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 some time 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 licences of the three banks by NDIC taking them over.
CBN had in August 2009 injected N620 billion into the eight banks it had bailed out and the three banks were among. It was expected that the bailout 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, 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 N1.299 trillion.
Friday intervention on the other hand may signal that the Federal Government may have been pissed off with the management of CBN for failing to provide the banks with the needed leadership.
The decision to intervene in the three banks was said to have been arrived at after an inter-ministerial meeting between officials of the Federal Ministry of Finance, Office of the Attorney-General of the Federation, AMCON and NDIC which concluded that the Federal Government had to intervene through the take-over of the banks. Those who were close to the meeting said that 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 in their stead. In the ordinary run of banking regulations, CBN licences and revokes banks’ licences while it usually calls in NDIC, known in financial circles as an undertaker. The role of NDIC is to liquidate. The big questions that have not been answered arewhy were the licences revoked and Bridge Banks set up to manage the three banks for upward of three years? Why were they not liquidated outrightly by 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 these banks to recapitalise is just some weeks ahead. Waiting till the deadline would have caused a stampede in the three banks.
Depositors’ N3.06trn at risk
The inability of CBN to resolve the crisis has put at risk the deposit of N3.06 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 NDIC is not in position to pay depositors.
Breakdown of deposits
This has put at risk the deposit of N3.06 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 absorb the losses and 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 N250,000 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 N10 trillion while the deposits in the eight rescued banks stood at N3.069 trillion which is 30.7 per cent of the total deposit.
As at last December, the total deposit base of Nigerian banks was N10.837 trillion and the eight rescued banks had a total of N3.058 trillion which are at risk.
A breakdown of the deposits the eight banks are saddled with showed that as at December 2010, Intercontinental Bank, despite its travails had a deposit base of N617.733 billion as against the N511.576 billion it had in 2009, an increase of N106.15 billion. Closely following in the deposit at risk is Oceanic Bank which total deposit at the end of 2010 amounted to N630.227 billion.
Compared to the previous year’s deposit of N542.787 billion, this amounted to a deposit increase of N87.43 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’s deposit base of N797.913 billion. This, in fact, showed a decrease in deposit liability of N181.83 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 N348.707 billion as against the N447.540 billion it had in 2009 when CBN governor, Malam Lamido Sanusi’s management took over the bank. This showed a loss of deposit of N98.83 billion. Afribank had N304.320 billion, Finbank N209.118 billion, and Equatorial Trust Bank N133.948 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 Nigerian 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 Nigeria Airways 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 needed 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?
Source: Vanguard/ OMOH GABRIEL
Disclaimer/Advice to Readers:
While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the authors best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This publication is published with the consent of the author(s) for circulation to its online investment community in accordance with the terms of usage. Further enquiries should be directed to the author whose e-mail is provided above as is our standard practice, otherwise comments should be sent to email@example.com