By Omoh Gabriel, Business Editor
The Central Bank of Nigeria, CBN has said that the recent debt forgiveness it gave to 13 banks in the country does not stop the EFCC from prosecuting the owners and management of the affected banks under the Failed Banks Act insisting that ‚Äúindeed, two of the cases, the Bank of the North and Societe Generale Bank are already before the EFCC for investigation and prosecution.
Giving the clarification in the wake of criticism of the apex bank‚Äôs action, the CBN said that ‚Äúthe forbearance is not a free lunch. It is contingent on the owners/management of the banks meeting certain pre-conditions, including ‚Ä¢ Recovery of non-performing insider/owner-related credits within two, injection of fresh capital to beef up the affected bank‚Äôs recapitalisation to the solvency status, balance of 20 per cent of the debt to be converted to term loan of 7 years at 3per cent interest per annum including a moratorium of 2years‚Äù.
Stating Some of the consequences/costs to the economy if the CBN did not grant the debt reduction include the apex bank said ‚ÄúAll the affected banks would die and be liquidated as no bank or investor is willing to acquire such banks with heavy debt burden. ‚ÄúCBN would lose 100per cent of the debt owed it if the banks die and are liquidated; whereas under the current policy, it makes sense that 20per cent of the debt could still be salvaged since 80per cent is written-off.
‚ÄúNDIC would be required to pay out the insured deposit of N17 billion to the depositors. Un-insured deposits of N91.1 billion would be lost by the depositors with all the untold hardships on families. ‚ÄúA systemic crisis could be triggered-off as part of the uninsured deposits are inter-bank placements with possible contagion effects on some healthy banks. ‚ÄúJobs of staff totaling 7,429 in the affected banks could also be lost. This is in addition to the other service providers to the banks who would lose their jobs. Under the current policy, some jobs could be saved as some of the banks may be acquired by potential investors‚Äù.
The CBN stated that it‚Äôs ‚Äúexposure (credit) of N75 billion already sunk. ‚ÄúThese loans have also been provided for as loan losses in the CBN accounts, in accordance with the Prudential Guidelines. In other words, it does not cost the CBN or the taxpayers any new money to write-off part of the debt. If the CBN did not write-off part of the debt, the affected banks will die and the CBN will not be able to recover any of the debt. Under the current policy, at least part of the debt 20per cent or N 15 billion could be salvaged.
The CBN management further explained that the debt forgiveness was not targeted at any particular bank but that 13 banks are actually involved.
According to the CBN ‚ÄúOn the 6th April, the CBN Board of Directors approved some forbearance to the banks that are heavily indebted to the CBN in order to make them attractive to participate in the ongoing consolidation. The CBN Board resolved to write-off 80 per cent of the debt provided the current owners meet a set of stringent conditions‚Äù The CBN said that because of the heavy indebtedness of the affected banks to the CBN, other banks and investors were not willing to talk to them. It was therefore inevitable that these banks would be liquidated at the end of the consolidation exercise, and the Central Bank would have lost all the debt owed to it, including many other consequences such as loss of depositors money estimated at N108 billion and 7,429 jobs.
The CBN said that by it‚Äôs masterstroke of a policy has been misunderstood in some quarters.
The apex bank further said ‚ÄúOur goal under the banking sector consolidation is to save the banking system from crisis; draw a thick line with the past; and lay a solid foundation for the future. ‚ÄúWe can spend years apportioning blames for the past mismanagement of the affected banks or why CBN involuntarily granted the overdrafts (before 2004). ‚ÄúThis is a useful debate on its own, but the challenge now is to make progress. ‚ÄúIt is precisely to redress the inadequacies and mismanagement of the past that the CBN introduced the 13-point agenda in July 2004 to restructure the system. ‚ÄúIf there were no problems with the industry and its management, the current reforms would have been unnecessary. ‚ÄúOur primary goal now is to save the depositors and employment in the affected banks. ‚ÄúIf CBN did not act, surely the affected banks would die and be liquidated, and the consequences for the economy would be great. ‚ÄúWhile the owners/Management could be prosecuted and sanctioned under the ‚ÄòFailed Banks ActÃì and other laws, it is the economy as a whole, especially the poor depositors who would suffer the most.
‚ÄúThe policy is a win-win for the economy. The current
owners will not just walk away with a new bank: they are
required to bring new money into the banks— at least 20%
of the recapitalization requirement. All these are
designed to make the affected banks more attractive to
potential acquirers or investors, and hence avoid the
consequences listed above.
‚ÄúEverywhere in the world, industry-wide restructuring
of the banking system such as the one we have undertaken
is a very expensive exercise. Currently, the least
expensive in the world was the Malaysian restructuring
which cost the country 4 per cent of its GDP. For the ongoing
banking sector revolution in Nigeria, the worst case
scenario in terms of cost would still leave Nigeria with
the world record of no more than 2 per cent of GDP including
the forbearance the CBN has recently granted to banks
indebted to it. ‚ÄúUnder the ongoing restructuring, it is
evident that some of the banks that were literally dead as
at end of 2003 and mid 2004 could be resurrected which
would be a win-win for the Nigerian economy. ‚ÄúIf in the end
some banks still fail to make the consolidation exercise,
the CBN Board and Management can at least feel proud that
we did all that was possible to save them. The challenge
now is for the owners/management of the, affected banks to
reciprocate the gestures of the CBN by implementing their
own part of the bargain‚Äù the CBN explained.
File : clarification 06/05/05