Savannah Bank: Hurdles before the Bridge Bank Option
Category: Money Market
November 27, 2011
A recent statement credited to Nigeria Deposit Insurance Corporation threatening to use the bridge bank option for Savannah Bank and Societe General Bank, has raised eyebrows among the shareholders of the bank. Ike Abonyi x-rays their position of the statement
It is on record that the closure of Savannah Bank still remains one of the high profile political victimisations that happened during the eight year reign of former President Olusegun Obasanjo. There were so many others but the case of Savannah Bank was apparent because of its implications then to the economy, especially against the backdrop of the fear it put in the minds of investors.
Savannah Bank was one of the nation's licensed commercial banks until February 15, 2002 when the Central Bank of Nigeria governor at the time, Mr. Joseph Oladele Sanusi issued a notice of revocation of the banking licence. The notice was published in a federal government gazette No. 16 Vol. 89 of February 15, 2002.
Among the reasons adduced by the apex bank for its decision was insufficiency of the assets of the bank to meet its liabilities and failure to comply with the obligation imposed by the regulatory authorities to halt further deterioration, including calling on shareholders to produce a credible management team and to recapitalise the bank.
The bank owners challenged the action in court but lost as Justice S. J. Adah on October 20 agreed with government and dismissed the case saying among others that “from the evidence before the court, it is equally clear that the revocation of the plaintiff's licence was lawful and valid and in line with the provisions of BOFIA cap B3, LFN, 2004. There is therefore no ground existing to confer jurisdiction on this court to intervene. Since this court has found that the revocation of the plaintiff's licence was valid and lawful, this case is hereby dismissed”
Savannah Bank dissatisfied with the judgment proceeded to the Appeal Court and on February 5, 2009, Justices Uwani Musa Abba Aji, Jimi Olukayode Bada and Ayobode Olujimi Lokulo-Sodipe set aside the position of the lower court saying that the appeal had merit and was consequently allowed.
As a result, the appellant justices made the following orders among others, that CBN, NDIC and the Inspector General of Police were not entitled to seal or take or attempt to seal or in any way whatsoever interfere with the management or control or the running of the bank contrary to the clear and specific provisions of the Banks and other Financial institutions Act 1991.
It further declared that the CBN, NDIC and the Police IG were not entitled to revoke or suspend the banking license of the bank or in any manner whatsoever prevent its normal banking business.
The appeal court went further to direct the relevant authorities to restore the bank to its original status and remain restrained from sealing or taking over or threatening to seal or take over the management or control of the bank or in any manner interfere in the bank's affairs. They were further restrained from taking any further steps to wind up the business of the bank, including appointing any liquidator or applying for the purchase or acquisition of the bank.
It was therefore against this backdrop that not a few legal minds were concerned about a recent statement credited to the NDIC that the authority was considering the bridge bank option for Savannah Bank if it failed to begin operations by March 2012.
Since NDIC has not denied the statement two weeks after it was made public it can be rightly adduced that it might contemplate the bridge treatment for Savannah Bank. But before it does so, certain salient issues would have to be considered by NDIC.
For one, in the case of Afribank Plc, Spring Bank Plc and Bank PHB Plc, which lost their licences to operate and were bridged by NDIC, they were actually operational and could therefore be bridged. However, Savannah has not been operational. THISDAY learnt that the bank is still having problems pertaining to records due to vandalisation of its property during the revocation period.
Savannah Bank owners who spoke to THISDAY said that finishing touches were being put in place to recapitalise the bank and this was not unknown to the relevant authorities.
Another question that needs to be addressed by those flying the bridge option is, have the relevant authorities really restored the bank to its original status when it was unilaterally shut down? Even if the authorities are impatient to help depositors, what record do they have to show who and who are its depositors? And even if they have all these, they need to return to the Appeal Court to show cause why its restraining order of non-interference from NDIC, CBN and Inspector General of Police must be set aside.
Unless and until due process is followed, it might be perceived that the errors that led to the banks closure in 2002 may be replicated again.
It is however gratifying to note the position of the managing director of the Asset Management Company of Nigeria, Mr. Mustapha Chike-Obi, on the matter when has said that the company would not recapitalise the defunct Savannah Bank Plc and Societe Generale Bank of Nigeria respectively.
AMCON recently recapitalised Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited, which took over the assets and liabilities of Afribank, Bank PHB and Spring Bank respectively, to the tune of N679billion, after the three troubled banks were deemed incapable of meeting the September 30 deadline set for them to recapitalise.
But Chike Obi was quoted recently as saying that Savannah and SGBN do not meet the recapitalisation guidelines set for the liquidated banks by the CBN. He said AMCON can only deal with banks that have been classified by CBN as Eligible Financial Institutions (EFIs), adding that Savannah Bank and Societe Generale respectively did not fit into that category.
“These two banks cannot be categorised as eligible financial institutions in the ranking of CBN, and AMCON cannot therefore shore up their capital,” he said. By this, Savannah Bank and SGBN cannot be bridged since they are not operational.
Also speaking on the issue, recently CBN's spokesman, Mr. Mohammed Abdullahi, said it was not the duty of the CBN or NDIC to recapitalise banks. Mohammed said the court had restored the licence of Savannah Bank, adding that the bank was therefore expected to beef up its capital base and resume operations.
“The Savannah Bank licence has been restored by the court order. We are waiting for their owners to meet the required capital base to start operations. It is not the business of the CBN or NDIC to do that for them,” he stated.
From the foregoing, it was obvious that NDIC may have erred in singling out Savannah and SGBN for the bridge bank option. However, the owners of Savannah Bank still have their work cut out to make the bank operable sooner rather than later because the onus still lies on its shareholders to meet their obligations to depositors whose funds have been tied down for years.
It has been two years since the appeal court ruling declared that the bank's licence be returned, which gives the shareholders more than enough time to determine if it the bank wants to operate as a regional, national or international bank and recapitalise accordingly.