Rescued banks recover N540.7bn bad loans – Investigation



By Ademola Alawiye  Monday, 4 Oct 2010


The special audit by the CBN and the NDIC may be over but the struggle by the rescued banks to recapitalise and recover bad loans is still on. Ademola Alawiye examines how far the banks have gone in recovering bad loans and raising fresh capital. Eight of the nine banks that were given a N620bn lifeline by the Central Bank of Nigeria have succeeded in recovering a total of N540.7bn of their bad loans, our correspondent has gathered.


The banks are Intercontinental Bank Plc, Oceanic Bank International Plc, Afribank Plc, Union Bank Plc, Bank PHB Plc, Finbank Plc, Spring Bank Plc and Wema Bank Plc.Ten banks had failed the joint stress test conducted on Deposit Money Banks by the CBN and the Nigeria Deposit Insurance Corporation.Two other banks that failed the stress test are Equitorial Trust Bank and Unity Bank Plc.


The total bad loans of the rescued banks amounted to N1.52tn while the entire loan portfolio of the banking sector was N2.2tn when the result of the stress test was revealed.The recovered amount represents 35.6 per cent of the aggregate non-performing loans of the rescued banks and 18.8 per cent of the total loan portfolio in the banking sector.


According to information gathered by our correspondent, Intercontinental Bank has the highest recovery of N140bn between August 2009 and September 2010.Oceanic Bank followed with N110bn as at September 2010. Afribank Bank put its loan recovery at N75bn as at August 2010, while Union Bank recovered a total of N40bn during the period under review.Bank PHB followed with a recovery of N38bn, while Finbank recovered N37.7bn between August 2009 and August 2010. Spring Bank also recovered N75bn as at September 2010, while Wema Bank recovered N25bn within the period.


The CBN had injected a total of N620bn into nine banks after the stress test last year.Although ETB was announced as one of the troubled banks, the CBN had revised its position on the bank because of its relatively small market share of less than one per cent and absence of margin related exposures.Prior to the stress test carried out by the CBN and the NDIC, Nigerian banks financed a lot of investments in the oil and gas industry and the capital market.


Following the global meltdown, the CBN decided to verify the extent to which banks in Nigeria had been affected by the value erosion in oil and equity prices, two asset classes which had returned significant value to investors before the global meltdown.The special audit, which was carried out by a joint team of auditors from CBN and the NDIC. focussed on three sections, which were liquidity, capital adequacy and corporate governance. According to the CBN announcement, 14 of the 24 banks that were audited passed in all three sections while nine failed totally and just one failed in one section.


In the light of the discoveries made after the stress test, the top managements of some affected banks were removed and the banks were ordered to recapitalise. The banks have since then been rallying to recover the bad loans and raise fresh capital.The CBN and the various banks had repeatedly announced that both international and local financial organisations were bidding to buy stakes in the banks. However, none of these banks has been bought one year after the directive given to the banks to raise fresh capital by the apex bank.


Apart from getting institutional investors to buy the banks, the shareholders of the banks have engaged in serious conflict with the CBN-imposed management.The shareholders took the CBN to court, accusing it of taking over their investments.The CBN in a swift reaction said that it was ready to work with the shareholders to ensure a smooth recapitalisation process.


The CBN Governor, Mr. Lamido Sanusi, had said that it received good bids for some of the rescued banks put up for sale but it would not just sell the banks without due consideration so as to protect the interest of shareholders.


Sanusi said, “A number of foreign banks and private equity companies have expressed interest in the banks. We are being savvy with the bids to protect shareholder value and therefore not every bid would be accepted. Some of the bids are very good; some are acceptable, given where we stand. Given that we have the Asset Management Corporation of Nigeria and they can recapitalise the banks, we can get a better deal, so we don’t have to accept every offer.”South Africa’s FirstRand Bank Limited, Standard Bank Plc and Nedbank Limited, amongst others, have shown interest in investing in the banks, according to the regulator.


The Managing Director, Mutual Alliance Investments and Securities Limited, Dr. Olakunle Ologun, said it was imperative to inject enough money into the rescued banks for them to fully recover.He noted that the injection of such funds could come through- fresh equities from the existing shareholders by way of Rights Issues, public subscription and offer for sale to core investors.He further said that the shareholders must demonstrate enough will to rescue the banks by making funds available to them.


He said, “If the CBN is convinced of the sincerity of the shareholders to recapitalise the bank, the apex bank may be willing to extend the deadline. The best option to achieve recapitalisation will be through the existing shareholders because of the current market downturn, which may not totally favour public offerings.”Olakunle pointed out that the banks would have to be packaged well to attract core investors, adding that core investors would want to price down the banks because of their health position, if they were not well packaged.


On the possibility of having another round of consolidation, Ologun said, “Consolidation may be considered as the last option for the survival of the banks. If the existing shares cannot muster sufficient funds and the core investors are not making a favourable bargain.”


The Managing Director, Partnership Investment Company Plc, Mr. Victor Ogiemwonyi, said it was not impossible for the banks to raise fresh capital, noting that the worst was over for the banks even though there were still holes in their balance sheets.





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