce an increase in deposit rates; forces of demand and supply, with demand outweighing supply.

Also, this would definitely sieve the big players from the fringe players. The top ten positions would be keenly contested and there would probably be severe punishments for any bank caught in the bottom 5.

Since every bank would be closing its book by December 31^st, industry pundits, and the rest of us mere mortals, can at last know the real size of the Nigerian economy. Massive account to account from one bank to another for year end is about to come to an end, the winner truly takes it all. Since the CBN depends on the figures provided by banks for year end to determine the size of banked funds in the economy, this would give us an accurate snap shot of where we truly are.

Another winner here is the NDIC. The NDIC takes an insurance premium from every bank based on the size of their deposits by December 31^st. Legends have it that December 31^st usually has banks recording the lowest deposit in the year which miraculously increases few months after. This is the time for NDIC to take its own pound of flesh.

The biggest question of all is how will the few heavy weight auditing firms be able to handle the 23 banks within 2  3 months when their books are due to be submitted to CBN for vetting? How will the CBN audit all these banks at once? Does that mean that there would be a scramble to employ more auditors?

This is really an interesting time.