By Omoh Gabriel
Recent development in the Nigerian Banking industry has become a sour grape.
Whichever way you look at it, it presents an unclear picture of the direction of the sector. As at today, many are still at a loss as to who did what– Was it the Central Bank of Nigeria, CBN, that actually revoked the licences of BankPHB, Afribank and Spring Bank? If so why did it say that it supported the Nigeria Deposit Insurance Corporation’s Bridge Bank option?
This is not the first time a bank is failing in Nigeria. In the past when a licence is revoked, the bank is handed over to NDIC for liquidation. Why the bridge bank option? The CBN injected funds into these banks sometimes ago. Does it mean that injection was wasted?
When AMCON came on board it bought the non performing assets of the three banks, what about those assets?
Does it mean that the five banks that signed Transaction Agreement are free from being taken over? Far from it.
Their implementation could run into difficulties with shareholders. So the eight rescued banks are at the same level of risk.
Indications are that following the lack lustre performance of the CBN in the resolution of the banking crisis and the continued wrong signal to foreign investors on the state of the financial market in the country, the Federal Government made a quick and unexpected move last Friday to revoke the banking licences of the three banks by NDIC taking them over.
The CBN had in August 2009 injected the sum of N620 billion into the eight banks it had bailed out and the three banks were among. It was expected that the bail out will see the banks out of crisis. Mid-way into the injection of funds into these banks there were reports of reckless spending by the CBN appointed managers of three of them.
Despite repeated reports, the CBN failed to checkmate their excesses resulting in the injection of another N679 billion of public funds into the three bringing the total fund injected into the rescued banks to a whooping N 1.299 trillion.
Friday intervention on the other hand may signal that the federal government may have been pissed off with the management of the CBN for failing to provide the banks with the needed leadership.
The decision to intervene in the three bank was said to have been arrived at after an inter ministerial meeting between officials of the Federal Ministry of Finance, the office of the Attorney General of the federation, AMCON and NDIC which concluded that the federal government has to intervene through the take over of the banks. Those who were close to the meeting said that the CBN was only informed of the decision.
A strong evidence for this assertion is the fact that the licences of the three banks were revoked and immediately new ones were announced to take their place. In the ordinary run of banking regulations, the CBN licences and revokes banks licences while it usually calls in the NDIC, known in financial circles as an under taker. The role of the NDIC is to liquidate. The big question that has not been answered is why were the licences revoked and Bridge Banks set up to manage the three banks for upward of three years? Why were they not liquidated out rightly by the NDIC and on whose instruction?
The CBN appointed management had a two year mandate that would have expired this month. Besides the CBN ultimatum to this banks to recapitalise is just some weeks ahead. Waiting till the deadline would have caused a stamped in the three banks. The inability of the CBN to resolve the crisis has put at risk the deposit of N 3.06 trillion in the eight banks which is a source of worry to the CBN management and the federal government that should the eight bank go under, the economy will not be able to absolved the losses and the NDIC is not in any position to pay depositors.
This has put at risk the deposit of N 3.06 trillion in the eight banks which is a source of worry to the CBN management and the federal government that should the eight banks go under, the economy will not be able to absolve the losses and the NDIC is not in any position to pay depositors.
The Nigeria Deposit Insurance Corporation has provision for protecting small depositors and can only pay a maximum of N 250,000 per depositor.
Central Bank figures show that in 2009 when the current CBN governor assumed office, the total deposit base of the 24 banks in the country was N 10 trillion while the deposit in the eight rescued banks stood at N 3.069 trillion which is 30.7 per cent of the total deposit.
As at December 2010, the total deposit base of the Nigeria banks was N 10.837 trillion and the eight rescued banks had a total of N 3.058 trillion which are at risk.
A break down of the deposit the eight banks are saddled with showed that as at December 2010, Intercontinental despite the travail had a total deposit base of N 617.733 billion as against the N 511.576 billion it had in 2009 an increase of N 106.15 billion. Closing following in the deposit at risk is Oceanic Bank which total deposit at the end of 2010 amounted to N 630.227 billion. Compared to the previous year deposit of N 542.787 billion, this amounted to a deposit increase of N 87.43 billion.
According to the CBN figures, in the case of Union Bank, its total deposit base as at the end of last year was N 616.076 billion as against the previous year deposit base of N 797.913 billion. This in fact showed a decrease in deposit liability of N 181.83 billion.
According to CBN data, closely following in the deposit at risk, is BankPHB which at the end of 2010 had a deposit liability of N 348.707 billion as against the N 447.540 billion it had in 2009 when CBN governor, Mallam Lamido Sanusi’s management took over the bank. This showed a loss of deposit of N 98.83 billion. Afribank had N 304.320 billion, Finbank N 209.118 billion, and Equatorial Trust Bank N 133.948 billion deposit.
The twist in the unfolding financial drama is that it is BankPHB, Spring bank and Afribank that were unable to secure core investors, although they were in talks with some Nigeria banks.
Usually when the CBN revokes a bank licence it calls in the NDIC to liquidate the bank. But in this instance, the government through AMCON announced that it had set up three new banks namely Mainstream Bank, Enterprise Bank and Keystone Bank to take over the assets and liabilities of the defunct banks.
Almost immediately the Board and management of the banks were named.
From the names announced apart from very few in the board and those to act as chairmen, all the others are old time bankers who left the system years back. This was exactly what happened two years ago when the CBN appointed the management of the rescued banks.
Bankers are aware that any person who left the banking scene for upward of two years cannot be employed by a bank because he will be out of tune with the developments and trends in the industry. Funny enough this time around some of those who were removed from the rescued banks have been reappointed prompting the question what has changed?
The shutting down of the three banks, AMCON explained, became necessary because they had not made much progress in their recapitalisation exercises and obviously could not meet the September 30th deadline. Apart from not having credible core investors to conclude the recapitalisation, time was also not on the side of the trio to get both regulatory and shareholders’ approval, which would take at least two months from date of signing an agreement with an investor.
The five that have signed the transaction agreement with core investor are not sure that their capitalisation will sail through because they need a court-sanctioned extra ordinary general meeting for shareholders to endorse and approve the deal which requires not less than three weeks published notices.
The government it would appear was not happy that two years into the crisis the rescued banks were still making losses on a monthly basis and were losing large volumes of deposits on daily basis as customers were taking a flight to safety due to the panic induced by the CBN that has led to loss of confidence in the affected banks.
Perhaps if the Federal Government had not taken over the banks, the losses that would have been made by these banks would have been enormous, meaning that AMCON would have injected much more funds than it did.
With the transfer of the assets of the old banks to the newly formed ones, which have been fully recapitalised by AMCOM with N769billion, depositors have guaranteed the safety of their funds and the recapitalisation processes has been fast tracked for the three banks so it seems.
However existing shareholders, who have been slow at sorting out their recapitalisation process, have lost interest completely as the old banks no longer exist so it seems.
A lot of the slow down have been due to various shareholders litigations and court processes. No shareholder can lay claim to the new banks and AMCON is now the new 100 per cent owners. But AMCON bought the assets of the old banks. The deposits the new banks are to protect were the deposit of the defunct banks. It remains to be seen how the government through AMCON will treat former shareholders.
It happened before with the Nigeria Always when the federal government floated Air Nigeria thinking that creditors of Nigeria Airways will be looking the other way when Air Nigeria flies around. The rest is now history.
In arriving at the decision to set up three new entities in place of the old banks, did the government consider the cost implication of identity change to the new banks? Did they consider the fact that a costly re-branding will be need for the banks to function in all the branches of the old banks? Did they consider the fact that AMCON purchased the non performing assets of the three old banks?
