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Nationalised banks:Governance issues scuttled deals with suitors

Category: Money Market

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Nationalised banks:Governance issues scuttled deals with suitors



August 10, 2011
•We acted to save depositors’ funds – NDIC   
•Extends insurance cover to banks
Lack of integrity and poor corporate governance on the part of  potential core investors, were some of the factors that scuttled talks with the three nationalised banks, Umaru Ibrahim, Managing Director, Nigeria Deposit Insurance Corporation (NDIC) has said.
Speaking in an interactive session with journalists in Abuja on Tuesday, Ibrahim did not specify the credibility and governance issues, but he noted that the former Afribank, Bank PHB and Spring Bank, were in grave conditions, before they were swiftly taken over last Friday.
“Now, there were various reasons why they couldn’t get investors. These vary from bank to bank. Generally speaking, investors are difficult to come by, but some local and foreign investors had shown interest in these banks but the terms and conditions may not have been favourable to them. That is why a deal could not be struck, up to the time we had to move in to rescue the situation. So it could be a matter of price and credibility among others.”
For Afribank, Ibrahim recalled that the Central Bank of Nigeria (CBN) advised against the intended deal with Vine Capital, for reasons that bordered on credibility and governance issues. He disclosed that Afribank was then pointed in the direction of a perceived credible suitor, but that the bank’s management rejected the said alternative suitor.
Ibrahim explained that Equatorial Trust Bank, which is also one of the rescued banks,  was not affected because there were  already advanced talks with some core investors, which hopefully would enable the bank recapitalise before the September deadline.
“ETB was not affected because it is a small bank and in serious negotiation with some interested buyers. There is an arrangement which ensures it strikes an acceptable deal before the deadline. We are comfortable that it will happen and that is why they are not in this category,” he told reporters.
The NDIC MD gave more insight into why the three banks were nationalised. He explained that because they were really in grave situations, they were swiftly taken over, particularly to save depositors’ funds.
He pointed out that their capital was completely eroded, the banks were neither able to attract new customers, nor to mobilise additional deposits, to enable them do business without the CBN’s life support through the injected funds and interbank guarantees.
He said: “Yes, September is the deadline but the bottom line is that there has been a continuous deterioration in the final condition of these banks.
“They have totally lost their capital, their shareholders’ funds are below zero, and these banks have been living on the life support system guaranteed by the Central Bank- that is largely the interbank. They were not able to mobilse deposits, they were not able to attract new customers, they did’nt have liquidity.
“So what is banking if you are living on borrowed funds , you are not growing your business, you don’t have your own money, your capital is gone  and you are not able to retain  your customers and everyday, they are withdrawing their money and running awa; you’ re almost dead or bankrupt?” he asked.
“So having that in mind and the need to protect the depositors, we had to move in to save the situation”.
On the performance of the midwife managers earlier appointed by the CBN to recapitalise banks, Ibrahim said they did their best and that it is only fair to let them go without sanctions, which a lot of people are already proposing, since they failed to strategically bring these banks to a position in which they would find suitable investors.
“You have to be very fair to those people, they have been appointed for barley two years now. But given the rot and complications in these banks, there isn’t too much that we expect this management to do. We all know what has happened.
“The outgoing team was carefully selected by the CBN and mandated to go around the banks in the best professional manner possible, hoping that they could turn them around to some extent, arrest the rot, determine their exact financial conditions, identify malpractices and fraud in the banks.
“In general, I will say they did their best, they took over banks that had suffered abuses, tried to rehabilitate them as much as they could, to a position to attract suitors”.
Source: Businessday/ ONYINYE NWACHUKWU

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