Nigeria’s central bank on Wednesday warned defaulting debtors of five banks rescued in a $2.6 billion bailout last week that they would face legal action unless they repaid the funds.
The list of more than 200 companies, individuals and state bodies includes scores of stockbrokers and local oil and gas firms as well as large conglomerates whose directors are among some of Nigeria’s richest and most powerful tycoons.
Anti-corruption police want to question 19 senior executives, including the former heads of the five banks, in relations to the debts built up and have watch-listed those not yet brought in, meaning they should not leave the country.
The unprecedented bailout could reshape the corporate landscape of sub-Saharan Africa’s second-biggest economy and bolster investor confidence in the long-term. But it has led to short-term uncertainty in the stock and currency markets.
Below are some questions and answers about what the implications could be and what might happen next.
ARE THESE FIVE THE ONLY PROBLEM BANKS?
Afribank (AFRB.LG), Finbank (FIBP.LG), Intercontinental Bank (INBK.LG), Oceanic Bank (OCBK.LG) and Union Bank (UBNP.LG) were all identified as problem banks by auditors during the first round of a central bank probe.
Between them they ran up a total of 1.14 trillion naira ($7.6 billion) in bad debts. The loans included credit to speculators on the stock market .LAGLG, down more than 60 percent from its peak in March 2008, and unsecured financing to fuel importers hit by a sharp fall in oil prices.
The regulator has so far completed audits on a total of 10 banks, including the five problem banks. Audits have been completed on Diamond Bank (DIAM.LG), First Bank (FBNP.LG), UBA (UBA.LG), Guaranty Trust Bank (GTB.LG) and Sterling Bank (STBP.LG), which all appear to be in the clear.
Central Bank Governor Lamido Sanusi has said the probe would be expanded to cover all of the country’s 24 banks. An audit of the next batch of 11 banks has already begun and should be concluded by the end of August. The central bank expects the entire probe to be completed by mid-September.
Even those banks not identified as suffering from capital impairment could still be impacted through interbank borrowing, although analysts say the better managed banks had reduced their exposure to weaker peers in recent months.
WHICH LISTED COMPANIES ARE AMONG THE DEBTORS?
The firms identified by the regulator include conglomerate Transcorp (TCNP.LG), whose chairman Ndi Okereke-Onyiuke is also director-general of the stock exchange, and fuel distributors African Petroleum (APET.LG) and Oando Plc (UNIP.LG).
Transcorp is listed as owing Union Bank 31 billion naira, and Intercontinental Bank 6.6 billion. African Petroleum is listed as owing Afribank 12.8 billion naira, and Oando as owing Oceanic Bank 7.1 billion naira.
Former state telecoms monopoly Nitel, for which the government is seeking investors, is listed as owing 7.8 billion naira to Oceanic Bank and 3.6 billion to Intercontinental.
Aigboje Aig-Imoukhuede, the group managing director of Access Bank (ACCE.LG), is also listed as the director of a firm owing 16.2 billion naira to Intercontinental Bank.
Dangote Industries, part of a conglomerate which includes Dangote Sugar Refineries Plc (DANG.LG) and Dangote Flour Mills Plc (DAFM.LG), is listed as owing 2.5 billion naira to Oceanic.
WHY ARE THE ANTI-CORRUPTION POLICE INVOLVED?
President Umaru Yar’Adua has instructed all law enforcement agencies to help recover the bad debts. The Economic and Financial Crimes Commission has said it want to talk to 19 banking executives, including the five sacked CEOs, to take statements and “determine their level of culpability”.
The central bank has pledged to prosecute anybody found guilty of misconduct but has declined to say whether specific infractions were exposed by its audit.
Analysts say criminal charges could be brought if executives are found to have falsified accounts or breached share price manipulation rules by setting up subsidiaries as vehicles to trade their own stock and push the share price higher, or to have bets on the stock market using depositors’ funds.
WHAT ARE THE CHANCES OF RECOVERING THE FUNDS?
The debtors may only have to service the loans rather than pay the full outstanding amounts in one go, meaning the losses may be more easily recovered. This would make the banks more attractive to potential equity investors as they would more quickly be able to repay the capital injection.
The loan facilities could also be restructured.
The central bank audit estimated a minimum capital injection of 200 billion naira was required in order for the five banks to meet the minimum 10 percent capital adequacy requirement.
Its actual capital injection was twice that size, creating a buffer zone which means that even if the debts are not repaid, the banks are likely to remain safe for now.
Analysts say it will prove a key test of the Nigerian legal system if the debtors do not pay up, particularly given they include some of the country’s richest and most powerful people.
WHAT ARE THE IMPLICATIONS FOR THE MARKETS?
Banks account for more than 60 percent of the market capitalisation of Nigeria’s stock exchange .LAGLG, the second-biggest in sub-Saharan Africa.
With 14 banks still to be audited, equity investors are proving cautious about buying banking stocks. Brokers say sell orders are likely to mount up on the five rescued banks while their shares are on technical suspension.
The nervousness could also dampen appetite for bond issues planned by Nigerian banks to diversify their capital and funding structure and plug holes in their balance sheets ahead of stricter financial reporting rules at the end of the year.
First Bank, Guaranty Trust Bank and Access Bank are all planning to raise debt in the near future.
The naira NGN= currency has weakened against the U.S. dollar partly due to concern that the crackdown could destabilise financial markets and prompt capital flight in the short term