Foreign investors dump sick banks


Monday, 30 August 2010 Written by Gbola Subair and Odidison Omankhanlen

•Over erosion of value •World Bank cautions on high spending, borrowing


There are strong indications that foreign financial institutions which had earlier indicated interest to invest in some of the sick banks in the country are backing out.


The eight sick banks which were rescued by the Central Bank of Nigeria (CBN) through the injection of a bailout fund of N620 billion are Oceanic Bank Plc, Intercontinental Bank Plc, Afribank Plc, FinBank Plc, Union Bank of Nigeria Plc, Spring Bank Plc, Bank PHB Plc and Equitorial Trust Bank.Nigerian Tribune gathered that the latest development may not be unconnected with the uncertainties surrounding the sale and loss of value of the banks as the sale process drags on.


Specifically, some of the South African financial institutions that had expressed their bids in some of the banks are now looking at the banks that passed through the stress test conducted by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) last year.The prospective South African bidders, Nigerian Tribune gathered, include Standard Bank Group, FirstRand and Old Mutual Plc, all listed on the Johannesburg Stock Exchange (JSE).


Only at the weekend, one of the frontline foreign bidders, South Africa’s Standard Bank, which is interested in buying one of the banks, said the longer the process of selling the rescued banks lasted, the less attractive they could become.The Group Chief Executive of Standard Bank, Jacko Maree,  said it had expressed interest in more than one of the rescued banks, but the value of the banks was in danger of eroding over time.


“You have to get more careful the longer things go on. The rescued banks will be losing customers with their brands suffering while their costs stay the same,” he said.Standard Bank, Africa’s largest bank, has a presence in Nigeria through the Stanbic IBTC. The interest of the South African financial institutions is largely attributed to the success made from the acquisition of majority interest in Stanbic-IBTC Plc, by the Standard Bank Group, some years ago. Stanbic-IBTC was taken over by Standard Bank in 2006, following the acquisition of majority stake, through a buyout arrangement which saw many shareholders of the bank trading off their shares at a premium over the value of the shares then, on the Nigerian Stock Exchange (NSE).


Maree reiterated that he would like to have another bank in Nigeria that is sound, stressing that the Nigerian market could be bigger than that of South Africa in no distant time.“We could also look at one of the banks that didn’t need a bailout, but they are looking pricey again. Nigeria is a very important market for us and could one day be bigger than South Africa. For now we are growing organically and if an opportunity presents itself, we will take it,” he said.


It will also be recalled that another South African financial organisation, which had indicated interest in the sick banks is gradually backing out. FirstRand had in June this year suspended a planned sale of at least 500 million euros ($636 million) of bonds due to market volatility. The bank had planned to sell five-year bonds in Asia and Europe to fund expansions in Africa, particularly in Nigeria.


The sale process of the sick banks had been riddled with controversies. Only recently, the CBN governor, Mallam Lamido Sanusi, said that two foreign financial institutions and some local banks were involved in the bidding process in four of the eight banks, stating that the process would be completed this month.This attracted sharp criticisms from the bank owners, culminating in court cases.Specifically, the Proactive Shareholders Association of Nigeria (PSAN) asked a federal high court sitting in Abuja to stop the CBN and its governor, Mallam Sanusi, from selling the banks.


The plaintiff, through its counsel, Nnodu Okeke, was praying the court for an order of interlocutory injunction restraining the defendants by themselves, servants, agents or privies from selling, disposing of, and inviting bidders to buy any of the banks, pending the determination of the suit.Okeke said the CBN must disclose the relevant laws that gave it the powers to sell the banks, adding that his organisation was in court to seek interpretations, based on the relevant provisions in the Banks and Other Financial Institutions Act (BOFIA) and Companies and Allied Matters Act (CAMA).


The shareholders were also praying the court to restrain the respondents from making statement or pronouncements capable of prejudicing the subject of the suit, pending its determination.Meanwhile, as normalcy gradually returns to the Nigerian banking sector, the World Bank has warned the Federal Government to avoid unbridled spending and increased external and internal borrowing.


Nigerian Tribune learnt that the World Bank, at a dialogue on the financial sector with President Goodluck  Jonathan, at the weekend, in Lagos, also debunked the assertion that there was credit crunch in the Nigerian economy.The World Bank, in the presentation made to the president by Isma’il Rodwan of the World Bank Nigeria Country Mission, identified the growing fiscal deficit as the major risk facing the Nigerian economy at the moment.


Rodwan, according to source close to the meeting,  attributed this to increase in government expenditure, while oil income inflows had been decreasing and level of borrowing by the Federal Government, both internally and externally, has been increasing.This, according to him, had the potentials to disallow the private sector from obtaining credit from banks.


The World Bank representative, in a presentation of the research conducted on the Nigerian financial sector, said Nigerian banks, before the intervention of the Central Bank of Nigeria (CBN), were not lending significantly to the economy, but, instead, lending was concentrated on margin loans to the capital market and oil and gas.


According to the World Bank, there was gradual credit growth in the economy but for understandable reasons, margin lending had declined after the crisis in the banking sector, which led to the intervention of the CBN.The bank also commended the reforms of the banking sector by the CBN, adding that they were necessary and timely.


President Jonathan, in his comment, said though some of the outcomes of the reforms were painful, “we have a better opportunity to put the economy, real sector, financial and capital markets on a structurally sound footing, through a well-coordinated reforms.”While asserting that the board of AMCON would be constituted today, he said while the Ministry of Finance and the CBN had performed their role in the process of constituting the board of AMCON, the initial delay was caused by the need to conduct due diligence on some of the nominees.


Contributing at the dialogue, the Managing Director, FirstBank of Nigeria Plc, Mr Bisi Onasanya, commended the CBN reforms and confirmed that the reforms were necessary and had the effect of repositioning the banking system to serve as an effective intermediary to the real sector, adding that the banks had learnt their lessons.


However, the World Bank believes that the 80 per cent risk guarantee given by the CBN for the funding of Small and Medium Enterprises (SMEs) was “too generous” and recommended a 50-50 split of risk sharing between the CBN and commercial banks.The president of the National Association of Small and Medium Scale Enterprises,  Dr Godwin Abugu, in his presentation, commended the CBN credit guarantee scheme to the SMEs and endorsed the 80 per cent risk sharing taken by the CBN, noting that 95 per cent of members of the association had no access to credit from banks.


Source:Nigerian Tribune



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