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CBN faults move to discredit bank reforms

By Yinka Kolawole
LAGOS—In an unsigned statement made available to Vanguard yesterday, in Lagos, CBN berated what it called a deliberate campaign by an insidious group alleging that the removal of the five bank Chief Executive Officers (CEOs) had ethnic undertones.

CBN Gov Sanusi LamIdo Sanusi

It also debunked an alleged claim by the  group that the appointment of the current CBN Governor, Mallam Sanusi Lamido Sanusi, was a premeditated action to enable him play out a script.

The CBN statement said: “The CBN wishes to restate that it is unfortunate that in spite of all the available facts to the contrary, that this faceless group of people is weeping up primordial sentiments by turning facts on their head to achieve this ignominious goals.

“The facts are as follow:  As far back as October last year, some of the banks showed serious liquidity strain and had to be given financial support by the CBN in form of an Expanded Discount Window, EDW where the apex Bank extended credit facilities to the banks on the basis of collateral in the form of Commercial Paper and Bankers’ acceptances, sometimes of doubtful value. By the time Sanusi assumed office on June 4, 2009, the total outstanding at the EDW was =N=256.571 billion, most of which was owed by the five banks.

“Whereas the five banks were by no means the only ones to have benefited from the EDW, the persistence and frequency of their demand pointed to a deeper problem and the CBN identified them as probable source of financial instability, most likely suffering from deeper problems due to non-performing loans.

“The impact of the situation of these banks was felt by the market in different negative ways, tfovas primarily because of these banks that the CBN took the step of guaranteeing the inter-bank market without which almost four of the banks would probably have collapsed. It was in view of these that the Governor instructed the Director of Banking Supervision to carry out a Special Examination of the five banks conducted by a joint team of CBN and NDIC officials.

“Some of the findings included: Excessively high level of non-performing loans attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the bank’s credit risk management practices.

“The total loan portfolio of the five banks was =N=2,801.92 billion. Margin loans amounted to=N=456.28 billion and exposure to oil and gas was=N=487.02 billion while aggregate non-performing loans stood at =N=1,143 trillion representing 40.81 percent

“The huge provisioning requirements have led to significant capital impairment and that a minimum capital injection of =N=204.94 billion will be required in the five banks to meet the minimum capital adequacy ratio of 10 per cent.

“It is preposterous to claim that the Governor “manufactured evidence” to enable him “act the script” without following the procedure provided by section 33 and 35 of Bank and Other Financial Institutions Act (BOFIA).

“If the CBN Governor had not taken those steps as prescribed by section 33, (which this group of people is misinterpreting) the five banks would have spread their contagious effects as manifested by their persistence at the EDW. Also, as perennial net-takers of funds in the inter-bank market, which was a clear indicator and evidence of illiquidity, they would have pulled down the financial sector in the process.

“The argument that the CBN Governor could not even wait to complete the “examination” of the 24 banks before taking action on the acquisition bid of the five banks is completely hollow, going by the revelations at the EDW and the inter-bank market. What other facts do you need to confirm illiquidity exhibited by these banks, if not the disturbing trend, which was obvious given the persistence of these five banks at both the EDW and the inter-bank market compared to the remaining 19 banks.

“In addition, the CBN has a responsibility to act in a timely manner to secure the financial health of banks and to protect all depositors and creditors. The five institutions concerned were in a grave situation and their management had acted in a manner detrimental to the interest of their depositors and creditors, hence the need for CBN’s timely intervention.

“Also, the intervention of the CBN to save the five banks was necessary because the banks were systemically important to the banking industry in terms of assets and deposits.

For example, the five banks accounted for 39.93% of loans, 29.99% of deposits and 31.47% of total assets as at May 31, 2009 in the banking system. The CBN therefore, believes that the successful resolution of the five banks would address the systemic pressure that the industry was experiencing.

“The CBN has the power to remove CEOs upon examination of a bank, where the CBN is satisfied that the bank is in a grave situation, under Section 33 (2) ( c) of the BOFIA, the Governor may by order in writing remove for reasons to be recorded in writing with effect from such date as may be set out in the order, any manager or officer of the bank, notwithstanding anything in any written law or limitations contained in the memorandum and articles of association of the bank. Also, this power is exercisable under the CBN Act 2007 section 42 ( 1) (b) which mandates the CBN to ensure high standards of conduct and management throughout the banking system.”


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