Stakeholders in the banking industry were divided at the weekend over the deadline given the management of Savannah Bank Limited and Societe General Bank Nigeria Limited by the Nigerian Deposit Insurance Corporation to open for business on or before the second quarter of next year or face nationalisation.

According to NDIC, one of the options left for the regulatory authorities should the two banks fail open for business is to nationalise the banks, using the template adopted for the resolution of the crisis in the defunct Afribank Plc, Bank PHB Plc and Spring Bank Plc respectively.

A shareholder activist, Alhaji Gbadebo Olatokunbo said as laudable as the effort of the NDIC on the two failed bank was, it is doubtful if the deadline could be met.

Olatokunbo, who warned the authorities not to equate the two banks with the three nationalised banks, said the circumstances that led to the nationalisation of Afribank, Bank PHB and Spring Bank were completely different.

He explained that given that Savannah and Societe Generale were shut down several years ago, it could take them much longer to catch up with the realities of the banking industry today.

“Shareholders will be better for it if these two banks could come back, but the truth is that a lot of developments have taken place in the nation’s economy and the banking system that will make it difficult for them to compete favourably even if they manage to reopen for business,” he said.

Chief executive, GTB Securities Limited, Mr. John Ogar who expressed support for the NDIC deadline, said in view of the merits of a bridge bank option, many people tend to support the crisis resolution strategy being adopted by NDIC.

He believed that a bridge bank option “is often better than outright liquidation, as it leads to the preservation of the functions of the failed bank.

“It can make depositors and creditors of financial institutions more confident, both in the failing bank and in the financial system generally, thus reducing a run on banks.

“The establishment of a bridge bank could provide the insurer with more time to find the right acquirer and prospective acquirers will be able to assess the value of the bank on which they can base their bids,” he said.

However, the GTB Securities chief executive warned that such an option may increase costs incurred by the deposit insurer or the government.

“This is because the deposit insurer or the government might become the owner of the failed or failing bank and later must sell it, such as the recent nationalisation of the three banks, thus incurring additional resolution expenses and administrative costs by taxpayers,” he explained.

He added that the process may be costly for the deposit insurer as it can require more time and effort to set up a bridge bank than other resolution options. In the absence of the right acquirer or in the absence of bidders, completing the resolution process may take longer than what would be ideally required.

He said: “This method may be applied simply to buy time for the supervisory authority and could lead to lengthy delays and costs for the final resolution of the problem bank,” adding that the process is bound to involve the government more and more in private sector activities, and increases political interference in the running of the nationalised banks.

“However, I see the deadline of Q2, 2012 given to the present owners of Societe Generale and Savannah Bank as the right pressure on them to recapitalise or lose their licences which they won back from the CBN by judicial intervention.”

But chief executive Resources and Trust Company Limited, Mr. Opeyemi Agbaje said the bridge bank option may indeed be the only available option for Savannah and Societe Generale Banks.

He explained, “These banks are existing deposit money banks by virtue of judgments in their favour by courts of competent jurisdiction. Their owners have however been unable to recapitalise and re-operationalise them while their depositors remain unpaid.

“I would support any measures, including the bridge bank option, which would finally resolve their status and ensure protection of depositors.

“Such options must however be transparent and accountable and ensure that public money is not used for the benefit of private owners,” Agbaje told THISDAY.
He pointed out that the onus is on them to speed up this process and retain their shareholding structure and get back to business.

A bridge bank is a temporary banking structure used by deposit insurers (usually a state institution, such as Nigeria Deposit Insurance Corporation) to take over the operations of a failed bank and maintain banking services for the customers.

As the name implies, a bridge bank is designed to “bridge” the gap between the failure of a bank and the time when the NDIC can implement a satisfactory resolution of the failed bank.
The bridge bank provides the NDIC time to take control of the failed bank’s business, stabilise the institution, and determine an appropriate permanent resolution.

Source: ThisDay/Festus Akanbi