Sanusi Lamido, CBN Governor
Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, Wednesday clarified his pronouncement that some of the rescued banks will be liquidated if they fail to recapitalise before September 30, 2011.
Sanusi’s declaration had elicited reactions, with some experts expressing fears on the implications of the pronouncement on the gains already recorded in the last two years.
Some also said the statement contradicted his earlier position that some of the rescued banks have systemic importance to the Nigerian economy and would not be allowed to go under.
Responding to THISDAY’s enquiries on his latest statement on bank recapitalisation, Sanusi stated that liquidation had always been the last option and it still remained so because CBN’s aim is ensuring financial stability in the affected banks.
“Liquidation is not a first option. If it was, it would have happened before now, and preventing it was why CBN injected a N620 billion lifeline into the banks in the first place. Liquidation is a last option,” he stated.
Sanusi however stressed that “in a situation where some supposed shareholders get ex-parte orders from the courts stopping CBN from recapitalising banks through Mergers and Acquisitions (M&A), or Asset Management Corporation of Nigeria (AMCON), what does one expect CBN to do?”
He urged shareholders who are opposing the smooth recapitalisation process of the rescued banks to come up with cheques that will recapitalise the banks.
“Where banks have negative shareholders’ fund and owe creditors over and above the assets available, they should be bringing the cash,” he said.
In the case of Intercontinental Bank Plc, for instance, Sanusi stated that if courts decided that shareholders with negative net assets of about N400 billion have the locus to stop CBN from acting to protect depositors, “what should the CBN do in such circumstances?”
“If this happens, it means that the poor depositors we want to save their monies are placed at the mercy of those who have already impaired their deposits,” he said.
Sanusi admitted that if liquidation is implemented, it will have adverse effects on the economy and the banking industry in particular but assured Nigerians that it would be dealt with when it comes.
“There will be a major impact on the banking industry if liquidation option is implemented but we have to deal with it,” he said.
Buttressing Sanusi’s argument, CBN Deputy Governor, Financial System Stability, Dr. Kingsley Chiedu Moghalu, also stated that both the M&A and AMCON recapitalisation require approval by shareholders.
“We are seeing a trend of resistance to the effort to stabilise banks that without CBN intervention would surely have collapsed in view of the wipe-out of their capital by the actions of their erstwhile senior management who also were significant owners.
“This resistance is through court cases aimed at preventing recapitalisation of the banks. We believe the protracted delays are not in the interest of financial stability in Nigeria, and it is the CBN's responsibility to ensure that stability,” he stated.Moghalu said if vested interests acting in the name of the wider shareholders make it impossible to recapitalise the banks because they want to maintain ownership and control, and the banks cannot stand on their own, the logical thing for the CBN to do is liquidation.
“CBN does not liquidate. The NDIC will do that if and when the CBN revokes the licence of any bank. Bear in mind that some of the banks have already gone far in the M&A process so the liquidation scenario is unlikely to affect all the intervened banks.
“The alternative is for these shareholders to write checks to restore the over N1trillion of negative capital and save the system unnecessary challenges. How likely is it that this will happen in the current economic environment? This is why new capital from new investors is inevitable,” he said.
The CBN had given eight rescued banks – Afribank, Oceanic Bank, Intercontinental Bank, BankPHB, Finbank, Spring Bank and Union Bank – four months to fully recapitalise or risk being liquidated.
This followed the collapse of merger talks between the managements of some of the rescued banks and potential investors, as well as the delay in their recapitalisation efforts.
The eight rescued banks had failed a special examination jointly carried out by auditors from the CBN and the Nigeria Deposit Insurance Corporation in 2009.
The CBN had hinged their actions in sacking the boards and managements of the affected banks on the discovery of major weaknesses of poor corporate governance, inadequate risk management practices, huge non-performing loans, drastic capital erosion and severe liquidity problems in the banks, making the CBN to inject N620 billion into them.
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