In any environment where regulations are lax, capitalists deal mercilessly with citizens.
Sometime ago, I had access to the bad debts taken over by AMCON, I was scandalised. Same names circulate among different banks with their companies as Non performing loans. All of them exceeding stipulated Obligor limits.
In some banks, loans that have gone bad for almost a decade are reclassified from S3 to S1 to hoodwink the investing public.
Do you want to talk about glaring corporate governance breaches?
So, the idea of this series is to arm you with information to save yourselves as the purported saviours work in cahoots with those undermining the financial system.
Do not get carried away with the current share prices immediately before or during public offer. They can be and are manipulated to hoodwink the investors. Do a historical review. Check the published annual reports, you can go 10 years back. A simple pay back period method of investment analysis will do.
If you invest 1,000,000 naira in that share, if from review the company is paying NGN1 dividend per share, how many years will it take you to recoup your investment?
Do not forget they must not pay dividend every year. Factor that in. Important point is, are you investing in shares for dividend or capital appreciation? Check track records.
When you want to buy real assets like land and vehicles, you don’t cover your eyes. You do background check. For land, you go for search in land registry at Ministry of land, for vehicles, as most of us can only afford fairly used, we get a mechanic to check it out before buying. Apply same philosophy when investing in financial assets like shares.
It is no status symbol! Don’t buy if you are not sure of favourable return on investment.
ASSET QUALITY
Whenever you hear of assets in banks, the most prominent is Loan!
For Liability, it is deposit. Deposits give rise to Loans. Asset quality in lay man terms is: those trillions of loans that banks show in their financial how many of them are being serviced? By this, I mean are interests and principal elements of the loans paid back as at when due? If no, the worst hit are shareholders! The depositors are insured to certain limit.
Ninety-nine percent of bank failures is traced to this! It is a gradual progression from illiquidity to insolvency.
How do you find this out? In the notes to account in Financials, look out for S1, S2 and S3. Sadly, in an environment of lax regulations, the banks also manipulate this. They play game with reclassification. A non performing loan of more than 10 years can be reclassified to become an S1.
Peter Ijara, Ph.D is the Lead Consultant at Dousep Consulting, and can be reached on 09036565169.
