OCEANIC BANK, BANK PHB AND STERLING BANK GET CBN LIFELINE

L-R, Cecilia Ibru, Oceanic; Francis Atuche, BankPHB; Yemi Adeola, Sterling

L-R: Cecilia Ibru, Oceanic; Francis Atuche, BankPHB; Yemi Adeola, Sterling

Nigeria’s version of the global credit crunch might have crystalised into a reality that may not be easily wished away. Reports from sources inside the Central Bank of Nigeria asserted that three banks in Nigeria have been given lifelines to shore up their liquidity standing. These banks according to the source are; Oceanic Bank Plc, Bank PHB and Sterling Bank. With the exception of Sterling Bank that secured a N90billion lifeline, the other two got N100billion funding in what banking industry analysts said is akin to a financial bailout for the banks.

This is coming on the heels of a meeting of chief executives of banks held on Tuesday, 15 October 2008. The high point of that meeting was the decision by the banks’ chief executives to formally request the Federal Government to intervene in the nation’s financial sector to forestall the effect of the ongoing global financial crisis on the system.

The committee of banks chief executives also agreed at the meeting to request the Federal Government to intervene in the nation’s financial market through a package of measures similar to those introduced in developed countries and that the Central Bank (CBN) should continue to support the interbank money market.

Reports indicated that the bankers would have preferred the United States of America and Europe’s option where government directly intervened to inject funds into selected crisis ridden banks and, in some cases, nationalizing the financial institutions that were strategic to the main-stream banking public but whose liquidity profile had become moribund.

Sources inside the Central Bank of Nigeria informed that the CBN Governor rather opted for the fiscal management approach. The CBN, had, before the meeting of the banks chiefs, granted the banking industry a concession through a circular directive of October 2, 2008 to restructure some of their capital market exposures to December 31, 2009. Interpreted, this concession allows banks not to make provision for non performing loans and other facilities that had gone into the nation’s capital market that had taken a dive for the deeps since March, 2008.

“Apparently, the concession was not enough to stave off the simmering threat of illiquidity banks were experiencing.” The CBN source said. “In response to the appeal of the banks chiefs, the CBN offered the option of an expanded discount window operation. The key elements of the expanded discount window operation provided the opportunity for banks that need to assuage their liquidity problems to use short term financial instruments, like overnight standing facility, treasury bills, federal government bonds and non-federal government securities as collateral to secure long term funds from the CBN. You know the CBN conducts liquidity mop up of the money market by selling treasury bills and also sell bonds to financial institutions, normally, treasury bills are due in 30 days while bond are due in period ranging from 90 days to 180 days. Now, to help the liquidity problems in the banking sector, the CBN, with the expanded discount window, allows the banks to present these short term instruments which the CBN will use as collateral to provide funds for them for repayment period of 365 days.” The source explained.

This option does not seem to have been effective, the Nigeria Inter Bank Official Rate, the rate at which banks lend themselves money, have continued to increase, spiking to as high as 21 percent last week. This may not be unconnected to the fact that just a few banks are in the position to lend money to needy banks. Fortune&Class Weekly reported last week that many banks chief executives continued to troop to First Bank Plc, to negotiate and secure funding to keep their operations going.

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FRAUDULENT CREDITS HAUNT NIGERIAN BANKS -Industry Sources Warn

Despite continued assurances made by Central Bank of Nigeria’s Governor, Prof. Chukwuma Soludo restating the healthy state of Nigerian banks, reliable banking industry sources have indicated otherwise.

The sources warn that many commercial banks’ risks exposure is quite high, this, the sources averred is responsible for the growing tension in banking operations in the country.

“Of course, most banks keep issuing spectacular financial results, declaring huge profit after tax. But we can tell you that all you see are mere accounts engineering for which financial sector regulatory authorities should be held responsible.

“It is unfortunate that the auditing processes of companies have not been criminalized, if they are, all the shenanigans happening in the banking sector would have been exposed. We can tell you that several banks have lost there shareholders funds. The same capitalised funds that the CBN Governor is hailing as the proactive measure of consolidation that have supposedly saved the Nigerian banking industry.

“But have you ever imagined to the dividends several banks declare at their year-end? If you look at their books properly, they morphed the supposed dividends in their assets account. Yet what the requirement is that funds attributable to dividend should be set aside and, indeed, forwarded to the registrars for onward delivery to shareholders.

What some of the banks do, however, is to transfer some funds to the registrars, which usually are under their direct supervision because they are the banks’ subsidiaries. The registrars just make a show of posting dividends, but then, what you will soon hear is unclaimed dividends. The truth is that the dividend warrants were not dispatched in the first sense.

“Again, So many concerned Nigerians are looking to commercial banks exposure to the stock market as the next likely cause of distress in the Nigerian banking industry, yes, we agree that the stock market may be a possibility, but more than the eventuality we expect from continued worries arising from banks’ risk exposure in the capital market is the heavy exposure to fraudulent credits granted to some highly rated Nigerian and foreign businessmen that have become more or less moribund.

“We can tell you of a celebrated businessman who owes several banks a total of about N412billion debt and as the days pass it is becoming increasingly impossible to recover the sum from him. Besides, there is another gentleman who recently stormed the petroleum products marketing sector. He secured a facility of more than N50billion to finance his diesel supply business and joined other top players in the market to slash price for competitive advantage. But now, the situation have turned bad for him, again it is becoming increasingly bad for him.

“A Nigerian branch of the group of companies owned by an Asian ranked in the list of the world’s ten richest people had on the strength of the track record of the wealthy individual behind the company wracked up about N92billion facility form different Nigerian banks. For this individual, the slide in the global financial market has badly affected his business empire that he is to talking about official bankruptcy. With such a situation what is obvious is that it would become near impossible to repay the facilities secured from Nigerian banks.

“We qualify most of the facilities so secured by these businessmen as fraudulent because the processes of securing are often compromised. We have investigated how conniving accounts officers of some of these banks compromise the whole process of risks and collateral valuation. These account officers are usually promised a percentage of the amount to be loaned out; they forward favourable reports to the management, again, there are members of the management who are insiders to these compromised processes; they easily approve the reports for their personal gains.

“What all these boil down to is that if the CBN Examiners properly conduct the review of the books of most of these banks as required, the revelations will be shocking. On this basis, we want to warn that depositors’ funds with several Nigerian banks are at risk. People should start becoming cautious as they relate with their banks. Just a small slip could cause a lot of damages to depositors’ funds.