CBN Extends Interbank Guarantee for Three Rescued Banks

Sanusi Lamido, CBN Governor

The Central Bank of Nigeria (CBN) Monday extended its interbank guarantee for three rescued banks that have reached advanced stages in their recapitalisation process from September 30 to December 31, 2011.

The rescued banks, which it said would benefit from the guarantee extension because they had advanced about 50 per cent into resolving their capital deficiency, are FinBank Plc, Intercontinental Bank Plc and Union Bank Plc.

In fact, the apex regulatory authority officially announced that the three banks had moved beyond the Memorandum of Understanding (MoU) stages, with the signing of their Transaction Implementation Agreements (TIAs) with strategic partners.

TIA is an agreement which defines the relationship between the rescued bank and its potential investors.

It also explains how the financial terms are spelt out. The TIA document, which is usually bulky, officially announces the engagements by the parties and will be followed afterwards with the “marriage”.

The CBN however insisted that there was no going back on the September 30 deadline fixed for the recapitalisation of the affected banks.

The apex bank had in a circular on July 13, 2009, initiated a policy that guaranteed all inter-bank placements and placements with banks by Pension Fund Administrators (PFAs).

The liquidity management office had in the policy, directed that overnight placements shall not be priced higher than MPR + two per cent, while a maximum spread of 300, 400 and 500 basis points above the MPR shall be maintained for tenors up to 30, 60 and 90 days respectively.

The CBN had warned that any placements priced outside these bands would not be

eligible under this programme.

The apex bank had also threatened to nationalise any of the affected banks that failed to conclude its recapitalisation process by the end of September.

CBN’s Deputy Governor, Financial System Stability (FSS), Dr. Chiedu K. Moghalu, who had an interaction with journalists on the recapitalisation process in Lagos Monday, expressed “unreserved optimism” that the remaining five rescued banks that were yet to sign their TIA’s would achieve similar feat before the deadline.

He assured the banks that the CBN would also extend their interbank guarantee once they were able to scale through the MoU stage.

While Intercontinental Bank last week signed a TIA with Access Bank Plc, FinBank Bank also took a major step in signing similar document with First City Monument Bank Plc (FCMB). In the same vein, Union Bank also signed same agreement with its core investor- African Capital Alliance Consortium (ACA Consortium).

Moghalu stated: “The signing of the three legally binding TIAs represents a significant step towards resolving close to 50 per cent of the capital deficiency of the affected banks. The reason why we extended the interbank guarantee is in recognition of the substantial achievement for the banks. It is to enable them tidy up their affairs so that everyone can still have confidence in the banks as there will be transition to new management and new structure.

“From all the information available to us, the remaining five banks are making progress towards recapitalisation; therefore we do not see any danger. But if for any reason, they do not meet the deadline, the CBN will carefully find the appropriate action to take. We continued to say that the deadline is firm and we expect that all the banks will meet it. We have always said that the CBN is a systemic regulator and it is our responsibility to ensure stability.

“The CBN had made it clear that we have a responsibility to ensure that there is a deadline. Without deadlines, you cannot achieve anything. If you continue to allow the negotiations to continue endlessly, people will begin to ask questions.”

Moghalu, who spoke in company with some other senior CBN officials, also expressed strong belief that shareholders of the affected banks would support the process when called upon for their approval.

“Shareholders’ approvals are another imminent major step. We believe these approvals which are being fast-tracked, will be obtained within the next few weeks. The role of the shareholders is to vote on the decision that has been taken by the board of directors on their behalf. The negotiations are not done by shareholders and so we should not be creating the perception by some shareholders that the negotiation process is their role,” he noted.