CBN SACKS FIVE BANK MANAGING DIRECTORS

Yesterday’s decision by the Central Bank of Nigeria to sack the managing

directors/chief executives as well as the executive directors of five banks was
aimed at saving the banks from collapse, because their balance sheets had
shrunken, their shareholders’ funds impaired and they had liquidity
problems.
The CBN governor, Sanusi Lamido Sanusi who disclosed this in an exclusive
interview with THISDAY in Lagos yesterday, following his momentous
announcement of the removal of bank executives earlier in the day, said the
banks were distressed and needed fresh funds because their management
teams acted in a manner that was detrimental to the interest of their
depositors and creditors.
In exercise of its powers under Sections 33 and 35 of the Banks and Other
Financial Institutions Act 1991, as amended, the individuals affected by the
CBN hammer were Sebastian Adigwe of Afribank Plc, Erastus Akingbola of
Intercontinental Bank Plc, Bartholomew Ebong of Union Bank of Nigeria Plc,
Cecilia Ibru of Oceanic International Bank Plc and Okey Nwosu of Finbank
Plc.
Sanusi said their huge exposure to the capital market and massive non-
performing loans were the key factors that contributed to the liquidity
problems in the affected banks.
He said when he became the governor of the CBN, he was alarmed at the
quantum of exposure which some of the banks had.
Sanusi said their exposure to the capital market which had lost over 70
percent of its value was a long-term problem “unless people believe that the
capital market will pick up in the next few months and I do not think that
stocks are going to go back to that very high level within a short time.”
As a result, he said the CBN asked for a special examination of these five
banks which by the apex bank’s estimates were showing signs of distress
given the length of time they spent at the Expanded Discount Window (EDW)
introduced last September by the former CBN governor, Chukwuma Soludo
to shore up their liquidity.
Sanusi said: “If we take the average exposure at the discount window every
month, between October last year and July this year, these five banks
accounted for 90 percent of transactions at the EDW.
“The remaining banks accounted for 10 percent. This for me is an immediate
sign of distress. We tested it further and closed the window and said no more
money.
“We then guaranteed interbank placements. If we didn’t guarantee the inter-
bank market, banks will not lend to them.”
“But when we did this, we immediately saw the affected banks taking money
from the interbank market to repay their exposure to the discount window.
“This was clear evidence that they do not have cash at all. Their balance
sheet had shrunk. The cash had gone. There were clear signs of the banks
going under.
On seeing these signals, we sent in special examiners. The idea was to go
and find out the true position of things.”
The CBN governor said what they found was not so much of a surprise, “but I
think the extent was alarming because I did not believe that there were
banks that have up to 48 or 50 per cent non-performing loans of their total
loan portfolios.”
He said what the banks needed to do was to provide for these loans and to
raise capital which they could not do.
He said decisions by the management of the affected banks exposed them to
the capital and oil markets and risked their depositors’ funds. “This was the
basis for the decision to sack them,” he explained.
Sanusi added that once the decision was taken to inject capital into the
institutions as a lifesaver, there is no way the CBN was going to allow the
same team to manage the funds which belong to the public.
Sanusi disclosed that the CBN would inject N405 billion into the five banks
because they urgently needed fresh funds.
He explained that the capital injection is just a temporary measure in the
form of Convertible Tier II Debt which shall be repaid to the CBN once the
banks are recapitalised. “It does not translate into the government taking up
equity,” he stressed.
The CBN governor assured that the banks could still be returned to the
owners if they are able to raise fresh capital.
“If today, the owners of the banks come up with the capital and bring it in
and say to us, look we can bring in the N100 billion or N120 billion that you
want, we will take it and give them back the banks. All we want is to save
the institutions,” Sanusi said.
He explained that the N405 billion being injected into the banks is a
convertible loan.
“We want to make sure that whatever we provide is not a loan that will be
taken back immediately. We want the management to know that they have
this money until they get fresh capital.
“Yet, we also want to make sure that we don’t lock ourselves permanently
because the last thing we would want is to get Nigeria back to the era of
nationalising banks,” he said.
The governor stated that he does not anticipate that the continuing audit of
14 other banks will throw up considerable surprises since the decision on the
five yesterday was based on the CBN’s assessment of banks which show
signs of distress.
With the removal of the CEOs and their EDs, the CBN yesterday appointed
acting CEOs to head the management teams of the five banks.
The acting CEOs and their financial institutions are: Mr John Aboh, who is to
take over at Oceanic Bank; Mahmud Alabi - Intercontinental Bank; Nebolisa
Arah - Afribank Plc; Mrs. Suzanne Iroche - Finbank and Mrs. Funke Osibodu -
Union Bank.
The CBN has mandated the new helmsmen to continue with the businesses
of the banks as going concerns.
Addressing journalists in Lagos after a meeting with the CEOs of the 24
banks operating in the country, Sanusi said the banks showed serious
liquidity strains since October last year and had to be given financial support
by the CBN in the form of the EDW, where the CBN extended credit facilities
to the banks on the basis of collateral in the form of commercial papers and
bankers acceptances, “sometimes of doubtful value.”
“The total loan portfolio of the five banks, was N2.8 trillion, with margin loans
amounting to N456 billion, exposure to oil and gas N487 billion, aggregated
non-performing loans N1.143 trillion, representing 40.81 per cent,” said the
CBN governor.
He also stated that one of the banks was technically insolvent with a capital
adequacy ratio of 1.01 per cent, adding that a minimum capital injection of
N204.94 billion will be required in the five banks to meet the minimum
capital adequacy ratio of 10 per cent.
The outstanding balance of the five banks on the EDW, said Sanusi,
amounted to N127.85 billion by end of July 2009, representing 89.81 per cent
of the total industry exposure to the CBN, while their net guaranteed
interbank takings stood at N253.30 billion as at August 2, 2009.
He said their liquidity ratios ranged from 17.65 per cent to 24 per cent as at
May 31, 2009 and against the regulatory minimum of 25 per cent.
The CBN governor said at the time of his assumption of duty on June 4, the
banks owed a total N256.6 billion at the EDW.
He said a review of the activity in the EDW showed that four of the banks
were almost permanently locked in as borrowers and were already unable to
repay their obligations.
He explained that a fifth bank had become a very frequent borrower “when
its profile ordinarily should have placed it among the net placers of funds in
the market.”
The apex bank chief noted that three of the five banks were systemically
important to the banking sector, accounting for more than five percent of the
assets and deposits in the sector, while together, the five banks account for
39.93 per cent of loans; 29.99 per cent of deposits and 31.47 per cent of
total assets as at may 31, 2009.
Five other banks - Diamond Bank, First Bank, United Bank for Africa,
Guaranty Trust Bank and Sterling Bank - were found in a good financial state
by the joint team of examiners from the CBN and Nigerian Deposit Insurance
Corpor-ation.
The CBN has fixed mid-September as deadline for the conclusion of the audit
of the remaining banks.

Level of Exposure
Total Loan Portfolio - N2.8 trillion
Margin Loans - N456 billion
Oil & Gas Loans - N487 billion
Aggregate NPLs - N1.143 trillion