Sunday, 10 October 2010 00:00 by Marcel Mbamalu

What appears a temporary end to a100 per cent private-sector dominance in commercial banking is in the offing, following plans by the Federal Government to acquire controlling shares in, at least, seven commercial banks in Nigeria.

 

The banks include Afribank, Spring, Finbank, Oceanic, Intercontinental, Union, and Bank PHB, which originally received the Central Bank of Nigeria’s N620 billion bailout-fund between August and December 2009, and are being offered for sale by the apex bank.

 

There are strong indications that through the instrumentality of the newly-constituted Assets Management Company of Nigeria (AMCON), government may soon put in over N3 trillion to plug identified capitalisation holes in at least 10 banks.

 

Such a move will give the Central Bank of Nigeria a major ownership influence in these banks. However, this will only be possible if AMCON’s proposal gets government’s official approval.

 

Although there are expectations that private hands would be engaged in the future, the AMCON, as presently constituted, is solely owned and managed by the CBN and the Ministry of Finance (MoF).

 

The Guardian gathered that a successful injection of such funds would give AMCON major shareholding in the rescued banks and therefore confer on it the right to sit at the negotiating table with existing shareholders and would-be (blend of foreign and local) investors on matters relating to the sale of the banks.

 

This will also dilute the influence of the shareholders — some of whom had gone to court to challenge the take-over of their banks — and pave way for injection of new money in the banks through new investor groups.

 

What appeared a precursor to this strategy was given by the Chairman-designate of AMCON, Aliyu Kola Belgore, during the week in Abuja, when he and other directors-designate, including the Managing Director, Mustapha Chike-Obi, were screened by the Senate Committee on Banking, Insurance and Other Financial Institutions.

 

Other designated as executive directors of the AMCON board include Hewet Adegboyega Benson, Abbas Muhammed Jega and Dosunmu Mofoluke Benedicta.

 

Specifically, Belgore hinted that toxic assets in 10 troubled banks had hit N3.3 trillion, a revelation suggestive of deeper crisis for the banks. (Toxic assets of a bank refer to Non-Performing Loans (NPLs) issued by the bank but are doubtful and facing the risk of not being recovered.)

 

He observed that new investors were sceptical due to financial positions of the bailed-out banks, fearing that any money that is put into the banks would be “swallowed.”

 

But AMCON, by the spirit and letter of its establishment, would buy up toxic assets in the banks at agreed premium and recover them in the future.

 

Belgore, who was reacting to the proposed sale of rescued banks, had insisted that over N3.3 trillion would be needed to restore the 10 from the pangs of toxic assets.

 

Since only seven banks received the CBN bailout money, his revelation appears to be making reference to additional three banks — possibly Equatorial Trust Bank (ETB), Unity and Wema — which, though escaped the CBN harmer of 2009, were directed to recapitalise.

 

ETB came out unscathed due to the fact that it was not actually listed on the Nigerian Stock Exchange (NSE) and had showed signs of recapitalizing itself.

 

The AMCON Chairman designate noted that most of the investors had withdrawn as a result of poor state of the banks and warned that the any fresh funds injected into the troubled banks ‘will be swallowed.’ Only last week, the CBN said Unity Bank had met the N25 billion benchmark while Wema applied to the apex bank for a regional banking licence.

 

Government’s seeming readiness to acquire stakes in the troubled banks, even if on temporary basis, was implicit on Belgore’s position on volatility of the troubled banks.

 

And this may have prompted the Economic and Financial Crimes Commission (EFCC) to suggest that the assets allegedly forfeited by former Chief Executive Officers of banks would be managed by AMCON.

 

But stakeholders are already asking questions on the veracity of that position, especially as the assets are said to belong to the banks.

 

The argument is that the worth of some of those assets are enough to offset the banks’ debts and recapitalise them with no need for any new foreign or local investor nor CBN/AMCON’s palliative to become profitable once again.

 

Perhaps, the most revealing aspect of the Abuja screening is the statement credited to the Managing Director-designate of AMCON, Chike-Obi, to the effect that “the corporation has the required legal backing to recover bad loans, receive and liquidate, as well as seize assets of borrowers who are unable to pay.”

 

An industry source said although AMCON was primarily created for “failing” banks, the expectation is that the corporation would broaden the scope to include all the 24 banks.

 

There are six troubled banks. But AMCON’s managers-designate at the screening in Abuja claimed the corporation needs, at least, N3.3 trillion to clean up in 10 troubled banks, which presupposes that Unity and Wema — plus two unnamed banks — despite their apex bank-announced “successes”, are still not far away from trouble.

 

Only last week, the CBN said Unity Bank had scaled the hurdle by raising additional capital to square up to the N25 billion mandatory capital base for Nigerian banks.

 

An authoritative source in the ongoing bidding process for the rescued bank, said yesterday that AMCON is going to end up holding major stakes in the banks and, therefore, become a major determinant of what happens to the banks’ ownership structures.

 

The source said: “AMCON is going to come in and buy the assets and plug the hole to zero. So, it is going to end up holding a stake in the banks. And it will become one of the negotiating parties in the sale deal.

 

“AMCON will now become one of the three parties in the negotiation. The others are the Board, and the potential shareholders bringing the new money. You don’t have any private money in AMCON. It is currently owned by the CBN and the Ministry of Finance; so, it is purely government business.”

 

The source argued that the injection of N620 billion into eight of the rescued banks was “too early.”

 

“The money did not really do much for the banks, except liquidity. I think the money effectively allowed the banks to be able to handle liquidity issues, because when the regulator announced that you are a failed bank, the first thing is for the people to take their money out.

 

“But when people went and saw that their money was safe, they stopped at a time, believing that the problem was not really serious.

 

“You could have done it in another way. You could have done it through the discount window,” the source said.

 

Source: The Guardian