Investigation Reveals Where Bank Loans Went Bad

searching-manA 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

barth ebongTaken 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

cecilia ibruAs 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

akingbolaAs 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’

sebastineNot 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

okeyOf 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.

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

Vol 2 Issue 31 magazineThe 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
akingbolaA 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)

Three Nigerian Banks break into Forbes List of World Biggest Companies

The year 2009 is rather an unlikely year for any Nigerian company… continues here.

What Happens to Stock When Company Files Bankruptcy

Bankruptcy Is Not Good News for Stocks and the stock market.

In this write up I will treat bankruptcy in the broad sense and why companies choose this route (if they have a choice).  Also, I will be looking at the two main types of corporate bankruptcy and what rights or options investors have […]

Read the rest here.

75 Per Cent Of Credit To Stock Market Cornered By Operators Affiliated To Banks

Analysts at Proshare Nigeria have said that banks’ exposure to loans secured by their affiliates for stock market activities might have triggered a 65 per cent drop in capitalization of Nigerian banks and may, therefore be a fair reflection of the possible loss on the portfolio held by the banks through margin loans.

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CAPITAL MARKET CRASH: THE CASE AGAINST THE BANKS

EFCC Boss

EFCC Boss

When the Director-General of the Securities and Exchange Commission demanded that some banks’ chief executives that had become richer than their banks should be questioned, it was the first formal acknowledgement of the abuses some commercial banks chief executives perpetrated in the Nigerian stock market while the gains and benefits in the market were on the upward swing.

Yet in a report filed by Reuters, a news agency, and published in various national newspapers in August 2007, it had become apparent that there were wary signs of obvious manipulations in the market for the benefits of a few, especially, banking chiefs.

“Investors in Nigeria’s burgeoning stock market are seeing danger signals that the recent rally is turning into a bubble,” the report filed in the third quarter of 2007, had observed .

“Concerns focus on banks, where share price growth has been spectacular since a wave of consolidation in 2005. Most bank stocks have more than doubled in value this year (2007) alone — some have risen by more than 500 per cent — and the majority now trade at more than 20 times their expected 2008 earnings,” the report alerted.

Furthering its alarmed reading of the stock market back in 2007 when it seemed everybody was a winner in the stock market, the Reuter report added:

“Investors say these multiples are unsustainable, even for a fast-growing “pioneer” market like Nigeria, where investor confidence has been growing steadily since economic reforms began in 2003. The report quoted Mr. Jonathan Chew of Imara Asset Management UK Limited which had $25 million invested in Nigerian securities back then as saying that:

“All the indicators of a market going out of control are here, when the entire retail sector is talking about stocks and shares, you know it is getting toppy,”

Reuters had observed then that fears of a bubble in the banking sector have mounted on reports that some banks were engaged in highly leveraged share purchase schemes through stockbrokers. The Reuters 2007 report supported this claim with the opinions of notable operators in the market.

“One senior bank executive said he knew of one case where a capital market operator borrowed six billion naira from a bank to invest in that bank’s shares.” The report asserted while quoting Bismarck Rewane who the report described as a consultant with Financial Derivatives Co. in Lagos who agreed that the practice (highly leveraged share purchase scheme) was widespread.

“Margin trading is the biggest gamble in town right now. It’s very dangerous,” Rewane was reported to have said.

The Reuters report also quoted Godwin Obaseki, managing director of Afrinvest, who said banks have extended big loans to brokers, perhaps as much as 20 per cent of the whole country’s credit.”

Obaseki was, however, quoted in that report to have said he did not know of cases where banks insisted on the loans being used to buy their own shares, which according to him, would be illegal.

More than a year after the report was filed, the Nigerian stock market had unraveled, the suspicion and alarming indicators have been more or less confirmed by the outburst of the SEC’s DG on banks’ high exposure to the stock market, but more than this is the confirmation of the existence of the illegality Obaseki had denied in 2007 about banks granting loans to stock brokers and investors on the condition that they use the facilities to buy their (banks) shares.

Indeed, the practice became a standard in the banking industry especially during the second wave of public offers conducted by listed banks on the Exchange. Industry players talked of how banks provided funds for brokers and other investors to acquire their own shares during public offer. Industry watchers explained that most of the banks resorted to this to make their standing in the capital market look good to the investing public.

Besides, public offers by the implicated banks provided opportunities for bank chief executives and other directors to jostle to take position in the equity of the bank to acquire enough stakes in the bank either to position for influence or to later trade in the equity when price of the stock moved up,” an expert revealed.

“Again, banks also engaged in providing funds to brokers and investors to acquire shares of banks considered choice banks, especially the shares of First Bank Plc, this is one of the reasons the public offer of the bank was over-subscribed by more than 600 per cent, the bank merely wanted to raise N100 billion but it ended up with more than N600billion, money mostly funded towards acquisition of its shares from other commercial banks,” the stock market expert said.

“The idea is that since public offers provide the opportunity to acquire enough shares without the possibility of price moving as a result of demand for the shares outstripping demand as it would happen in the secondary market, funds are routed into the market to acquire as many shares as possible during the public offer with intent at trading in the shares when they are listed for transaction in the secondary market,” the expert further explained.

While the bullish run persisted in the market, the performance of a bank’s stock in the stock market was a measure of the buoyancy of the bank, expert said; this, coupled with the desire of bank’s management to raise cheap funds from the market made many banks to provide funds to willing stock brokers and selected investors to mop their shares in the secondary market. Prices of such banking stocks naturally moved up because of the pressure of the programmed demand on the stocks.

“I can tell you that at a point in time, it seemed as if the only preoccupation of most banks was manipulating the stock market to wring out the last hope of gains. All these contributed to defacing the market and inevitably led to the crash of the Nigerian stock market,” an analyst submitted.