Shareholders of the eight banks recently taken over by the Central Bank of Nigeria have automatically lost their investments in the banks.
The CBN governor, Lamido Sanusi disclosed this yesterday in Lagos while speaking at a policy dialogue organised by the Nigerian Economic Summit Group.
The banks - Union Bank of Nigeria Plc, Oceanic Bank Plc, Intercontinental Bank Plc, Afribank Plc, FinBank Plc, Bank PHB plc, Spring Bank Plc and Equatorial Trust Bank Limited – were found to be in a grave condition after the CBN’s audit of the 24 banks in the country, prompting the injection of N620 billion into the affected institutions by the Reserve Bank.
He pointed out that the result of the audit in the eight banks indicated that the non-performing loans of most of them exceeded their share capital, which resulted in a situation whereby their balance sheets had a negative networth.
“Their shareholders’ funds were eroded from the provisioning for loan losses, leading to an erosion of their investments in the banks,” the governor explained.
He said the sacked bank executives and shareholders that went to court challenging their removal and alleged take-over of the banks, failed to realise they are no longer shareholders of the banks going by the books of accounts of the institutions.
“It is the government (or rather, the CBN) that has provided the bailout that has a claim on the investments. But any other shareholder can emerge after the debts of the banks have been recovered.
“That is what the aggrieved shareholders and former CEOs don’t seem to understand, which is why they even kicked against our debt recovery efforts that ordinarily will favour them,” he explained.
He said the other set of people with claims on the banks are depositors and creditors, whose interest he said the CBN was doing everything to protect by not allowing the banks to fail.
“As far as I know, the so called key shareholders and bank executives that ruined these banks do not deserve a place again in the institutions but should find their place in jail or even be shot dead,” said Sanusi in an emotionally laden voice.
He pointed out that the shareholders have been affected by the grave situation the banks were plunged into.
Sanusi said for some of the banks, the percentage of non-performing loans to total loans was nearing 50 per cent and that these represented loans tied to the capital market that has lost about 70 per cent of its value.
The CBN governor disclosed that one of the banks had non-performing loans of over N300 billion and that the CEO of a particular bank wired £13 million to himself without any transaction to back it.
He however, regretted that the audit was belated, adding that because of it the economy has been deeply affected by the negative consequences that has manifested in an acute credit crunch.
“The problem started as far back as October last year when some banks became permanent customers of the Expanded Discount Window, which was a symptom of a deeper problem.
“Any risk manager that didn’t see that as a sign of a big problem is not worth being called a risk manager.
“The situation necessitated the audit of the banks when I became governor, and it was discovered that five banks accounted for 90 per cent of the borrowings from the expanded discount window. The rest is now history.
“What the CBN is after now is how to make the banks recover and perform their role of financial intermediation for economic growth and development,” said Sanusi.
On inflation, Sanusi said: “Inflation has been reducing, likewise interest rates, but if 20 per cent of the budget is not spent and the economy grinds to a halt, it is not CBN’s problem but that of the government.”
He said government has to work for the economy to move forward, adding that part of the problems of the banking system is that the banks have taken an undue burden of economic growth.
The director general of NESG, Frank Nweke Jr, said the group conveyed the policy dialogue to get first hand information on the objectives of the CBN’s intervention in the banks and to enable the private sector make their input to the reforms.
The chairman of the occasion, Fola Adeola, co-founder and former managing director of Guaranty Trust Bank Plc, enjoined banks to always heed regulations for the stability of the financial system.
The chairman of the NESG, Mazi Sam Ohuabunwa, urged the CBN to fast-track the second phase of the reforms to return the financial system to stability and restore confidence in the system and the economy.