Fears over Wema, Unity banks - as CBNâ€™s deadline expires on June 30
Category: Capital Market
Lagos Monday, 28 June 2010, Odidison Omankhanlen
There is high level of uncertainty and apprehension over the future of Wema Bank and Unity Bank, following the expiration of the deadline issued to them by the Central Bank of Nigeria (CBN) to recapitalise or close shop this week. However, some shareholders’ groups have called for an extension of the deadline for the affected banks to remain in business and save depositors from losing funds.
It will be recalled that following the audit report jointly instituted by the CBN and Nigeria Deposit Insurance Corporation (NDIC) on the 24 money deposit banks in the country last year, Unity Bank and Wema Bank were directed by the apex bank to recapitalise to the tune of N25 billion minimum capital requirements by June 30, 2010 or close shop.
Tribune gathered that the managements of the affected banks spent a greater part of the weekend holding strategic meetings on how to raise funds in order to beat the apex bank’s June 30 deadline. However, none of the two banks would be able to meet the deadline.
Efforts made to get the CBN officials to respond to the implications if the banks could not meet the deadline were unsuccessful. The apex bank has kept mum.
When asked recently, the CBN Governor, Mallam Sanusi Lamido Sanusi, did not state categorically if banks would be sanctioned or not in the event of a default.
However, a top CBN staff member, who pleaded anonymity, told the Nigerian Tribune that CBN’s silence might not be unconnected with the proposed new banking model which would make banks to operate in the category of the minimum capital base they could raise.
Meanwhile, in its bid to meet the CBN recapitalisation deadline, Wema Bank has embarked on aggressive debt recovery efforts which have yielded over N21 billion (an unsubstantiated figure). The bank is also holding talks with investors with a view to raising the stipulated funds. Besides, the bank has concluded plans to revert to a regional bank in the event that the CBN proposed bank model comes into force.
A top management member of the bank, who spoke on condition of anonymity, said recently that the bank had initiated moves to attract some investors who would inject some funds into the bank and bail it out of capitalisation problem.
“The bank has gone through a lot in the recent past, especially the last two years, but because of the ability of the management of the bank under SW8 Consortium, I believe recapitalisation won’t be a problem for the bank. We will meet the June 2010 deadline and we will even surpass the target capital base,” he said.
Speculations Does not equate Compliance – Full Compliance with Capital Requirement is not yet in Place, three days to Deadline
On the part of Unity Bank, it is currently in the market to raise N23.9 billion from existing shareholders through a Rights Issue. The bank is raising the funds by issuing 23.928 billion ordinary shares of 50 kobo each at N1 per share to shareholders on the basis of three new shares for every two shares already held.
Also, a consortium made up of northern businessmen under the auspices of Arewa Investment Alliance, is said to be holding talks with the board of directors of the bank, offering to pay N11 billion for a 40 per cent stake in the bank, which has until the end of this month to recapitalise.
Reacting to these developments, the chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr Boniface Okezie, called on the CBN to extend the deadline by another six months, stressing that if all the banks were given a year to recapitalise during the first consolidation, the same measures should be extended to the two affected banks.
He noted that Wema Bank appeared ready to recapitalise very soon, stating that Unity Bank had no excuse as the Northerners who felt cheated in the last consolidation should rally round and recapitalise the bank.
Also speaking, national coordinator of the Renaissance Shareholders Association of Nigeria, Mr Timothy Olufemi, said that the challenges that would face the two banks were enormous. Olufemi stated that due to the crisis in the stock market, it might be difficult for the two banks to raise any fund from the market. He called on the apex bank to extend the deadline to keep the bank in business.
“The bank may not be able to raise funds from the capital market as the crisis in the market has caused disaffection. The issue of bonds can be explored but it is also like a camel walking through the eye of a needle because those banks that have been given a clean bill of health by the apex bank are already warming up to raise both convertible and inconvertible bonds to boost their operations and increase their capital. So, I don’t see much achievement on the part of Unity and Wema Banks in achieving this feat. So, the CBN should extend the deadline,” he said.
This development will be a litmus test for the integrity of the financial market regulatory environment and indeed the banks. Back in August 2009, not a few market analysts had raised concerns as to how such banks would be able to raise funds in such a tough market environment. The confidence and financial performance figures did not raise any hope of such. It is therefore important for the CBN and indeed the banks to be more forthcoming with their financial condition and status at the earliest time. Depositors and stakeholders are already taking positions which would protect them in the absence of a any clarification on the developments as our feedback/survey has revealed.