CBN may liquidate one rescued bank




One of the nation’s banks may not respond effectively to current efforts to rescue it from liquidation, regardless of the mandated package of Asset Management Company of Nigeria (AMCON), a new report has revealed.


The report, packaged by Afrinvest Nigeria Limited, which was presented at the weekend in Lagos, noted that the bank, on the list of rescued financial institutions (name withheld), could be a victim of assessed inadequate liquidity profile of AMCON, based on its (bank’s) high level of toxic assets.


According to 2010 Nigerian Banking Sector Report presented by Managing Director of Afrinvest, Mr. Ike Chioke, AMCON, which is expected to soak up assessed toxic assets within the system and recapitalise the rescued banks, does not have enough liquidity for all the rescued banks to survive.


Chioke explained that “there is about minus N1.34 trillion of shareholders funds, after buying back the bad assets and by the time you revalue some assets that they have, you can go by N160 billion, if the AMCON buys all their non-performing loans for about 50 kobo to the naira, the AMCON will end up paying about N750 billion, so the number needed to get to the zero mark is still N546 billion, there is a manifest gap, more so as, AMCON today has share capital of about N260 billion.


“However, in total, if all the shares of the rescued banks are to be capitalised, there will be a deficit of about N181 billion. So what will happen to the bank that need that money. Well I guess the CBN will have to allow the bank liquidate and go to the Nigerian Deposit Insurance Corporation for help.” According to Chioke, “from recent statements credited to the CBN governor, the total amount of funding available to AMCON might be as much as N1.0 trillion of which 50 per cent may be deployed towards the purchase of non-performing loans, and the injection of relative liquidity. The remaining 50.0 per cent will be channeled towards recapitalisations of the banks by AMCON.


“On July 20, 2010, Nigeria’s 24 banks promised to provide up to N1.0tn ($6.7 billion) to cover any liabilities incurred by AMCON over the next prevent extra costs to the public purse ($4.1billion) of direct capital injection made by the CBN in the rescued banks”.He further stated in the report that, “it is instructive to note that the severe lack of institutional capacity for sustaining government policies and programmes remains the major bane of governance in Nigeria.  Jonathan has to find the political will to fight corruption headlong as the obvious slide down the corruption perception index will continue to impede Nigeria’s quest for sustained economic growth.”


Explaining further, Chioke said, “with the coming on stream of AMCON, we expect that the complete take-over of whatever toxic assets may be left in the books of these banks will provide them the much needed liquidity and substantially free them up to commence lending to the larger economy once again.“ We believe that this is a necessary next step in the reform process as the CBN seeks to resolve issues surrounding capital adequacy, particularly for the troubled banks whose capital have been eroded.”


“With some semblance of a balance sheet in place (return of shareholders funds to positive territory), we are of the opinion that the stage would be set for the CBN to move to its next final phase of the reform program, a re-consolidation of the banking sector.“The CBN has repeatedly expressed its desire to shrink the number of players within the sector down from 24 banks to a more administratively manageable number of about 15.”


“We had underscored the importance of reforms to the nation’s entire energy chain, oil, gas and power. The non-passage of the now contentious Petroleum Industry Bill (PIB) almost a year after the National Assembly conducted public hearings on the proposed bill has crippled virtually al new investment in the oil and gas industry. The imminent removal of oil block licences icis also largely dependent on the provisions of the PIB.”“Similarly, we had indeed expressed fears of a slowdown in GDP growth due to a significant decline in earnings from the country’s principal foreign exchange source, a contraction in international financial market liquidity and an expected slowdown in global economic output.


However, according to provisional figures from the National Bureau of Statistics (NBS). Nigeria achieved a GDP growth of 6.6 per cent, on the average, for all four quarters of 2009, driven mostly by the non-oil sector.”





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