Existing shareholders remain owners of troubled banks, Adedipe

By Babajide Komolafe and Michael Eboh
Contrary to the position of the Central Bank of Nigeria (CBN), shareholders of the eight rescued banks have not lost their investment and are still the owners of the banks, says Dr. Biodun Adedipe, Managing Partner, Biodun Adedipe Consulting.

“To the extent that those banks were not liquidated, the owners still remain shareholders in those banks” he added.

Speaking at the Central Bank of Nigeria’s (CBN) seminar for finance correspondents in Benin City, Edo State, Wednesday ,Adedipee, noted that the value of shareholders’ holdings in the banks have diminished significantly, stressing that whenever the banks are bought over by new core investors, the old investors will become minority shareholders.

He further advised the CBN to address critical issues arising from its recent reform programmes so as to allay  concerns and speculations of a hidden agenda in the intervention of the CBN.

Adedipe called for an orderly and transparent exit of the CBN from the troubled banks, while he also advised the CBN to allow owners of the banks to recapitalise the banks, subject to their ability to meet certain requirements of the apex bank and under due supervision.
He said, “Right from the beginning, the ongoing reforms have been branded as a hidden agenda being spearheaded by the CBN.

This, of course, has not been assuaged by the seeming interference of the CBN in the operations of the banks whose executive directors were sacked and into which the apex banks pumped N620 billion to boost their operations.

“The impression of a hidden agenda has not changed and will remain until the CBN exits the banks. To disabuse the minds of unrelenting critics, as well, the following issues must be addressed as professionally as possible.

“CBN exit from the troubled banks must be orderly and transparent. Efforts till date are in the direction of sale to other banks and/or investors that are unrelated to the former core investors.

There are a few issues in this. First is the usual qualification of fit-and-proper persons, which hinges on two important factors of proven technical capability and clean fund to be injected.

“No doubt, we have witnessed in Nigerian banking, the sale of  troubled banks to entities that never met this requirement and only to later compound the cost of such failed endeavours to the regulatory authorities and the economy in general.

“Second is the argument of the ‘right-of-first-refusal’ to former core investors. This is especially important in banking and there are antecedents also in Nigerian banking. Usually, former core investors that caused banks’ technical insolvency are reluctant to inject fresh funds, especially in cases of insider abuses that brought the bank to that state.

“However, if they choose to inject fresh funds into the bank, they get the bank back, but subject to restrictions in management involvement or other such terms dictated by the regulatory authorities.

“This brings in the argument of whether the former owners have lost their money in the troubled banks. To the extent that those banks were not liquidated, the owners still remain shareholders in those banks.

“What has happened is that the value of their shareholding has diminished significantly, and whenever new core investors come in, the old investors will obviously become minority shareholders.”