The nationalisation of three troubled banks by the Central Bank of Nigeria throws the financial system into deep crisis that might derail efforts of the federal government to revive the economy
Damilare Olowolagba, a customer of the Ojodu branch of Keystone Bank, formerly Bank PHB, was in no mood to listen to officials of the bank who tried to persuade him from withdrawing all his money from the bank last week Tuesday. Although the staff of the bank had assured customers that their deposits were safe, following the revocation of the licence of Bank PHB and two others, Olowolagba said he was not comfortable doing business with a government-owned bank, citing inconsistency and policy somersault as his reasons. Said he, “I decided to use the ATM machine to withdraw my money until I begin to see signs of recovery.” In several other branches of the new banks visited last week, the case was the same.
Most customers of Keystone Bank, Mainstreet Bank, formerly Afribank and Enterprise Bank, formerly Spring Bank, looked rather confused throughout last week. “I have withdrawn my money from the account without leaving a kobo. In fact, my case looks peculiar because my wife and I operate accounts in the same bank, but we have withdrawn everything in the accounts. What prompted me to act fast was that the branch manager himself told me to try and withdraw my money because he didn’t know how the situation would end. He further told me to watch what happens in the next two months to know the next line of action to take. For the manager to have told me that, I reasoned that all the staff of the branch may have made their transfers discretely,” a customer of Keystone Bank, in one of their branches around Ikeja, who declined to be mentioned, told the magazine.
The mood of customers at a branch of Mainstreet Bank in the same area was not different. They were not sure what the management of the bank had in stock for them. One of them disclosed that he had launched a campaign among his friends to withdraw their funds from the bank before it gets too late. The customer, who is also a shareholder, told the magazine that he had lost his investment as a shareholder and would not wait until he lost his deposit.
Apart from depositors, shareholders of the banks were also agonising over the revocation of the licences of their banks last week. There were conflicting signals as to whether other agencies and regulatory bodies in the financial system, specifically, Security and Exchange Commission, SEC, Nigeria Deposit Insurance Corporation, NDIC, and the Nigerian Stock Exchange, NSE, were carried along, but the action has serious consequences for the capital market and shareholders of the affected banks. For instance, on the first trading day of the week preceding the nationalisation of the banks, Arunma Oteh, director-general, SEC, announced the suspension of trading on the stocks of the affected banks. The commission also approved a technical suspension on trading on the stocks of Union Bank, Intercontinental Bank, Oceanic Bank and Finbank in which case, trading could continue on their shares without movement in price. The four banks have reached an advanced stage in their recapitalisation agreements with new investors. The truth, according to market analysts, is that the shares of the banks whose licences were revoked may not see the light of the day again in the NSE unless something dramatic happens.
But just as the decision was being taken by SEC, the stock market began to suffer yet another round of losses. Within the first three days of trading on the exchange after the takeover, the NSE lost N320 billion. The NSE was prompted to appeal to investors in the market to discontinue dumping of their shares, which was a sign of disenchantment. Banking stocks were the worst hit as total loss of confidence and uncertainty loomed in the market. Oscar Onyema, chief executive officer, NSE, said the actions taken by the Central Bank of Nigeria, CBN, NDIC and Asset Management Corporation of Nigeria, AMCON should bring to an end the banking crisis and help stabilise the Nigerian financial markets in due course. But shareholders would not take any of that.
Boniface Okezie, national coordinator, Progressive Shareholders Association of Nigeria, believes that nationalisation of the banks may have cost their shareholders an estimated N800 billion. “All our investments have gone down the drain. We have been robbed of our hard earned money. The banks we invested in have been nationalised and the bridge banks cannot accommodate us because they are limited liability companies. Now, the CBN governor has asked us to go to court if his decision is not ok by us,” Okezie lamented. The courts appear to be a comfort zone for Lamido Sanusi, CBN governor, as he seems to have ignored all pending cases in courts to continue with his plans for the banks. Okezie disclosed that the investors would not only go to court but also insisted that the presidency should intervene and save the investment of the shareholders. “We will protest and ask the President to order Sanusi to return the banks to us and also give us enough time to recapitalise. How can he give AMCON three years to sell the banks whereas he gave us few months to recapitalise?” Okezie fumed.
Kayode Oyeleke, another investor, described the takeover as a huge joke. For Oyeleke, who said his investments in the three banks amounted to about N800,000, the action of the CBN, NDIC and other agencies that are involved in the takeover amounts to illegality. “How can I lose all I have ever worked for all my life just like that? Someone must do something fast before this man sends me to my early grave,” he said, threatening to challenge the action to a logical conclusion.
For good reasons, there is a groundswell of opposition against the activities of the CBN governor. Last week, Renaissance Professionals, a pressure group in the financial sector, pointed out in a newspaper publication that while the economy burns, the CBN governor maintains a high record of travels abroad. This, the professionals say has resulted in the governor having less than sufficient understanding of goings on in the banking industry while his deputies feed him with what he probably would want to hear.
But for Bisi Ogunjobi, former vice president of the African Development Bank, there were several factors that influenced the final position that was taken by the CBN. One of such factors was the fact that shareholders and the CBN governor have been working at cross-purposes. “If you are an investor, will you come quickly to invest in such a situation? That is one of the reasons they have not been able to find credible buyers,” said Ogunjobi. The alternative, he said, was to allow the banks to sink. And if that had happened, it would not have been just the shareholders that would lose their money, but also the depositors.
“In a sense,” says Ogunjobi, “the continued assurance that no bank will be allowed to fail is a blank cheque for mediocre performance. If the highly rated new management teams are unable to turn around the fortunes of the banks within the stipulated two to three years they should be allowed to sink. It is better to cut our losses rather than engaging in financial engineering of digging a hole to fill a hole.”
To many stakeholders of the banks, the September 30, 2011 deadline was Sanusi’s subtle way of announcing a terminal date for the troubled banks. Bank sources confirmed that the deadline created a run on the banks as customers began to withdraw their funds. The deadline also kept investors away as the safety of their investments could not be guaranteed.
What sent shock waves down the spine of many bankers and bank customers was that ahead of the September deadline, Kingsley Moghalu, deputy governor, financial system stability, CBN, was in Lagos where he assured that all the troubled banks were making steady progress to beat the recapitalisation deadline. Moghalu ruled out the possibility of any of the banks being liquidated, given the level they had attained in their recapitalisation efforts, only for the same CBN, to come up three weeks later with the nationalisation option in a manner that strongly suggests that the idea was conceived and perfected over a long period. Moghalu’s visit to Lagos also exposed the CBN’s inconsistency in many ways.
On July 21, Vine Capital Partners, a prospective investor in Afribank, in a newspaper advertorial said it read for the first time, the reasons adduced by CBN for opposing its memorandum of understanding, MOU, with Afribank on the pages of newspapers. That happened at a time the investors were yet to receive any official communication of cancellation and the reason for that from either the CBN or Afribank. The investors then went ahead to puncture all the issues raised by the CBN on the transaction, stating further that the CBN governor may have been working with inadequate information on the transaction.
Last week, a bank executive told the magazine in Lagos that the greatest concern in the industry today is the CBN governor’s approach to solving the problems in the sector, which he fears could put ongoing mergers and acquisitions in grave danger. But what is of greater concern to many Nigerians is what seems to be insensitivity on the part of government. A top business executive told the magazine that on several occasions, concerned and well-meaning citizens of the country had approached President Goodluck Jonathan, expressing their worries over the crisis in the banking sector. Specifically, the effect of massive withdrawals from the banks was duly communicated to the President shortly after Sanusi announced the September deadline for recapitalisation. However, the President did not take any action and allowed Sanusi to have his way.
The magazine also gathered that on one occasion, the President was advised to caution the CBN governor that apart from exercising the rights conferred on him by the Banks and Other Financial Institutions, BOFI law, which he holds tenaciously on to, he also has the responsibility to take steps towards the growth and development of the economy. That also did not seem to impress the presidency. Apparently, Sanusi enjoys the support of the presidency. Not a few people consider this development as yet another offensive on the banking industry. And for as long as he remains in the saddle, it is widely believed, there may be no respite for the banks. He is viewed as one CBN governor who has introduced solutions that are worse than the problems he tends to be solving. To many bankers he has been on rampage with no clear objectives. His regime has come to be associated with impunity and inconsistency in policy decisions.
Curiously, AMCON, which took over the banks from the NDIC and handed them over to bridge banks says it has injected N285 billion into Keystone, which took over Bank PHB; N111 billion into Enterprise Bank, which took over Spring Bank and N283 billion into Mainstreet, which took over Afribank, a total of N679 billion. The National Assembly had once raised questions on how the CBN sourced the money it used as intervention fund in the troubled banks but Sanusi said the apex bank printed the money. Industry sources say he ought to have got the approval of the legislative arm of government before doing that. He never did.
Until their licences were revoked August 5, the banks were being referred to by the CBN as rescued banks, yet the banks were far from being rescued. If anything, the interim chief executives of some of the banks turned out to be undertakers of the banks they were meant to rescue. For instance, Cyril Chukwuma, who ran Bank PHB, was said to have engaged in financial recklessness, which began soon after he resumed in October 2009. By December of that year, he demanded from the bank, $120,000 about N18 million, as offshore vacation allowance for that financial year, among other financial irregularities. That alone set tongues wagging in the industry. It was the first major indication that there was no well-thought-out plan to revive the bank.
It may take a long time for Nigeria’s financial system and, indeed, the economy to recover from the shock of August 5, 2011. In a rather dramatic fashion, Afribank became Mainstreet Bank; Spring Bank became Enterprise Bank; and Bank PHB became Keystone Bank. In another couple of hours, the government-owned AMCON, acquired the bridge banks from the NDIC, rebranded them and appointed new board chairmen, chief executive officers and other executive management staff for the banks. That was how government took over the banks. But the spectacular thing was that all these took place within a space of 48 hours, Friday August 5 through Sunday August 7, raising questions on when and how the decisions were taken and implemented.
Whereas the speculation in banking circles was that the bridge banks may not have been registered companies, the magazine’s checks at the Corporate Affairs Commission, CAC, headquarters in Abuja revealed that of the three bridge banks, only Keystone Bank Limited and Enterprise Bank Limited were registered with the commission. There was no record of Mainstreet Bank Limited. The magazine was informed that the two banks were registered on the same day. Although their date of registration could not be ascertained, an official of the commission said the registration numbers of the banks, which he gave as RC969956 and RC969657, showed that they were registered within the last two months. A deputy director with the commission who pleaded not to be mentioned because he is not authorised to speak on behalf of the commission, told the magazine that the NDIC, had registered some companies not long ago in anticipation and kept them on the shelf. According to the official, such companies are called shelf companies. The NDIC then picked from these shelf companies when the plan to nationalise some banks was finalised.
Sadly in all these, there seems to be no one smiling in the entire financial system in Nigeria, except perhaps, Sanusi and his crew. Is the crew fixing the financial system or wrecking it? Only time will tell.
Additional reports by Tajudeen Suleiman,
and Adebola Ogunnaike