Sanusi: I prefer sale of five troubled banks

A RESCUE operation is on the way for the five troubled banks. The move includes selling them to stronger institutions, Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi said yesterday.

Sanusi, who spoke at a meeting of central bankers in Kinshasa, Democratic Republic of Congo (DRC), said: "I would rather have those banks valued properly and purchased by other banks."

He added: "Then in the event of there being some resolution costs, finding a way of taking those costs and writing it over a long term, which would probably mean issuing some kind of bond over a 10- or 15-year period with National Assembly approval."

It was not certain last night how the sector will receive Sanusi’s proposal.

But analysts argued that the suggestion may not go down well with bankers since the banks have not been declared insolvent.

The banks are: Oceanic International, Intercontinental, Finbank, Afribank and Union.

When Sanusi sacked their chief executives last Friday, he assured their depositors that all was well with the banks.

"To now start talking about selling them to other (stronger) banks may cause anxiety among customers whom he had hitherto assured that their deposits were safe," a banker said.

Last Friday, CBN pumped N400 billion ($2.6 billion) into the banks after their chief executives were removed. The action, Sanusi said, was taken because their undercapitalisation posed what he called "a systemic threat".

Sanusi said the capital injection was a temporary measure, adding that the government would divest its holdings as soon as new investors were found.

"Setting up an asset management company to absorb the bad loans of the ailing banks could also be an option," but Sanusi said that would not be his preferred choice.

He said he did not expect a sharp rise in money supply in sub-Saharan Africa’s second-biggest economy following the bank bailout, pointing out that money supply had been reduced by the huge level of non-performing loans at the five institutions.

The banks reportedly had bad loans totalling 1.14 trillion naira ($7.6 billion), with CBN claiming that lax governance had left them so weakly capitalised that they posed a threat to the wider banking system.

The Economic and Financial Crimes Commission (EFCC) has been questioning the bank executives.

It is likely that criminal charges may be brought against them, if they are found to have falsified accounts or manipulated shares prices.

"There were infractions. There were violations of the law. That was not the basis for removing (the sacked chief executives)," Sanusi said.

"The basis was that they were in grave situations and those actions were required to protect the system. It was my central responsibility to do that. Subsequently, we will deal with the other issues, and we will bring them to court."

Asked if it was likely that more executives would be sacked, Sanusi said:

"At the moment, from what we’ve seen, it doesn’t look likely. But ... if at any point in time, if we are convinced that a CEO is not fit and proper to run an institution, we are not going to let him run that institution."

Developments in the banking sector have altered the robust ratings they hitherto enjoyed.

A myriad of problems, ranging from the fallout of the global financial crisis, resulting in the capital market price crash, the fall in oil prices, raising the risk of recovery of loans advanced to operators in the oil and gas and the margin loans for equities trading, with possibility of repayment dimming by the day, has resulted in a down-grading of the industry’s rating.

In a report on the banking industry, Global Credit Rating (GCR), which had accorded the sector an industry risk ceiling of AA+, has downgraded the national scale bank industry ceiling by 2 notches to AA-, and ‘’ simultaneously placed all its Nigerian bank ratings on Rating Watch Negative’’.

"The implication of this sectoral industry risk downgrade is that most individual bank ratings are likely to be downgraded by an average 2 notches,’’ GCR stated.

GCR’s initial rating of AA+, indicating the highest naira local currency National Scale rating that could be accorded in the market, was given, the rating agency said, in consideration of the dramatic increase in the minimum capital requirements, which was N25 billion stipulated by the Central Bank of Nigeria (CBN) in 2005. It added that the rating was further enhanced by the subsequent industry market induced consolidation in the sector, which reduced the number of banks to 25 from a bloated figure of 89, with most banks increasing their capital base to over N100 billion and reflecting very high tier 1 capital ratios by international standards.

However, GCR observed that the key element that constituted the downgrade "was the relatively poor disclosure standards and weak management systems that characterised the industry as a whole.’’

The rating agency said it had been worried about the unusual increase loan growth of the sector, implying, in its estimation, ’’ very substantial bad debt fallout, particularly in the context of very weak risk management system".

It said: ’’ This risk has been significantly exacerbated by a massive build up of share backed and margin lending which the CBN estimates could be as high as N1.2 trillion.’’

The rating agency said the level of disclosure was poor, arguing that the officially published non-performing loan ratio of 6.8% for the sector as a whole is wildly understated, adding that certain banks may be taking certain non-performing loans off their balance sheet.

The overall effect of these developments, GCR noted, is that the previous ratings for the sector and the banks could no longer subsist.