CBN Sacks five bank MDs and directors

I'm sure you all already heard the biggest news of last week, the sacking of five Nigerian Bank MDs and some directors. For those who don't know the full detail, read it below...

As written by Guardian newspapers, Enitar Ugwu, Bukky Olajide, Adeyemi Adepetun and Helen Oji

AT last the Central Bank of Nigeria (CBN) has wielded the big stick. In one fell swoop, managing directors and chief executive officers of five banks along with their executive directors, were sacked by the apex bank yesterday.

The phenomenal rejig, announced by CBN Governor Mr. Sanusi Lamido Sanusi, affected the chief executive officers of Intercontinental Bank Plc, Mr. Erastus Akingbola; Sebastine Adigwe of AfriBank Plc; Okey Nwosu of Finbank Plc; Mrs Cecilia Ibru of Oceanic Bank Plc and Barth Ebong of Union Bank Plc.

To replace them are John Aboh for Oceanic Bank Plc, Mahmud Alabi (Intercontinental Bank), Nebolisa Arah (Afribank), Suzanne Iroche (Finbank) while Funke Osibodu takes over at Union Bank Plc.

Sanusi told journalists yesterday that the removal of the banks' chiefs was due to excessively high level of non-performing loans, which was attributable to poor corporate governance practices, lax credit administration processes and the banks' credit risk management practices.

According to him, the percentage of non-performing loans to total loans ranged from 19 per cent to 48 per cent while the five banks would therefore need to make additional provision of N539.09 billion.

Sanusi explained that the total loan portfolio of the five banks was N2.9 trillion, margin loans amounted to N456.28 billion and exposure to oil and gas was N487.02 billion while aggregate non-performing loans stood at N1.2 trillion representing 40.81 per cent.

According to him, the percentage of non-performing loans to total loans ranged from 19 per cent to 48 per cent while the five banks would therefore need to make additional provision of N539.09 billion.

Sanusi explained that the total loan portfolio of the five banks was N2.9 trillion, margin loans amounted to N456.28 billion and exposure to oil and gas was N487.02 billion while aggregate non-performing loans stood at N1.2 trillion representing 40.81 per cent.

From the statistics, he said, it was evident that the banks accounted for a disproportionate component of total exposure to capital market and oil and gas sector thus reflecting heavy concentration to other banks in the industry.

The governor said the huge provisioning requirements led to significant capital impairment, adding that all the banks were under-capitalszed for their current levels of operations and were required to increase their provisions for loan losses, which impacted negatively on their capital. Indeed one is technically insolvent with a Capital Adequacy Ratio of (1.01 per cent), thus, a minimum capital injection of N204.94 billion would be required in the five banks to meet the minimum capital adequacy ratio of 10 per cent, he said.

Sanusi said: "The five banks were either perennial net takers of funds in the inter-bank market or enjoyed liquidity support from the CBN for long periods of time, a clear evidence of illiquidity. In other words, these banks were unable to meet their maturing obligations as they fall due without resorting to the CBN or the inter-bank market.

"As a matter of fact, the outstanding balance on the Expanded Discount Window (EDW) of the five banks amounted to N127.85 billion by end of July 2009, representing 89.81 per cent of the total industry exposure to the CBN on its discount window while their net guaranteed inter-bank takings stood at N253.30 billion as at August 2, 2009. Their liquidity ratios ranged from 17.65 per cent to 24 per cent as at May 31, 2009. (Regulatory minimum is 25 per cent)

"It is important to note that at least three of the banks are systematically important (accounting for more that five per cent of assets and deposits in the banking system) and together the five banks account for 39.93 per cent of loans, 29. 99 per cent of deposits, and 31.47 per cent total assets as at May 31, 2009.

"Given the extent of the asset quality problem leading to liquidity stresses, and the variety of stress points on the banks' balance sheets, failure to act to secure the financial health of these banks will clearly place the system at risk.

"The Central Bank has a responsibility to act to protect all depositors and creditors and ensure that no one losses money due to bank failure. The bank also needs to move decisively to remove this principal cause of financial instability and restore confidence in the banking system.

"Consequently, having reviewed all the reports of the examiners and the comments of the directors and deputy governors, I am satisfied that these five institutions are in a grave situation and that their managements have acted in a manner detrimental to the interest of their depositors and creditors.

"Therefore, in exercise of Other Financial Institutions Act 1991, as amended, and after securing the consent of the Board of Directors of the CBN, I hereby remove the managing directors and the executive directors of the following banks Intercontinental Bank Plc, Afribank Plc, Finbank Plc, Oceanic Bank Plc and Union Bank of Nigeria Plc from office with effect from Friday, August 14, 2009.

Sanusi said their successors were tasked with continuing the businesses of the banks as a growing concern, adding that the apex bank was injecting N400 billion into the affected banks with immediate effect in form of Tier 2 Capital to be repaid from proceeds of capitalisation in the near future.

According to him, the injection is sufficient to resolve and stabilise all the institutions and enable them continue normal business. "The injection of fresh capital by the CBN is a temporary measure as government does not intend to hold the shares for long and shall divest its holdings as soon as new investors recapitalise these banks."

Sanusi advised all debtors of the nation's banks, that the CBN and all government agencies were united in our commitment to support the recovery effort of the banks. "Debtors who do not pay shall have their names published in national newspapers in due course and we will solicit the support of law enforcement agencies in recovery."

He assured customers of the banks and all the banks in general that there was no cause for alarm, and urged them to continue to transact normal business with the banks where their accounts were domiciled as the exercise was meant to strengthen the banking industry and recapitalise the affected banks.

Sanusi stated that the scope of the special examination was intended to cover all the nation's 24 banks.

"So far, we have concluded the audit of 10 banks including these five, the others being Diamond Bank, First Bank, United Bank for Africa, Guaranty Trust Bank and Sterling Bank. We have also commenced the next batch of 11 banks and hope to conclude them by end of August.

"All in all, we expect to conclude the audit in mid-September. The Central bank is requiring all Banks to make appropriate provisioning for non- performing loans and disclose them. We hope that by the end of this quarter, all banks would have cleaned up their balance sheets.

"On the basis of the information available to us so far, we are confident that the banking system is safe and sound and we have dealt with the major sources of systemic risk," Sanusi said.

The CBN, he said, would not waiver in its desire to ensure that public confidence in the banking system was maintained through appropriate disclosures and reinvigoration of its policy of zero tolerance on all professional and unethical conduct.

"We will not allow any bank to fail. However, we will also ensure that officers of banks and debtors who contribute to bank failures are brought to book to the full extent of the law and that all proceeds of infraction are confiscated where legally feasible," he declared.

Heavy presence of the mobile policemen was noticed at the headquarters of the affected banks yesterday.

The Guardian had exclusively reported a debt stock of N1.25 trillion being owed the banks by some high profile individuals and firms, with a significant percentage of the debts in foreign currency.

As at Thursday, further disclosures increased the list of such high profile debtors to 50, owing over N3.5 trillion.

Irked by the development, the banks decided to frontally confront the debtors publicly, as exemplified by Intercontinental Bank Plc, Access Bank Plc, Fidelity Bank Plc, among others.

CBN had opted for full disclosures while mandating the banks to make provisions for such debts in their accounts.

Eurasia Group, a New York-based research firm, said last May that banks in Nigeria might have as much as $10 billion or N1.48 trillion of toxic assets. The bad debt is partly the result of at least N1 trillion of margin loans used to buy shares as equities soared almost 13-fold since 2000, according to Bank of America Corp.

Meanwhile, shareholders of the affected banks yesterday urged the CBN to do a comprehensive work in its effort to restore public confidence in the sector.

National Chairman, Progressive Shareholders Association of Nigeria, Mr Boniface Okezie, said the CBN should do what he described as a "proper job," adding that his group believes the problems in the sector were more than what had been disclosed.

Okezie also described the sack of the five bank chiefs as a selective process, which would not tackle the rot in the sector.

A member of another shareholder's group, who did not want his name mentioned, said the CBN should also share part of the blame because it (CBN) was not proactive enough" to protect the public interest.

"The CBN was too slow. This is medicine after death. They should be courageous. The problems are far more than the public is being told. Enough of this deceit," he said

Also, a stockbroker with profound Securities Limited, Mr Alabi Jacobs said: "For now, this will create apathy on the part of investors; they might decide to dump shares and we expect that in the next few weeks, the market will go down. It will however recover in the long run.

A financial analyst, Mr. Kennedy Izuagbe, said that the move by the CBN was laudable and had shown the level of illiquidity in the country's financial sector.

I didn't know CBN had such powers. I thought MDs were appointed and sacked by the board of a company. Well, we learn everyday. What do you guys think about this sack?