By Omoh Gabriel
Some existing shareholders in Intercontinental Bank may have buckled under the weight of pressure from the CBN to accept the acquisition of the bank by Access PLC. Indication to this effect emerged weekend as the scheme of merger which was submitted to the Securities and Exchange Commission SEC has been given official nod of approval.
SEC spokesman Mr. Lanre Oloyi confirmed the approval saying that the merger scheme has been approved and will now go to shareholders for consideration and final approval.
He did not give details. However those close to the drafting of the scheme said that existing shareholders of Intercontinental bank were accommodated and given five per cent stake in the new bank that will arise from the combination of Intercontinental and Access Bank.
The scheme of the proposed combination will be presented to shareholders for approval in a court sanctioned Extra Ordinary Meeting EGM. Already some of the aggrieved stakeholders of Intercontinental Bank are in court challenging the CBN intervention in the bank.
It was gathered that Access Bank is billed to be the core investor with about 60 per cent stake while Asset Management Company of Nigeria AMCON will have 35 per cent. The existing shareholders will be left with the remaining 5 per cent stake in the bank to emerge after share reconstruction.
Vanguard Investigation revealed that some of the pioneering major shareholders of Intercontinental Bank are weighing the option of losing everything to allowing the recapitalisation which will give them some level of accommodation even if marginal. This position it was gathered is being looked into as the threat of nationalizing the rescued banks will give them no room or stake in the event that AMCON takes over the banks. Associates of some of the principal shareholders said that if AMCON is allowed to take over the bank, it may manage it for some years and later still sell the bank perhaps to some favoured individuals.
As a result, the major shareholders are most likely to support the new arrangement to avoid losing their investments completely. According to the source many of the shareholders are disposed to this arrangement following their disappointment with the former management of Intercontinental which did not carry them along in the running of the bank which resulted in the removal of the executive management of the bank. It was also gathered that the approach adopted by the current Managing Director of Intercontinental Bank softened the minds of some of the major shareholders in that most of the policy direction of the bank was discussed with them.
The Central Bank of Nigeria (CBN) had on August 14, 2009 sacked with immediate effect the Managing Director/Chief Executives and Executive Directors of five banks namely, Afribank PLC, Finbank PLC, Intercontinental Bank Plc, Oceanic Bank Plc and Union Bank Plc. The affected chief executives are Mr, Sebastin Adigwe (Afribank), Mr. Okey Nwosu (Finbank), Dr. Erastus Akingbola (Intercontinental Bank), Dr. (Mrs.) Cecilia Ibru (Oceanic Bank), and Dr. Bath Ebong.
The apex bank later also sacked thos of BankPHB, Equatorial Trust and Spring Banks The CBN also on that date announced the appointment of new chief executives for the five banks namely Mr. John Aboh – MD/CEO Oceanic International Bank Plc, Mr. Mahmud L. Alabi- MD/CEO Intercontinental Bank Plc, Mrs. Suzanne Iroche- MD/CEO Finbank Plc, Mrs. Funke Osibodu – MD/CEO Union Bank Plc
CBN Governor, Mallam Lamido Sanusi said the banks‚Äô officials were removed due to high level of non performing loans in the five banks which was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the banks‚Äô credit risk management practices. He said the CBN was injecting N400 billion tier two capital into the five banks to salvage the financial condition banks which was later up scaled to N620 billion when the other three were added.
Sanusi had said, ‚ÄúAs at June 4, 2009 when I assumed office as Governor of the CBN, the total amount outstanding at the Expanded Discount Window (EDW) was N256.571 billion most of which was owed by the five banks.
The Excessively high level of non-performing loans in the five banks was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the bank’s credit risk management practices. Thus the percentage of non-performing loans to total loans ranged from 19% to 48%. The 5 banks will therefore need to make additional provision of N539.09 billion.
The total loan portfolio of these five banks was N2, 801.92 billion. Margin loans amounted to N456.28 billion and exposure to Oil and Gas was N487.02 billion. Aggregate non-performing loans stood at Ml, 143 billion representing 40.81%.3. From 1 and 2 above, it is evident that the five banks accounted for a disproportionate component of the total exposure to Capital Market and Oil and Gas, thus reflecting heavy concentration to high risk areas relative to other banks in the industry.
The huge provisioning requirements have led to significant capital impairment. Consequently, all the banks are undercapitalised for their current levels of operations and are required to increase their provisions for loan losses, which impacted negatively on their capital. Indeed one is technically insolvent with a Capital Adequacy Ratio of (1.01%). Thus, a minimum capital injection of N204.94 billion will be required in the 5 banks to meet the minimum capital adequacy ratio of 10%.
The five banks were either perennial net-takers of funds in the inter-bank market or enjoyed liquidity support from the CBN for long periods of time, a clear evidence of liquidity. In other words, these banks were unable to meet their maturing obligations as they fall due without resorting to the CBN or the inter-bank market. As a matter of fact, the outstanding balance on the EDW of the five banks amounted to N 127.85 billion by end July 2009, representing 89.81% of the total industry exposure to the CBN on its discount window while their net guaranteed inter-bank takings stood at N253.30 billion as at August 02, 2009. Their Liquidity Ratios ranged from 17.65% to 24% as at May 31, 2009. (Regulatory minimum is 25%).
It is important to note that at least three of the banks are systemically important (accounting for more than 5% of Assets and Deposits in the Banking System) and together the five banks account for 39.93% of loans, 29.99% of deposits, and 31.47% of total assets as at May 31, 2009.
Given the extent of the asset quality problem leading to liquidity stresses, and the variety of stress points on the banks1 balance sheets, failure to act to secure the financial health of these banks will clearly place the system at risk. The Central Bank has a responsibility to act to protect all depositors and creditors and ensure that no one loses money due to bank failure.
The bank Managing Directors are facing trial and one has obtained a plea bargain.