ABUJA, Aug 16 (Reuters) - Nigerian President Umaru Yar'Adua has instructed the country's law enforcement agencies to help recover bad loans built up at five banks rescued in an unprecedented $2.6 billion bailout by the central bank.

The apex bank injected 400 billion naira ($2.6 billion) into the five ailing institutions and sacked their chief executives and top management on Friday in an effort to prevent a systemic banking crisis in sub-Saharan Africa's second-biggest economy. [ID:nTAT446691]

"The president has directed all law enforcement agencies to give their fullest support to efforts by the new management teams of the five banks , to recover the huge loans, the non-servicing of which placed the banks at risk of distress," Yar'Adua's office said in a statement on Sunday.

The central bank has said Afribank (AFRB.LG), Finbank (FIBP.LG), Intercontinental Bank (INBK.LG), Oceanic Bank (OCBK.LG) and Union Bank (UBNP.LG) will be run as going concerns until new investors can be found to recapitalise them.

The move by new Central Bank Governor Lamido Sanusi, who has been in the post only two months, sent shockwaves through the corporate establishment in Nigeria.

Between them the institutions account for 40 percent of banking sector credit in Africa's most populous nation and the executives removed included members of Nigeria's business aristocracy, long seen as almost untouchable.

"President Yar'Adua fully endorses the measures announced by the central bank , to sanitise Nigeria's banking sector and prevent fresh bank failures with their attendant negative effects on the national economy," the presidency said.

"President Yar'Adua wishes to assure all Nigerians that their deposits in Nigerian banks are safe as the federal government will continue to act in concert with the CBN to ensure that no bank is allowed to fail or become distressed."

POOR GOVERNANCE

Sanusi said on Friday four of the five banks had been close to collapse and blamed their problems on poor corporate governance and lax administration.

The financial sector has become the key driver of Nigeria's economy and a systemic banking crisis would be disastrous.

Nigeria's banks saw explosive balance sheet growth in the wake of consolidation four years ago, going on massive capital raising sprees which increased their capacity to lend to companies and individuals. Risk management did not keep pace.

The loans included credit to speculators on the stock market .LAGLG, down more than 60 percent from its peak in March 2008.

They also including unsecured financing to fuel importers who have had to contend with a sharp fall in global oil prices from above $140 a barrel last year to half that level.

Yar'Adua said he had nominated risk management expert Kingsley Chiedu Moghalu as the new deputy governor of the central bank (CBN) and appointed two new board members in a bid to strengthen the regulator's position.

"Moghalu, 46, who holds a doctorate degree from the London School of Economics has many years of experience in corporate governance, risk management and strategy," the presidency said.

"His appointment is expected to complement the collective strength of the CBN board and management."

The appointments must now be approved by the Senate.

http://www.reuters.com/article/rbssBanks/idUSLG25524320090816?pageNumber=2&virtualBrandChannel=0

Psssst!
Tosh! Absolute tosh!

This is going to be like water poured at the back of a duck.

Heh. Like a delicious turkey trying to catch a bushrat for its owner.

Nigerian police ? then part the loans will be recovered into unidentified pockets.

OMO IBO:

This is going to be like water poured at the back of a duck.

Seun:

Heh. Like a delicious turkey trying to catch a bushrat for its owner.

lol, Kai naijaaaaa.

On a more serious note, isn't this why most banks insist on collateral before giving loans?

Tales by moonlight.

dont you people ever get tired of talking about this bleeped up country.
there are problems on top of problems on top of more problems.
only a MIRACLE and GREAT MIRACLE can save Nigeria from where its heading.

sigh . . .

Thank God.

I have said they should implement this for the collection of PHCN debts too.

Another way for Nigerian Police to chop money,

We all know that this is missing in Action Part30 featuring Police and the people that took small loan that are not those that took heavy loans in Government. Who is the actor and who is the boss? (Watch out Actor go die for this movie. Make una no dey deciecve us). We all know that it will be politicized and finally it will die a sudden death.

Nigeria Police  

Yaradua has really put RECOVERY in the mouths of Nigerian Police - dem go chop taya!

Does this really mean that these banks actually gave out loans without collateral?

Let them sell the bad debts at 2kobo to a naira to agberos,then the agberos will  legitimately unleash their madness on the debtors.

@Oge4real, most of those loans were used to finance the purchase of shares, and in such cases the shares are used as collateral.

with the state of the capital market now, the value of those shares have been eroded and cannot come anywhere near offsetting the loans.

na chop be that ooo for police

Opportunityn for Nigeria Police to harmer. 

Seun:

On a more serious note, isn't this why most banks insist on collateral before giving loans?

they collected share certificates and other papers which seem worthless at this point. at least that's what i think.

z-murda:
they collected share certificates and other papers which seem worthless at this point. at least that's what i think.

Wow, they did that?  It's funny in a tragic way.

The same people who complain that Nigerian banks don't like giving out loans are the ones complaining now.  You can't have it both ways.  If the banks are responsible, you won't get a loan.  And if they are less responsible, you'll get the loan, but your bank may collapse with all your savings.  We can't eat our cake and have it, it's as simple as that. 

We cannot rely on banks to drive our economy.  If we are thriving, our banks will thrive.  And vice versa.  At the end of the day, no amount of financial difficulty or consolidation mumbo-jumbo can compensate for our lack of productivity as a country.

Seun:

Wow, they did that?  It's funny in a tragic way.

The same people who complain that Nigerian banks don't like giving out loans are the ones complaining now.  You can't have it both ways.  If the banks are responsible, you won't get a loan.  And if they are less responsible, you'll get the loan, but your bank may collapse with all your savings.  We can't eat our cake and have it, it's as simple as that.

I don't think the 2 criticisms are irreconcilable. One of the key functions of the banking system is to channel much needed capital into productive sectors. Providing credit for stock market speculation isn't particularly wise. However, providing credit to entreprenuers with viable business plans is very much needed in Nigeria.

Topic.

How possible?

@4play I agree with you totally. Nigerian banks will hardly give the kind of facility that will help develop the real sector, rather they were busy funding speculators in the capital market.

When all this consolidation business came up, some colleagues and I were looking at what the terrain will be like with such huge capital. we honestly expected to see more facilities going to the manufacturing sector and the like,we were sadly disappointed to see that short term lending and playing in the money market remained the order of the day.

@tine
One of the primary reasons why Nigerian Banks lend on a short term basis is because they are afraid of inflation and fluctuation of the Naira in a long run. But the country needs long term projects and as you said in manufacturing, not a quick fix
If I lend you a N10million today for 5 years, all your projections and repayment are dependent on what is going to be happening within 5 years from now. And Banks are not willing to take that risk.
These margin stock loans are not prudent

@safariman,

I agree as to why banks don't want to lend long term, but you can make projections for inflation and currency fluctuations cant you?. what i cant figure out is how the same supposedly risk averse banks speculate in the money market. it is crazy. The losses that can, and have sometimes resulted from that are huge.
The margin stock loans are certainly not prudent as they unfortunately found out.

This is all bullshit, what is the president business in ordering police to help recover loans ? its just political propaganda and bullshit. in developed countries thats why they have debt collection agencies and bailiffs who are responsible for recovering bad loans for banks and financial instituition.

police are they to protect lives which is what they should be doing and not chasing loan defaulters, or debtors.
ABSOLUTE RUBBISH, BULLOCKS, BOLLONEYS,

This is the job of the banks, as well as the cbn and not the fucking weak, lame man who calls himself president.

Seun:

On a more serious note, isn't this why most banks insist on collateral before giving loans?

Priority is on a source of repayment, collateral comes in when we're talking big dough with lack of transaction history showing you can handle such amount.

@ ayotee when u mean big bucks, ow much are u talking here becos to get a loan no matter ow small it is depending on thee proof you submit. sometimes to get a loan as low as £500 u need a guarantor or collateral before u can get it. so what am saying in essence is that a collateral can be requested for any amount as no amount is too small to be secured.

@Seun,
If they (the Banks) take margin stock as collateral and if the stock market crashes or there is a downturn in the market, then what do you have to back up your loan?

@tine,
You can certainly make financial projections to cover as far back as 5 years out, but with an emerging economy like Nigeria with a high inflation rate and unstable currency, it is very hard. What I have adviced companies is to have contingencies. Some of the projections would have to allow for a 40% or even higher profit margin to cover anything fluctuations in projections.

Overall, the Police should not be debt collectors, I don't think they have the expertise or the knowledge to handle collecting on a bad loan unless, it is a fraudulent transaction