Investigation Reveals Where Bank Loans Went Bad

A Fortune&Class in-house panel of experts has, after a review of the bad loans accrued to the five banks currently under the Central Bank of Nigeria’s direct supervision, submitted that the Federal Government holds largest liability in repayment to the banks. The committee of experts nonetheless observed that the figures made public by the CBN also affirmed that the affected bank officials must have been heavily involved in unethical manipulation of the stock market even as the panel agreed that the banks, indeed, tried to play their economic role of financial intermediation by providing a big chunk of their facility for real sector activities.

The conclusions of the panel’s review may put the lies on the generalized opinion prevalent in the public place of the bulk of the five banks financing going into loans for stock market trading and the importation of petroleum products.

The panel reports that 51 per cent of the N747,000,000,000 alleged bad loan, approximated at N375,487,000,000 was given out by the banks to the real sector. The classification of the real sector, in the consideration of the panelists includes activities in construction, manufacturing, imports of raw materials for industries, farming and telecommunications.

Interestingly, the panel reports that a mere 22 per cent of the N747billion bad loan aggregated at N163billion can be attributed to the stock market while N218billion, about 27 per cent of the bad loan has been tracked to have been borrowed by players in the oil and gas sector.

The Case For Union Bank

Taken on individual profiling, Fortune&Class panelists submit that the sanctioning of Union Bank managing director should raise questions because of the five banks under the CBN’s thumb, Union Bank’s hope of recovering its bad loan is more assured because the bulk of the bad loans atissue are facilities given to entities in the real sector.

Of the total N73.582billion bad loan attributed to Union bank N66billion summed up to be loans to the real sector. The bank’s only stock market related bad loan is the N1,291,737,218 granted to GMT Securities.
In the same vein, the bank’s only outstanding to the oil gas sector is the N6,251,658,228 taken by Zenon Oil and Gas. Panelists argue that Zenon has a higher likelihood of paying up because of its track record in the oil and gas sector.

It is not, however, a shared optimism, as in the hope of recovery of the bad loan from a company like Femi Otedola’s owned Zenon when compared to the N28.5billion Oceanic Bank is expecting Rahmaniyya Global resources, a company in the petroleum products marketing sector, to repay it.
Rahmaniyya’s operations are reportedly hampered at the moment.

Crosscheck of operations at the Apapa depot of the company shows that not much activities are going on there. A senior staff of the company confides that operations have been hampered because of the company’s huge indebtedness to banks. The official took time to protest that the company’s situation became bad because an appreciable percentage of the loans secured at commercial banks were usually given out as kick backs to officials of the banks where the loans originated from.

Where Oceanic Bank May Lose Out

As a stand alone, Oceanic Bank’s loans are locked into the real sector, that is about N122billion of a total N278.2billion. The worrisome aspect of the bank’s bad loan portfolio, as it were, would be the N56billion exposure to the stock market. This figure aroused much concern because just six companies, as recorded, were found worthy enough to enjoy margin loan from the bank. The panelists reasoned that what the figures suggest is that officials of the bank merely decided to employ the services of this small number of stockbrokers to help it exploit the stock market.

The panelists also submit that the larger percentage of Oceanic Bank’s expected repayment from the bad loans tracked to the oil and gas sector of about N100billion hold no prospect of recovery in consideration of the track records of most of the entities that secured the loans.

Intercontinental Bank shares the same fate that may befall the recovery efforts of Oceanic Bank. With N34billion outstanding from just seven stock-broking houses most of which have continued to dispute the figures in the public domain.

Bad Loan Recovery Challenges For Intercontinental Bank

As in the case with Oceanic Bank, all of the brokerage houses involved have protested that the loan accounts were opened jointly with the banks. Some even complained that they never received any cheque book on the account that was in the joint names of the brokerage house and the bank.

In different letters of protest forwarded to the banks, some of these brokerage houses had hinted at being asked to engage in stock market manipulation by the bank. One of such protest letters written and forwarded to Intercontinental bank which Fortune&Class got a copy, reads:
“…Your bank also included clauses in the contract that gives you the sole right to decide which stock can be purchased and when such can be sold. The records presented to us even show that some of the shares purchased with the margin loan included the stock of your bank.”

The letter from the lawyer tells of more worrying aspects of the margin loan where it notes that:
“Our client mentioned the fact that they never solicited the loan but rather your bank approached them with the offer of the loan…even as their accounts were debited for the processing and management fees for the transaction before they had even had any opportunity to review or sign the offer letter.”
For our panelists, it is issues like these that may stunt efforts to recover the bad loans for Intercontinental Bank. This is besides the crisis of the Federal Government non-payment of petroleum products subsidy differentiation to oil marketers that secured a large part of the N79billion loan that was used in importing petroleum products into the country.

‘Afribank played big in the Stock Market…sure to lose big’

Not even the EFCC Chairman can yet fathom how the five companies that Afribank granted about N60billion to trade the stock market, would pay back their exposure in the current lacklustre stock market.

Whose interest was the bank management advancing by farming out the huge sum of N60billion to just five entities? Again, it is believed that the bank played big in the stock market to forward its interest. “That N60billion cannot be recovered in the short term,” one of our panelists said.

Finbank Liberal Lending Policy

Of the five embattled banks, Finbank Plc profiles a liberal lending culture. Though we can’t say for certain how the loans were collaterised, the fact of farming out its loan to a larger number of borrowing entities compared to other banks in the bad loan quagmire, suggests that recovery of debt may be easier Finbank.

The bank’s total non-performing loans as calculated by the CBN is approximated at N42.4billion. Of this, about N15billion was borrowed out to 83 operators in the real sector. This is just as the total sum of N11.1billion bad loan accruing from stock market activities, was granted to nine entities with the highest calculated to still owe about N3billion.

The same liberal lending policy shows in the figure of the loans repayment of N14billion from 17 entities in the oil and gas sector.

The Sector That Is Sure For Repayment

Our panel of experts are of the opinion that bad loans accrued in the real sector may easily be recovered because of the quality of collaterals that would have been provided before approval to draw down. This, however, excludes any insider related dealings.

Compared to loans to the real sector, recovery of bad debts accrued from stock trading activities may be considered hopeless in consideration of the state of the Nigerian stock market, the macro-economic environment and the harsh realities of the global economic meltdown. The collaterisation of loan assets in margin loan is linked to securities purchased, the lender is, however, supposed to dispose of with the securities in the open market when prices go below an agreed threshold. But it turned out that these banks didn’t effect the power of cashing the securities by selling off when the prices of the securities slid below the agreed threshold. Thus, the lenders are left with collaterised securities that are way below the worth of the loans.

Same is the extant downside of the oil and gas sector. With consistent sliding petroleum product prices and the unwillingness of the Federal Government the only buyer of petroleum products in Nigeria, to pay up the difference between the landing cost of petroleum products in the country and the price at which the marketers are mandated to sell to retailers, the expectation of bad loan recovery from the entities in these sector may be challenging.

Who Is Paying Up

The Economic and Financial Crimes Commission has said that it had so far recovered a sum of N25.5billion out of the N1.143 trillion of total non-performing loans of the five banks.

The break-down of recovered debt and the banks are as follows; Intercontinental bank N7, 736, 571, 744.19; Finbank.N1, 590, 417, 332.05, AfribankN7, 551, 121, 378.69, Oceanic bankN8, 033, 481, 868.65; Union bank N659, 240, 400.78.

Executive Directors Took N5bn Unsecured Loans Each

More troubling revelations have continued to emerge from the banking industry in the wake of the sack of five bank chiefs and members of their senior management cadre. Some top banking industry staff have started talking of the justification of the action of the Central Bank of Nigeria’s Governor, Sanusi Lamido Sanusi to sanction the affected bank chiefs and their senior management cadre because of their connivance to fleece the bank.

Specifically, the entire management board of one of the banks is said to being investigated by the CBN to ascertain how each Executive Director got approval of N5billion loan facility.

IBRU FAMILY RECRUITS SENATE LEADERSHIP, PRESIDENT’S WIFE TO SAVE CECILIA

The Ibru family reportedly threw all its influence and moneyed privileges into the battle to mitigate the public embarrassment of Mrs. Cecilia Ibru, sacked Managing Director of Oceanic Bank and wife of the patriarch of the Ibru’s clan, Olorogun Michael Ibru.

Details emerging in the wake of the sudden appearance of the erstwhile Managing Director of Oceanic Bank at the office of the Economic and Financial Crimes Commission (EFCC) last Wednesday, indicate that the wife of the Chairman of the Ibru organization was advised to beat a tactical retreat to allow the family deploy its massive goodwill in the nation’s political arena to stave off the prospect of an embarrassingly long detention for Mrs. Ibru by the EFCC.

Knowledgeable insiders to the horse trading that led to the eventual emergence of the woman fondly revered as the Nigeria’s first lady of banking, confided in Fortune&Class Weekly that the Ibru family pulled all the plugs through the Senate and the Presidency to get certain assurances from the EFCC before Mrs. Ibru was given the green light to submit herself at the EFCC.

“Seriously, we have only heard about the ingenuity of the Ibru family in making money, but I was a witness to another aspect of their lives these past days when I experienced their ability to move around and lobby office holders to intervene in the roiling crisis that had claimed one of their own, Mrs. Ibru. It’s not as if you saw any of the Ibrus physically, but there were many people lobbying on her behalf especially at the Senate,” the source said.

“You know, the second day after the Governor of the Central Bank of Nigeria, Sanusi Lamido (Sanusi) made those earth shaking pronouncements about sacking five bank chief executives, the President left the country in company with his wife, Turai. The next level of authority, in the real sense of it, at that time, was the Senate. And it was to the Senators that the Ibru lobbyists took their battle to get political pressure to be applied on the EFCC boss to provide lighter treatment and shortened detention for Mrs. Ibru. The fulcrum of the argument of the lobbyists is that the Central Bank of Nigeria was making a mountain out of a mole hill by its decisions to sack the bank managing directors and their arrest by the EFCC.

“The lobbyists pleaded with the leadership of the Senate to prevail on the Chairman of the EFCC, Mrs. Farida Waziri, to make a commitment to making Mrs. Ibru’s detention before taking her to the court as short as possible.

“Of course, they got sympathetic ears in the Senate. The Senate leadership made overtures to the Chairman of the EFCC who insisted that Mrs. Ibru must first surrender herself to the anti-grafts agency before she could determine the next step.

“Hajia Binta Turai, wife of President Umar Yar’Adua also played a peripheral role in the Ibru EFCC saga. Two of the first lady’s friends were drafted to talk to the EFCC Chairman to provide a soft landing for Mrs. Ibru, the source said.

Mrs. Ibru had, as part of her battle to stop her arrest and detention, dragged the Central Bank of Nigeria and its governor, Sanusi Lamido Sanusi before a Federal High Court in Abuja over her compulsory removal from office, demanding the sum of N50 billion for “exemplary, punitive and aggravated and general damages.”

The EFCC, however, declared Mrs. Ibru and Mr. Erastus Akingbola of Intercontinental Bank wanted on Sunday, 23 August, after failing to honour invitations for interrogation, sequel to their sack on August 14 along with three other bank MDs, Mr. Sebastine Adigwe of Afribank, Okey Nwosu of Finbank and Bartholomew Ebong of Union Bank.

A statement issued by EFCC Head of Media and Publicity, Femi Babafemi, explained that Ibru and Akingbola “are wanted in connection with fraudulent abuse of credit process, insider trading, capital market manipulation and money laundering running into billions of Naira.”

Investigation Reveals Where Bank Loans Went Bad
A Fortune&Class in-house panel of experts has, after a review of the bad loans accrued to the five banks currently under the Central Bank of Nigeria’s direct supervision, submitted that the Federal Government holds largest liability in repayment to the banks. The committee of experts nonetheless observed that the figures made public by the CBN also affirmed that the affected bank officials must have been heavily involved in unethical manipulation of the stock market even as the panel agreed that the banks, indeed, tried to play their economic role of financial intermediation by providing a big chunk of their facility for real sector activities. (read more)

SEC to force Finbank to list 2008TO LIST OVERDUE 2008 PUBLIC OFFER

In the consideration of mainstream investment community the public offer conducted by Finbank, (known at the time of the offer as First Inland Bank) has become one of the most storied public offers in the annals of the nation’s capital market activities. So many things seemed to have gone wrong with the offer climaxing, last […]

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SEC TO FORCE FINBANK TO LIST OVERDUE 2008 PUBLIC OFFER

In the consideration of mainstream investment community the public offer conducted by Finbank, (known at the time of the offer as First Inland Bank) has become one of the most storied public offers in the annals of the nation’s capital market activities. So many things seemed to have gone wrong with the offer climaxing, last week, in the management of the Securities and Exchange Commission asking companies and entities that were part of the January 2008 public offer to meet with it at the Board Room of the SEC Tower in Abuja.

Though Fortune&Class Weekly could not access the conclusions of the meeting last Friday, the major item on the agenda was to discuss the reason for the delay in the listing of the shares on the floor of the Nigerian Stock Exchange, the shares of FirstInland Bank Plc after the SEC had granted approval of allotment in June 2008.

Those invited to the meeting were: FirstInland Bank Plc, FirstInland Capital Ltd, Furtuerview Financial Services Ltd, Greenwich Trust Ltd, BGL Securities Ltd and Integrated Trust & Investment Ltd. Others were Sterling Capital Markets Ltd, Oceanic Bank Int`l Plc, Skye Bank Plc and FirstInland Securities & Assets Management Ltd. Deap Trust Investment Ltd and FinBank Registrars Ltd were also invited.

Most stock commentators insisted that the FirstInland Bank offer witnessed so much slow down at every point of its scheduled activation that people could no longer adduce reasons for what is happening to the offer.

The dispatch of the share certificates of the offer did not commence until November, 10 clear months after the offer was concluded and four months after allotment was cleared and approved by the Securities and Exchange Commission. Many investors that bought into the public offer still protest strongly that they are yet to collect their certificates.

Since January 2009, one year after the conclusion of the offer and with the non-listing of the shares sold during the offer, speculations had rented the air about the fears of the bank getting its shares listed at a time when general stock prices are falling.

“It would seem that with the intervention of the Securities and Exchange Commission, the limiting factor to the listing of the shares sold during the public offer may be significant, a source said

FINBANK VS AQUITANE

Ori Adeyemo

Finbank and Aquitane have taken their battle over excess bank charges to the court of law. Aquitane which conducted a private placement last year was reported to have had some of its transactions funded by Finbank especially as the oil company endeavoured to look good in the public space during its private placement exercise.

Months after the conclusion of the private placement, Finbank informed the management of Aquitane of the need to pay the sum of N7billion being debt owed to the bank. Aquitane, we were informed took issue with the bank. It invited a forensic accountant, Ori Adeyemo, to audit its transactions with Finbank. At the end of the review and auditing, Aquitane demanded a claim of N2.5billion being refund of excess charges to Aquitane.

The two parties wait patiently for the court to adjudicate on the matter.

WONDER BANKS DEPOSITORS REFUND…CBN WAITS ON 17 RECEIVING BANKS FOR PAYMENT

The Central Bank of Nigeria has commenced the final processes to refund sums of money deposited by investors in pyramid schemes operating as fund managers that had, since July this year, declared as illegal fund managers by the Investment and Securities Tribunal (IST).

The CBN had in a letter of 15 October, 2008 signed by T.A Ikuyeju on behalf of the CBN’s Director of Banking Supervision, had given 17 commercial banks a maximum seven days, last week, Wednesday 22 being the last day, to forward to it (CBN) the account details of 28 companies now referred to as wonder banks.

The details of the account requested by CBN to assist it determine the status of all the investors’ fund according to the memo include the account numbers, number of accounts held, branches they were opened, names and addresses of the signatories to the accounts, the balances as at 4/12/07; 31/12/07 and 30/9/08.

The 17 Banks which also include a non banking financial institution that were listed as being repositories of funds from the wonder banks are: Access Bank, Diamond Bank, ETB, First Bank, FinBank, Guaranty Trust Bank, Stanbic IBTC, Kakawa Discount House Limited, Oceanic Bank, Sky Bank, Spring Bank, Sterling Bank, Union Bank, United Bank for Africa, Unity Bank, Wema Bank and Intercontinental Bank.

However, the prospect of a speedy verification of investors’ status by the CBN may be limited by the ability of the commercial banks to forward the account details of the wonder banks to the CBN as directed.

A source in the CBN told FORTUNE & CLASS Weekly by Thursday last week that about ten of the commercial banks were yet to properly hand over the details as required.

“Though we have not yet started in-depth analyses of the details the banks have sent to us, our preliminary review shows that most of the details are not updated as we required, which may slow down our job.”

The source informed that the CBN is willing to quickly dispense with the refund to depositors in view of the CBN Governor’s empathy with unfortunate investors that had their money tied down in the wonder banks.

While sounding optimistic of the capacity to conclude the verification within the shortest possible time, the source, nonetheless, explained that many depositors in wonder banks may not be able to get a refund of their deposits.   

 “The officials that sieved through the claims of wonder banks submitted to the inter-agencies committee set up by the government to receive petitions and claims by Depositors earlier in the year found that many of the depositors, in fact, deposited their money through agent investment schemes that were not among the 28 that the IST froze their accounts in December, 2007. For this category of depositors there is little the CBN can do to refund their money because their claims and the details available with the CBN will not match.” The source said.

Besides, the source further warned of the possibilities of confusion arising from the mismatch of details forwarded to the inter-agencies committee by depositors and those available to the CBN through banks and the wonder banks operators.

“I think it is important that depositors track the operators so that they can help them put their documents together properly. This is to enable them (depositors) present reasonable explanations to the officials that would handle the verification if it turned out that there were mix-ups in the details like names, dates deposits were made, bank branches payment were made and the authenticity of the receipts they collected after submitting their tellers to the wonder bank operators. The fact is that we have realized that there are different receipts for same transaction types for some particular wonder banks.” The source confided.

Wonder banks had flourished over a period of three years up till about November last year on the tempting offer of making more than 500 percent returns of deposits to participants in what investment experts describe as pyramid schemes clothed in exotic investment propositions like Forex Trading, Fixed Odd Betting and hedge fund investment.

Most participants in the schemes were persuaded of the legitimacy of the schemes because the operators presented the scheme as a joint venture between them (wonder banks) and commercial. Mostly, a participant was required to pay directly into a designated bank account in the name of the wonder bank domiciled with a reputable commercial bank, usually with a customized teller.

The Securities and Exchange Commission had, in response to public outcry when the wonder banks started failing in their payment dues, usually qualified as profit on deposit in an operational week, clamped down on their operations and instituted a suit against them in November 2007, accusing them of soliciting, advertising and inviting the public to deposit funds with them.

The 28 wonder banks on trial before the IST are: Art Master & Co. Ltd; Cyber International Ltd; Fortune Access Interlinks Network; Gold Power Unique Services Ltd; Gorutrans Nigeria Co. Ltd; Interglobal Investment Ltd; Money Field Ltd; New Freedom Diversified Investment Ltd; Open Gate Multipurpose Investors Ltd; Orion Express Global Services Ltd; Pennywise Investment Ltd; Positive Move International Nigeria Ltd; Precious Golden Profile; Real and Cool Wealth International Ltd; Shola Olanrewaju Ayinke (Sefteg Nigeria Company); Silvertrust Global Investment; Successpoint International Investment Ltd; Torid Investment Ltd; Treasured Fund Assets Ltd; Vikel Petroleum Ltd; Wealth Concepts Global Ltd; Wealthgage Multibiz Int. Ltd; Wealth Interlink Agency Ltd; Wealth Solution Ltd; Wealth Transfer and Logistic Ltd; Wilson O. Wilson (Doing business in the name and style of Wilamas Ventures); Wisdom Investments Nigeria Ltd; and Nospetco Oil and Gas Ltd.