Besides the fact that five bank CEOs were sacked by Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi for gross misconduct, the new managements appointed by the apex bank has been grappling with customers’ fear, marked by panic withdrawals and recovery of total loan portfolio put at about N2.801 trillion, caused by general weakness in risk management and corporate governance by the ousted bank managers.
Series of events have been unfolding on a daily basis with the new chief executive officers unfolding their plans with injection of fresh N400 billion for stabilization of the banks by CBN. The stock market too has been gravely affected by the hurricane in the banking sector as traded equities in the market depreciated heavily, losing over N600 billion within a week. These developments have opened a new chapter in the annals of the nation’s banking sector.
The question, then, is how did the banks find themselves in the current mess when former CBN boss, Charles Soludo, gave full assurance that Nigerian banks are solid and had all the fundamentals to weather any storm.
As far back as October 2008, some of the banks had shown serious liquidity strain and had to be given financial support by the CBN in the form of an Expanded Discount Window (EDW). By June, the total amount outstanding at EDW was N256.571 billion most of which was owed by the five banks. CBN said a review of the activity in the EDW showed that four of the banks had been almost permanently locked in as borrowers and were clearly unable to repay their obligation. A fifth bank had been a very frequent borrower when its profile ordinarily should have placed it among the net placers of funds in the market.
Some of the findings of CBN led examiners into the accounts of the banks include excessive high level of non-performing loans in the five banks, attributable to poor corporate governance, lax credit administration; non adherence to bank’s credit management. The percent of non-performing loans ranges from 19 to 48 per cent, loan portfolio of N2.801 out of which margin loans amounted to N456.28 billion and exposure to oil and gas N487.02 billion.
Aggregate non-performing loans stood at N1.143 trillion, representing 40.81 per cent, a minimum capital injection of N204.94 billion required in the five banks to meet the minimum capital adequacy ratio of 10 per cent. As a matter of fact, the outstanding balance on the EDW of the five banks amounted to N127.85 billion by end of July, representing 89.81 per cent of the industry exposure to the CBN on its discount window while their net guaranteed inter-bank takings stood at N253.30 billion as at August 2, 2009.
Three of the banks accounted for more than 5 per cent of assets and deposits in the banking system while the five altogether account for 39.9 per cent of loans, 29.99 per cent of deposits and 31.47 per cent total assets as at May 31, 2009. Share prices went down heavily as the new bank executives formally resumed office. On Monday, shares price went down by N132.225 billion to close the market with N5.423 trillion while All share Index also drop sharply by 576.82 points to close at 23,661.03 points.
The sharp drop was as a result of a two-week full suspension placed on traded equities of the five banks. With the suspension, there would not be any trading buying or selling of the affected banks’ shares until the suspension is lifted
Though the Director-General of NSE, Ndi Okereke-Onyiuke said the action would impact negatively on the market capitalization and also shake the confidence of the Nigerian investing public, she added that the impact would be temporary as the long-term effects would bring positive development to the market.
Although Okereke-Onyiuke said the ousted group managing director of Intercontinental Bank, Eratus Akingbola would continue to hold his position as the 2nd Vice President of NSE Council and Chairman of Lagos/Ibadan branch until he is indicted, emphasizing that his removal from Intercontinental bank has nothing to do with membership of the council. But Akingbola, in current developments, is said to have fled the country.
But, the Securities and Exchange Commission (SEC) a regulatory arm of the capital market, ordered immediate suspension of any of the affected executives of the five banks who are members of the Council of the NSE pending the conclusion of investigation of allegations against them by the CBN.
It also gave Ndi Okereke-Onyiuke seven days to explain the circumstances under which the name of the company of which she is the Chairman appeared on the list of non-performing debtors to the five banks given the sensitivity of her position as the Chief Executive Officer of the NSE where the five banks are also listed. According to a communiqué issued at the end of its 43rd meeting and made available to Weekly Trust, SEC the actions were meant to protect the integrity of the capital market
An economist and a director in the Lagos Business School, Opeyemi Agbaje Agbaje said the injection of N420billion by CBN became necessary as a result of lost of capital due to bad loans He said with the fresh funds, CBN is indirectly underwriting the banks. Agbaje said the arrest of the CEOs indicates that the CBN or EFCC believes they need to be investigated.
Then Secretary-General, Independent Shareholders Association of Nigeria (ISAN), Adebayo Adeleke, wondered where the CBN got the N400 billion it injected into the five banks without the approval of the National Assembly. “We want to know what powers Sanusi has to spend such that quantum of tax payers’ money without recourse to the National Assembly for approval.”
The Deputy Chairman, House Committee on Banking and Currency, Hussein Abdulkadir, stated that the CBN acted within the law, especially since the N400 billion bailout is in form of loans to shore up the banks’ capital base, so that depositors would not suffer before accessing their funds. He said the apex bank did not go through the National Assembly before doling out the lifeline, because the CBN Act empowered it to act in the manner it did.
CBN governor has however said once the apex bank has finished its audit of 21 of the banks by mid-September, it would “invite expressions of interest” from private sector operators “as quickly as possible.” Sanusi had told a conference in the Democratic Republic of Congo’s capital, Kinshasa, that the regulator is not precluding any investor from buying into the banks, with the country looking for institutions that will bring in capital, systems, skills and the commitment to make sure that institutions run on a long-term basis, playing their role in the economy.
On loan recovery, the CBN governor said: “It’s difficult to recover all of the money owed the banks. Some of the loans obviously have some collateral, such as shares, which aren’t immediately sellable because of the lack of liquidity in the market.” The apex bank has audited 10 banks of the 24 in the country of which the five were found to be in a stressed stage. So far, the new bank chiefs have been unfolding their plans with the aims of allaying customers’ fear
Managing Director of Finbank Plc, Mrs Suzanne Iroche said her management would focus on risk management, operational management, internal control, business plan and corporate governance adding that the action of CBN in putting the N50 billion was in the best interest of the banking industry, the economy and the customers. Union Bank Nigeria Plc new Group Managing Director, Mrs Funke Osibodu said she would focus her attention more on business development and people management, emphasising that the bank risk management needs to be strengthened in order to effectively guide decision-making relating to credit risk and operational risks. Afribank boss Nebolisa Arah said the bank’s nine subsidiaries would be strengthened and repositioned to contribute significantly to the group’s portfolio. On his part, the new Managing Director of the bank, John Aboh said the bank would embark on aggressive loan recovery and growing the bank’s businesses.
CBN had injected N50 billion out of the N400 billion bail-out fund to resolve and stabilize the bank. So far, the banks through the support of EFCC are making progress on the recovery of the loans. Afribank, for instance, has recovered over N3 billion in less than five days. According to the bank’s new Group Managing Director, customers of the bank who are owing are already complying, stressing that the new management has been engaging the loan defaulters in discussions and this, he said, has yielded positive results.
Nevertheless, Nigerians are yet to see the end of the issue as CBN said it has commenced examination on the accounts of the next batch of 11 and hope to conclude them by August. Now that Nigerians are waiting the coming down of another hammer, depositors will continue to sleep with one eye open until the cleansing exercise has safely come to an end.