Troubled banks: AMC to the rescue?
By Enitar Ugwu and Tosin Fodeke
SINCE the revelations of the Central Bank of Nigeria (CBN) on the health of some banks in Nigeria, shock has not left majority of shareholders of such banks.
This is because the CBN's intervention was mainly tailored towards the safety of depositors' funds in such banks. However, for the shareholders, one cannot say the same as the CBN had made it clear that the shares of the affected banks were practically worthless.
Bearing the above situation in mind, the recent announcement by the apex bank that an Asset Management Company (AMC) will be floated to take care of the concerned banks' toxic asset, a kind of hope has come to the affected shareholders.
For instance, a shareholder in one of the banks, Okolo Anyanwu told The Guardian that it will be very painful to lose "all my investment in those banks", adding that, "my only hope lies on the fact that once the CBN's AMC comes on board, the banks can be turned around so that shareholders can once again benefit from their shares."
Also, on a similar note, Usman Mohammed pointed out that instead of nationalising the banks, CBN should encourage shareholders to wait and see whether the banks will be profitable again when the AMC might have taken over their toxic assets.
He said that, once the banks return to the path of profitability, shareholders can hope to benefit from their investments.
It would be noted that, the AMC, when established, will take over the management of banks' toxic assets (non-performing loans) and allow the banks to run on a clean slate.
In pursuit of the proposed firm, the CBN has mandated all deposit money banks in the country to furnish it with information on their classified facilities.
In a memo to all banks titled: "Report on classified facilities" and signed by Samuel Oni, CBN's director of Banking Supervision, the apex bank stated: "In continuation of efforts to strengthen the banking system, the CBN has resolved to address, on a holistic basis, the issue of delinquent facilities in the banking system, especially the exposure of banks to the capital market.
"In this regard, preparatory to the establishment of the AMC, it has become expedient to obtain information from all Deposit Money banks on their classified facilities."
According to the CBN, "specifically, the information required will cover details of collateral obtained for classified loans, securities owned by subsidiaries in respect of proprietary positions, investments and crystallised underwriting investments and banks' securities held in respect of proprietary positions, investment and crystallised underwriting investments."
When the CBN governor earlier informed the world that the shares in the affected banks are now worthless papers the shareholders did not find that statement amusing and some reacted accordingly.
Speaking, Patrick Okure, who claims to be a shareholder of one of the affected banks, had this to say, "I invested so much in that bank, together with my wife. We believed in them, but now, not only that the value of the share is nothing to write home about, but also the CBN is saying we have no hope getting anything out of the entire investment. Where do we go from here?"
His is not an isolated case, as The Guardian discovered that most of the recognisable shareholders' associations have been meeting since the pronouncement by the CBN boss.
The essence of the meeting, The Guardian gathered is to fashion out an informed response to the pronouncement.
A leader in one of the associations said that after the series of meetings, "we will come out with a statement.
He said that, even though the shares of most of the banks have depreciated in value, to lose the investment entirely, is another kettle of fish.
According to the apex bank, shareholders of the eight banks recently taken over by the Central Bank of Nigeria have automatically lost their investments in the banks.
The CBN Governor, Lamido Sanusi disclosed this while speaking at a policy dialogue organised by the Nigerian Economic Summit Group.
The banks - Union Bank of Nigeria Plc, Oceanic Bank Plc, Intercontinental Bank Plc, Afribank Plc, FinBank Plc, Bank PHB Plc, Spring Bank Plc and Equatorial Trust Bank Limited - were found to be in a grave condition after the CBN's audit of the 24 banks in the country, prompting the injection of N620 billion into the affected institutions by the Reserve Bank.
He pointed out that the result of the audit in the eight banks indicated that the non-performing loans of most of them exceeded their share capital, which resulted in a situation whereby their balance sheets had a negative networth.
"Their shareholders' funds were eroded from the provisioning for loan losses, leading to an erosion of their investments in the banks," the governor explained.
He said the sacked bank executives and shareholders that went to court challenging their removal and alleged take-over of the banks, failed to realise they are no longer shareholders of the banks going by the books of accounts of the institutions.
"It is the government (or rather, the CBN) that has provided the bailout that has a claim on the investments. But any other shareholder can emerge after the debts of the banks have been recovered.
"That is what the aggrieved shareholders and former CEOs don't seem to understand, which is why they even kicked against our debt recovery efforts that ordinarily will favour them," he explained.
He said the other set of people with claims on the banks are depositors and creditors, whose interest he said, the CBN was doing everything to protect by not allowing the banks to fail.
"As far as I know, the so called key shareholders and bank executives that ruined these banks do not deserve a place again in the institutions but should find their place in jail or even be shot dead," said Sanusi in an emotionally laden voice.
He pointed out that the shareholders have been affected by the grave situation the banks were plunged into.
Sanusi said for some of the banks, the percentage of non-performing loans to total loans was nearing 50 per cent and that these represented loans tied to the capital market that has lost about 70 per cent of its value.
The CBN governor disclosed that one of the banks had non-performing loans of over N300 billion and that the CEO of a particular bank wired £13 million to himself without any transaction to back it.
He, however, regretted that the audit was belated, adding that because of it the economy has been deeply affected by the negative consequences that has manifested in an acute credit crunch.
"The problem started as far back as October last year when some banks became permanent customers of the Expanded Discount Window, which was a symptom of a deeper problem.
"Any risk manager that didn't see that as a sign of a big problem is not worth being called a risk manager. The situation necessitated the audit of the banks when I became governor, and it was discovered that five banks accounted for 90 per cent of the borrowings from the expanded discount window. The rest is now history.
"What the CBN is after now is how to make the banks recover and perform their role of financial intermediation for economic growth and development," said Sanusi.
With the foregoing, the only hope for the shareholders appeared to hinge on the ability of the CBN appointed management teams in these banks, to turn them around for profitability.
Apart from the capability of the CBN appointed management teams to turn these banks around, another ray of hope seems to be the establishment of the AMC.
Whether these two options will resurrect shareholders investments in these banks remain to be seen.
