By Peter Egwuatu
The analysis of bids for the rest of the four rescued banks is to be completed by the end of August 2010, according to information gathered by Vanguard.
Last week, the bids for first four banks were completed as work has been on-going behind the scenes in respect of the eight rescued banks.
Although, the names of the first four banks that the Central Bank of Nigeria (CBN) announced that their bids had been completed is yet to be disclosed to the general public.
The rescued banks that CBN pumped a total of N620 billion include: Intercontinental Bank, Oceanic Bank International Plc, Union Bank Nigeria Plc, Afribank Nigeria Plc, Fin Bank Plc, Spring Bank Plc, Bank PHB, and Equitorial Trust Bank. Meanwhile, Wema Bank Plc and Unity Bank Plc were given directive to recapitalize.
Vetiva Capital Management Limited, Research Unit has disclosedÂ that advisers appointed to handle the rescued bidsÂ have concluded their analysis of the bids for at the four of the banks and have categorized them appropriately.
According to Vetiva â€œ In summary, we have 2 foreign banks, several local banks and P/E firms partnering with foreign banks, interested in the potential acquisition of these banks.
One Steady Step forward – As relates to the management of AMCON, recommendations for the Board of AMCON have already been discussed and agreed with the Ministry of Finance, and these recommendations have been sent to the President. Once these nominated names are approved by the Senate, a board would be in place and this board can commence the task of NPL assessments and purchase within the next few weeks.
It would be recalled that the Governor of CBN, Lamido SanusuÂ in anÂ interview with CNBC expressed his beliefs that following the approval of the Board, there would be a sufficient structure to drive the execution of any deals/transactions by AMCON and for NPL transfer process to begin in earnest within the next few weeks.
His clarification as regards theÂ timeline is an important data point for the market, as prior to now, indicative timelines for an actual kick-off have been unclear, with many analysts estimating a Q4 2010 or Q1 2011 start date at the earliest.
According to Vetiva ,We believe the commencement of actual negotiations and agreements as relates to a concrete determination of the amount of funds the eight rescued banks will receive for their NPLs and then, exactly what additional capital they will require, can then be established.
This we believe will aid a quick conclusion on potential M&As or acquisition discussions which we know are on-going. Following approvals by the CBN, SEC and Ministry of Finance, a new lease of life can finally be provided for the Rescued Banks who have been on government lifeline for the last one year.
Funding Gap/Noâ€“Funding Gap â€“ The popular opinion as regards the ability of AMCON to fund the purchase of all existing NPLs in the banking sector has been that the AMCONâ€™s funding would be insufficient to meet the sectorâ€™s NPLs.
However, the CBN Governor in his interview provided an analysis that indicates otherwise. His analysis is provided below:
â€œWe note that the troubled Banksâ€™ NPLs is estimated atÂ N1.5trillion, while Sector NPLs has previously been reported at N2.2 trillion. The Governor estimated that under a worst case scenario, if the AMCON is only able to recover 50% of secured loans, 25% of unsecured loans and 25% of equity investments, then it would be looking at a funding gap of about N800 billion.
The AMCON plans to support this funding gap by: A Sinking Fund of N1.5 trillion:
To be funded by N500 billion from the CBN and N1 trillion from bank contributions (via deductions of 0.3% of their Total Assets yearly).
From the above breakdown, it does appear that AMCON will be more than sufficiently funded to carry out its activities and will likely be in a position, according to the CBN Governor, to return monies to the banks at the end of its 10-year life span.
â€œWe highlight that AMCON will be set up with a capital base of N250 billion and will issue bonds (which can be discounted for cash on â€˜limitedâ€™ terms) to the banks in exchange for the NPLs; for which AMCON will restructure terms with borrowers, dispose of collaterals at time periods that will ensure maximum disposal values, as well as engage agents to work on loan recoveries as each instance may require.â€ Vetiva noted.
The Governor however, also highlighted once again that AMCON would only be accepting or negotiating the collection of loans that are backed by collateral.
â€œWe note that this would likely be the reason why even after giving banks (especially the rescued eight banks ) funding through the AMCON arrangement, they may still be under-capitalised/underfunded.
This is because we recall that the CBN has noted severally the significant portion of insider loans not backed by the requisite collateral, found in the rescued banks. We also believe that the CBN and AMCONâ€™s planned response to this, as the CBN Governor has noted previously, would be to provide some additional capital injections in exchange for ordinary shares.â€ Vetiva stressed.
Other key highlights by the Governor in the interview include management of the performance and recovery of NPLs by AMCON. He noted that the challenge of realising collateral values would be that of liquidity, because the current economic cycle is not the best of times to dispose some of the assets/collaterals (equities/real estate e.t.c) underlying the loans.
However, he highlighted that this is one of the main objectives of AMCs, noting that AMCON has a life span of 10 years and could afford to wait for asset prices in the relevant markets to recover before disposing of the collaterals.