Vanguard (Lagos)

Nigeria: Shareholders Sue CBN Over Cost of Reforms, Recoveries From Cecilia

Indications emerged, weekend, that the Central Bank of Nigeria (CBN) forced some banks to sell performing loans at a loss to Asset Management Corporation of Nigeria (AMCON) and this partly explains the huge loan loss provisioning posted by banks for the operating year ended December 31st, 2011.

Meanwhile, a group of shareholders have dragged the CBN to court to compel the apex bank to disclose how much it has spent on the reform of the banking sector; the whereabouts of funds from the recovered properties as well as cash from Cecilia Ibru and how much it is paying to professionals handling cases on its behalf among other demands. The Progressive Shareholders Association of Nigeria (PSAN) is acting under the recently enacted Freedom of Information (FoI) Act.

The hint that the CBN forced banks against their wish to sell performing loans to AMCON emerged at the 44th annual general meeting of First Bank Plc last week, where the Group Managing Director/Chief Executive Officer, Mr. Bisi Onasanya, explained to shareholders how the apex bank forced the bank to sell N100 billion performing loans to AMCON at a 10 per cent loss.

"Our headline loan growth rate of just 9.2 per cent does not take into account active switching of a substantial portion of intra-group and money market lines into corporate loans and the sale of over N100 billion of eligible performing loans to the Asset Management Corporation of Nigeria (AMCON), including 100 per cent of our exposure to Seawolf Oilfield Services (an action driven at reducing portfolio concentration and addressing single obligor concerns). Consequently, we recorded normalised loan growth of around 40.6 per cent year on year", he said while reviewing the operations of the bank in the operating year ended December 31st 2011."

When pressed by a shareholder on the SeaWolf Oil Services transaction, he explained that the company was doing well and that the loan was performing but the CBN insisted that the loan should be sold to AMCOM due to its size because of the possible impact on the bank and the industry if the loans become non-performing. "So they forced us to sell the loan to AMCON and we took a haircut (loss) of 10 per cent. The loan was sold without recourse to First Bank", he stated.

Meanwhile, the action by PSAN against CBN seems to be the first major test of the Freedom of Information Act. In an affidavit supporting the suit filed at the Lagos High Court on behalf of Boniface Okezie, President, Progressive Shareholders Association of Nigeria, by Barrister Chuks Nwachukwu, it said that the shareholders' group had written to the CBN on the 26th day of January 2012 demanding for the information but got no response from the apex bank.

The letter to the CBN reads "We act for Mr. Boniface Okezie, the president of Progressive Shareholders Association of Nigeria, which is an association of shareholders of major quoted companies in Nigeria, including banks. We have his instruction to request the following information from you in accordance with the provisions of the Freedom of Information Act: the cost to Central Bank of Nigeria (CBN) and the Government and people of Nigeria so far of the banking reforms instituted by the CBN and particularly; the amount of legal fees and other fees paid and to be paid to professionals and professional bodies.

How much of the amount in (a) above represents fees paid and to be paid to the firms of: Olaniwun Ajayi LP of Adunola, Plot L2, 401 Close, Banana Island, Ikoyi, Lagos, and Kola Awodein & Co of 6th Floor UBA House, 57 Marina, Lagos. Our client observes that the two law firms mentioned above have almost completely dominated representation of CBN and its related bodies in the litigations sparked off by the reforms.

The same law firms have been engaged by the CBN in other capacities such as advisers to the banks the CBN intervened in and consultants to the CBN and other related bodies and also for the criminal prosecution of the former executives of the said banks.

"What is the total sum paid to the firm of Olaniwun Ajayi LP in respect of the prosecution of Cecilia Ibru, former Managing Director of Oceanic Bank Plc and how much of this sum was in the form of Commissions on the properties recovered from her?

"The total cash and value of properties recovered from Cecilia Ibru; the whereabouts of the money and properties recovered; what part of this cash and properties has been returned to Oceanic Bank and/or its shareholders. The bases for the above request are that: It is the tax payer's money that is being used for the prosecution of the ex-banks' chiefs and the reform processes.

Our client also believes that this whole reform process has become a drain pipe on the economy benefiting only a few. We, expect your response to this request within seven days in accordance with the Law. The suit filed at the Ikeja High Court said that "this action was commenced by originating summons wherein the Plaintiff seeks an order of the court directing the defendant to release to the Plaintiff the requested information as demanded by the plaintiff through his Solicitors letter to the CBN dated 26th January 2012.

The shareholders claimed that the CBN "acknowledged the receipt of the letter on 3rd February 2012 and has neglected, refused or failed to make available the requested information to the Plaintiff. As a result, the suit was filed to cause the CBN to release the information. It said "Whether having regard to the provisions of the Freedom of Information Act 2011, the defendant is not under a duty to make available to the plaintiff the information requested in the said plaintiff's letter of 26tln January, 2012.

The Shareholders argued that they have a right under the Freedom of Information Act 2011 to request information from the CBN which is an agency of Government established under the Central Bank of Nigeria Act Cap C4 laws of the Federation of Nigeria 2007.

The CBN is bound within 7 days to make the information available or decline with stated reasons. The requested information is within the custody of the CBN and it has neglected, refused or failed to release the said information to the shareholders or to decline with reasons.

"Section 25 of the Freedom of Information Act 2011, gives the shareholders the right to mandatory order of court compelling the defendant to release requested information. The statutory right to a mandatory order obviated or makes unnecessary any consideration of conditions for grant of such order under common law.

"The court is bound to grant a mandatory order where it is satisfied that the demand for information has been made and the public body has refused or failed to comply." They are urging the court to uphold the originating summons and grant the mandatory order as requested.

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