9 September 2009

Nigeria: Analysts Raise Posers on N420 Billion Loan For Five Banks

analysis

Lagos — THE CENTRAL Bank of Nigeria last week Thursday insisted that the recent N420 billion injected as liquidity support to the five banks whose executive management teams were recently sacked was neither equity nor bailout, but within its regulatory ambience as lender of last resort.

In another statement on Sunday by Mohammed Abdullahi, Deputy Director and Head, Corporate Affairs at the apex bank, stressed that "the loan is an accommodation facility intended to improve the liquidity position of the banks to enable them meet their obligations and will be repaid."

"The CBN Act empowers the CBN to manage money supply in the economy through different mechanisms. The CBN, as banker to other banks, has been increasing money supply by lending money to the banks through the Expanded Discount Window (EDW) and the injection of the N420b into the five banks is similar to that function. The money is not from the government treasury and the CBN does not require any appropriation by the National Assembly in order to perform this function, which in any event, is not often foreseeable. Section 42(2) of the CBN Act, which is an Act of the National Assembly provides as follows: "Notwithstanding the provision of Section 29 (1)(c) and 34(d) of this Act, the Bank may grant loans and other accommodation facilities at such rate of interest and on such terms as the bank may determine, to any bank which may be having liquidity problems."

Matters Arising From Loan Disbursement

Some analysts, who spoke with our correspondent last weekend, wondered for example, the yardstick employed by the CBN in disbursing the "loan" and whether it had anything to do with the size of the five banks. There are also questions on the relationship between their levels of impairment or the quantum of bad loans in their books as contained in the list of debtors published by the apex bank.

For instance, according to available information on the disbursement, Union Bank with N73.582 billion non-performing loan got a N120 billion "loan;" while Intercontinental Bank with N210.903 billion received N100 billion; while Afribank Nigeria received fresh N50 billion, despite its N141.856 billion "non-performing" loan book. Oceanic Bank International received N100 billion while it had N278.204 billion "delinquent loans" in its book; just as Finbank with N42.445 billion bad loan book got N50 billion also.

Also, Jude Fejokwu of The Thaddeus Investment Advisors in a reaction to the CBN intervention, also wants further clarifications on whether the loan is convertible as mentioned by the CBN Governor in an interview with South Africa's business broadcast station- CNBC Africa and what the term structure, interest rates and covenants of the loan entered into by its appointed chief executives for the banks are. He also wants the CBN to tell investors and shareholders of the affected banks at what point the loans become convertible and on what conditions.

"Are the loans being provided as working capital or to shore-up their capital base to boost their overall financial strength? Will this injection bring the banks back to stability, or we are just scratching the surface?"

The firm of investment advisors believes that public funds should not be used to clean up private sector mess, and should be used when the overall impact of its non-use is determined to be huge consequence.

The report submitted soon after the sack of the bank chiefs also recalled that the incidentts leading to their sack did not happen overnight and that the deputy governors, who served during the tenure of Prof. Chukwuma Soludo between 2004 and 2009 should be held accountable for the rot and made to "resign due to lack of proper oversight and withholding pertinent information from the concerned public."

The report also called for the health status of Guaranty Trust Bank, Sterling Bank, Diamond Bank, United Bank for Africa and First Bank of Nigeria, which were cleared at the end of the first round of industry audit examinations.

There is also a call for sanction of the external auditors of the five banks mostly Akintola Williams Delloite and PriceWaterhouseCoopers, while putting a stop to all ancestral relationship between banks and their external auditors, who should be changed once every five years.

But Lawson Omokhodion, former executive director, Risk Management at Equatorial Trust Bank Limited and chief executive of Liberty Bank Plc (in liquidation) believes the CBN Governor should be allowed to finish the cleansing work and not be intimidated from "taking same drastic action on the other banks being audited. If he finds shocking revelations in their books; (he) must be allowed to finish the cleansing work he has started."

After all, Omokhodion, now a businessman, queried in his reply to a text message to our correspondent: "Did the CBN Governor ask the sacked bankers to doctor their books? Did the CBN Governor ask them to give insider related credits? Did the CBN Governor ask them to disregard prudential guidelines?"

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