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Union Bank staff loans: N12bn outstanding at 2% not sustainable

By Omoh Gabriel, Business Editor
Union Bank interim Managing Director, Mrs Funke Osibodu had an interactive session with journalists at the Muson Centre three weeks ago. At the session, she spoke of the bank’s recapitalisation process, staff welfare and why the bank held two annual general meetings in one day in Maiduguri.

Can we have an update on efforts to recapitalise the bank?

Mrs Funke Osibodu

On recapitalisation, I think the last you heard was that we have gotten a preferred core investor and a standby core investor. What that means is  that out of all the parties that expressed interest, we have narrowed down to two  people, one as a backup  for the other.

The only reason why that name has not  officially been announced is because when you choose the preferred core investor,  you have to sit down and discuss more seriously.

You negotiate what is called the  broad terms of the deal. At that point, they (the core investors) are in a  position to ask questions much more openly than when they were going through the  initial appraisal and due  diligence. At that point, you are not yet in a position to fully say if the party would be here with you permanently, you only  announce that you are about to go into more serious discussions, but you do not  disclose the identity of the firm.

If that discussion is successful, then you  have a Memorandum of Understanding (MoU). Once you have signed an MoU, you are  free to announce the party. If you are  not successful with the preferred investor,  you then move up to the standby investor. That is why it is not good for you to  announce at the initial stage. So that is basically the reason why the identity  of the investors has not been disclosed.

We have gone far with the discussion, we are working hard to be in a  position to sign an MoU within the next couple of weeks and once we have done that,  the next stage would be much more definitive in terms of what percentage of  shareholding they would get. The reason why it is not definitive is because one of  the conditions, both for core investors and existing shareholders is that we  must get the bank to what is called ground zero.

In other words, from a  negative capital to zero level and the partner in that project is the Asset  Management Corporation of Nigeria (AMCON). You all know that we started that  journey officially at the later part of last year with AMCON. There are two  parts that AMCON would normally do. They buy bad loan from you. They have bought  the first set of bad loans that we gave. We got the largest amount of cash from  AMCON, even though we have been quiet about it. We got N239 billion and that is  what is called the first phase.

Once we reconcile that first phase, we would then  talk about whether we have more to give. The N239 billion, mind you, is not necessarily capital, because it is not everything that would affect your capital. Out of the N239 billion, you have to reconcile how much of  those loans you have provided for to determine how much of it affects your capital.  So we are reconciling that right now to see how much of that would reduce the  negative

capital. Then you look at what is left of the negative capital. If we  still have bad loans to give to AMCON, we would give it to them so as to reduce the  negative capital. But if we don’t have, they can still formally say, “you still  have these holes, we are going to take some of your shares in exchange for  bad loans.” So they become a shareholder, fill the remaining and then we  would be at ground zero.

But ground zero is the beginning of the job. What that  means is that anybody who wants to invest in the bank would know that he is not  putting his money into a hole. The minimum capital that is required for an  institution of our size is N100 billion. So the N100 billion now would be filled by  the new investors and existing shareholders. We would be filling that with a  combination of Rights issue and the money that would come from the core investor.

It is only after we have played the full part that we would be able to know the  amount of shares shareholders own; portion of it being their own shares and a  portion of it being the new Rights. It is then also that we would also be able to  ascertain the portion owned by AMCON because of the balance they had to fill in the hole as well as what the core investor owned. The core investor would still  be the largest single shareholder, because that is why they are called core  investors.

We are all working hard, not just in Union Bank, but in other  institutions as well to see how we can actualise all these within the first quarter of  this year so that we can put all these behind us and get on.

The workers of the bank went on strike last December where they raised a  lot of issues. What steps have you taken to resolve the issues that were raised  to avert a re-occurrence of such industrial  unrest?

Let me put it on record that strike was illegal because most of the  staff issues that were raised have been sorted out within the last one year.

That was why we were wondering about what was behind the union action. There was no way it would have been staff  welfare. And that was proven in the last strike. To be frank, the staff had no  business to have gone on strike in relations to the recapitalisation exercise because the shareholders employ them.  Also, some staff in Union Bank feel that they are the largest shareholders of the bank.

Some even mentioned that they own 30 per cent of the bank, but that is not true.  Yes, they do own shares as staff where they paid for the shares during rights issue  that took place earlier.

Also, staff have equity in the bank’s dividend participation scheme  called UBESOT.  The scheme is to give staff a sense of ownership of the bank but staff cannot walk away with the  shares when they leave.

You can be staff today and if you leave tomorrow, those shares would  remain. Then there are shares that were purchased for the purpose of the pensioners with the pension fund managed by  the trustees.

These are not owned by individual staff, but owned inside a pool. What  we owe staff is their pension  amount and not the shares. It is not only Union Bank shares that were purchased by the funds. They  have shares from other companies and even have property.
Normally, they would have given notice to the bank and even to the  security service that they were going to picket, but I think because they needed to do it in a hurry because  of the annual general meeting,  they rushed and did it.

We have also now discovered that they are an  unregistered trade union. So we have written letters to the Union Bank Association of Senior Staff  (UBASS), which is our in-house union and the Association of Senior Staff of  Banks, Insurance and Financial Institutions (ASSBIFI)  affiliated to NLC that  following their illegal status in the bank, we have withdrawn recognition of the two unions at  Union Bank with immediate effect. In other words, UBASS is no longer  recognised by the bank, ASSBIFI (affiliate of NLC)  is no longer recognised by the bank.

Some shareholders had complained about the Annual General Meeting that  was held in Maiduguri. What were the reasons to have it outside Lagos?

I think Boniface Okezie sued the bank and we decided on our own that rather than having an annual general meeting, since there was a suit in court, we should wait and see the outcome before having it. We would have had  the annual general meeting in spite of the fact that they went to court. So  when the judgment came and was in our favour as you know, we went ahead to fix a  date for the annual general meeting and had it. I have heard questions on why we  didn’t hold it in Lagos.

Before then, we have had stakeholders’ forum in Lagos  where shareholders attended. We had it peacefully. So we were not afraid of  having the annual general meeting in Lagos, because as you know, these things are  rotated and we had even chosen Maiduguri a long time ago ,even before the time the initial court case was won. I would tell you that it was the  most peaceful annual general meeting I have ever attended. Don’t forget that it was  two annual general meetings that we had.

There have been insinuations that the bank is planning to sack workers  who took part in that strike last year. How true is that?
Talking about sack, I don’t know, but if there are staff who have  committed infractions, they would go through the normal disciplinary action where you are expected to query the party and then  the party responds. We  also have our collective agreement as well as sanction  policy, which states what disciplinary action would be taken on whatever infraction is committed by a staff.

There have also been allegations your management has since your appointment, cancelled the soft loans which the workers were enjoying before you came on board?

I really want to be open on the issue of staff loan. The interest rate  was two per cent for all loans and the total loan that was outstanding to staff  was about N12 billion. Currently, most banks, their interest rate to staff  range between 8 to 15 per cent. It is not only to staff, we were giving the  same two per cent to pensioners; this a 93-year-old bank. So if I retired 50  years ago and God gives me long life, I would still be getting two per cent loan.

Can you start wondering why the bank got into this burdensome state with such  huge subsidy that it can never sustain? When we came, we informed the pensioners that we cannot continue  to subsidize their loan. For staff, we made them to understand that the  essence of two per cent in those days was the average cost of funds, that the bank  would not make money from staff. Average cost of funds has since gone above  two per cent and that we would give loans to them at five per cent, but the  union said no. However, the senior staff agreed to this, knowing the fact that five per cent was even cheaper than the rest of the market.

So we were accused of trying  to do divide and rule because staff above managers’ level are not part of the  union. We have thus said that for staff below managers’ level, we cannot give  new loans at  below five per cent, but the old loan will still continue at that two per cent. We  believe that this is fair. We had situations where if  I am favoured by management, I can take several different loans, but if some other  persons were not favoured, they would not have access to even one. We also split the loan portfolio into two; such that we allocated a particular amount for senior staff and another for junior  staff so that it is much more equitably distributed. That is the new loan policy that is implemented.

Your management has also been accused of not allowing some of the  workers to go on leave?

I need to really talk about the issue of leave because most of these  things were what brought this bank down. Union Bank today has the highest number of  leave days in the banking industry or even in the entire country. Our leave  days range from 27 to 42 working days, which is about two and half months.

To make  matters worse, in most institutions, they would say that you can only carry it  over to the first quarter or the first two months of the New Year, after which  it is automatically forfeited. So in Union Bank, there are some people who  have accumulated leave such that they can be out of the bank for six months. I tell people we are one of the high paying banks in the industry, when you include benefits  in cash and kind. We tried to negotiate that the leave should be forfeited and be cut down to the industry standard, but the union said no. We then gave a directive that everybody that had outstanding leave should go before the end of the  year.

However, a lot of the staff voluntarily forfeited their leave.

Similarly, I think I should let you know about the issue of pension. Union Bank had been paying double pension. Those who left  the bank after the Pension Act were collecting double pension. We have our own  scheme where the bank was putting aside 11.5 per cent of the staff salaries for  pension. That was before the Pension Act. But the legacy pension should have  stopped in 2005, by law, for the contributory pension to start after.

We started  the contributory scheme and we did not stop the legacy thing. So when we  came on board, KPMG was sent by the CBN to review what the auditors had done.

Through this process, it was discovered that the bank had unfunded  pension and gratuity of N 80 billion. The Board of Directors of the bank directed that we should find out what went wrong. That was how we discovered that we were paying double pension. So somebody  that should normally be collecting monthly pension of N150,000 was walking  away with a monthly pension of N350,000, in addition to collecting a  lump-sum gratuity payment of about N18 million. It is difficult for the  bank to sustain this.


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