The first sign that there was danger in the horizon was the advertorial which appeared in the papers requesting the President to assist Intercontinental Bank recover the debts due from some three identified oil marketing companies.
When I saw this advert, I was alarmed. First of all, I wondered at the proprietary of such a publication as I thought it amounted to the washing of dirty linen in the public and I was particularly alarmed that the outstanding debt to only three companies could amount to a staggering sum of about N35 billion! I did some quick mentalÂ calculation to imagine the extent of bad debts in the book of the Bank. I was then not left in any doubt that something was in the offing and that something was about to give. In fact, my reckoning was that this was a planted story to prepare us for the storm which eventually hit the sector. But it turned out from publications in the papers the next day that the Bankâ€™s solicitors had published this advertorial and I had wondered how solicitors to a Bank could go to that extent without clearance from their principal.
The Governor as someone who has been a player in the system came on board with the inside knowledge regarding the relative health of the banksÂ and had no sooner started talking of the need for full disclosure as some of the banks were in fact on life support. As the Governor later explained, his premonitions were supported byÂ investigations of the activities of banks that patronizedÂ the Expanded Discount Window where it was discovered that about five banks were by and large dependent on funding from this source and as I have explained in some of my discourses, sourcing such funds from the Discount WindowÂ was like waving a red flag to a bull which invariably would charge at you, and that is exactly what has happened.
The Central Bank then decided to close the Window as a test but proceeded to guarantee transactions at the interbank marketÂ andÂ the same banks that had depended on the Expanded Discount Window were the ones thatÂ borrowedÂ from the interbank to settle their indebtedness at the Discount Window. And for the CentralÂ Bank, that was conclusive evidence, if any was needed, that this group of banks were suffering from chronic case of illiquidity which in some cases wasÂ verging on insolvency; that was why the selective special investigation was ordered and that explained why the Central BankÂ moved without waiting for full investigations of all the banks in the system. The expectations of the Central Bank is that the remaining investigations would not unearth anything that would call for a drastic response. It is therefore a bit surprising to read that some of those affected were complaining that they were not allowed to reactÂ to the audit report.Â There is a problem, the symptoms of the problem are recognisableÂ and the cause is obvious. What is there to react to?
The impact of this development could be seen from two perspectives. One is the personal, that is, those caught in the midst of all this. My heart goes out to all those affected as I can claim personal relationship with all the managing directors affected.Â It is a tragic development and not all are equally guilty. Some inherited the problem and were doing their best for a solution and some did not have much to do with the bad debt situation. In fact it is reported that there is one particular Executive Director who was appointed the week before this incident and his friends are hoping that probably his appointment had not been confirmed by the Central Bank so that he couldÂ enjoy a reprieve! For the financial sector, it is timely intervention as otherwise the situation could fester and engulf the entire system as the doubts about the health of banks was getting increasingly hard to dispel.