Rescued banks’ net losses now N1.28tr

By Bassey Udo

June 13, 2011 10:48PM
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The Central Bank of Nigeria (CBN) yesterday said that in spite of its intervention in the country’s financial crisis, the eight rescued banks are still in distress, with operational losses put at about N1.284 trillion.

The apex bank governor, Sanusi Lamido Sanusi, said yesterday that in spite of efforts by the respective new managements, the erosion of value through huge operating losses has kept the banks technically insolvent.

According to the CBN governor, as at December 2010, Intercontinental Bank recorded about N330.709 billion negative asset value; Afribank Nigeria, N260.940 billion; Bank PHB, N242.309 billion; Union Bank, N135.894 billion; Finbank, N104,751 billion; Oceanic Bank, N94.261 billion; Spring Bank, N87.869 billion; and Equitorial Trust Bank, N27.253 billion.

Reviewing the ongoing recapitalisation of the affected banks, Mr Sanusi deplored the negative activities of some shareholders, warning that the apex bank would not fold its arms and watch “a small minority of shareholders with vested interest” derail the process.

Derailed process

Though he noted that the recapitalisation process has reached advanced stage, with the receipt of four Memoranda of Understanding (MOUs) for approval under the provisions of the Banks & Other Financial Institutions Act (BOFIA), ex-parte orders obtained by the shareholders have derailed the process.

“The recapitalisation process is now well advanced, and the MoUs submitted to the CBN have gone through the regulatory process.

“However, the process risks being derailed by a small number of shareholders, whose prior stakes amount to just a fraction of the banks’ shareholding, purporting to be acting in the interest of the wider shareholders but most likely at the instance of some vested interests.

“These shareholders have filed court actions to stall the recapitalisation process. Indeed, the CBN has been advised that four MOUs and the recapitalisation to complete the restoration of the banks, which would have been formally brought to shareholders for the exercise of their rights to participate (either alone or with the strategic investor), have been effectively blocked by ex-parte orders of injunction obtained to stop the process,” the CBN governor said.

Mr Sanusi warned that the distressing situation would worsen if fresh capital are not injected into the banks to plug the hole in the banks’ balance sheets created by their previous mismanagements, pointing out that “so long as these banks continue to fund the gap with interest bearing liabilities, they will continue to run operating losses, especially in an environment of rising interest rates.”

No indefinite interbank guarantee

According to him, the CBN can ill-afford to sustain indefinitely the interbank guarantee it provided for the eight banks, considering the high cost to the nation and the risk to the country’s financial system.

He warned that in the event of liquidation of any of the banks, the CBN would not owe any obligation to protect or give any value to shareholders who will have to face the reality that their investments have been wiped out by the management teams that they appointed, pointing out the ongoing merger and acquisition process was to restore stability to the system.

“The process has reached an advanced stage, and the CBN will not allow itself to be tied up in endless litigation with persons who have no stake in these institutions, and who are willing to use court processes to bring actions that would inflict losses on innocent depositors and savers whom the CBN remains resolute to protect,” he said.

Last week, CBN’s director, banking supervision, Samuel Oni, had said that the apex bank would not be deterred by these negative activities, as it remained committed to explore all legal actions to vacate those injunctions, to allow the process to continue to its logical end, while steps would be taken to protect all depositors and creditors’ interests in the affected banks.
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