LAGOS – TWO years after the Central Bank of Nigeria, CBN, intervened in eight banks, sacked their former managements and installed new ones, Vanguard can authoritatively reveal.

This came just as the Central Bank said it has not approved any Memorandum of Understanding, MoU, signed between management of the rescued banks and prospective core investors.

There were indications, yesterday, that some of the banks  are still carrying the weight of mismanagement and may go into distress if they did not obtain fresh capital injection following their declining performance since CBN’s intervention.

One of such banks is BankPHB whose CBN appointed management is in panic over the continued deterioration of the financial condition of the bank.

An SOS letter from the Bank to its select staff captures the critical situation of the bank. The letter with the subject “interbank/CBN dependence on bank funding” drew top management attention “to the escalating level of the bank’s interbank/CBN dependence for funding our operations, and the urgent need to tackle the situation with a multi pronged solution.”

The letter written by the bank’s treasurer on March 16, 2011 stated: “As at mid month, interbank takings stand at N133 billion and this does not include CBN SLF (Standing lending facility) of N35 billion.”

Issues facing the bank

The bank’s treasurer listed issues facing the bank to include, persistent negative clearing, loss of deposits and the fact that “70 per cent (N187 billion) of total treasury assets (N246 billion) is held for now in an illiquid AMCON Bond.”

He noted: “I wish to bring to your attention our escalating level of interbank/CBN dependence for funding our operations, and the urgent need to tackle the situation with a multi pronged solution immediately. As at mid month, inter bank takings stand at N133 billion, and this does not include CBN standing lending facility, SLF of N 35 billion.

“Issues” raised by this include persistent negative clearing, loss of deposit and 70 per cent (N187 billion) of total treasury assets (N264 billion) is held for now in an illiquid AMCON bond.

“Implications and actions plan” would mean “to step up deposit mobilisation bank-wise, significantly, possibly taking a hit on cost (a new rate sheet has been advised), intensify the efforts at a bank-wide retention strategy for Federation Account Allocation Committee, FAAC, and other flows.

We may need to avoid/slow down on rollovers of loans/facilities and insist that clients pay down for now, we may also have to slow down on any fresh disbursements of loans. This puts the bank in a conundrum, given the low loan/deposit ratio. This is a very dangerous trend and is an issue that deserves topmost priority.

Strategies to fight threat

“Please let us think about strategies to fight this threat that is upon us. Send your comments to …….who will be attending ALCO on Monday, March 21, on my behalf to enable him discuss with the other members extensively. I have copied the regional managers in Lagos and West as well as Abuja as they make up nearly 80 per cent of our business.”

Analysts familiar with the banking system say that most of the rescued banks were heading for loss if they were not sold or recapitalised soon.

One of them stated: “Basically, they have sold all the assets on their books, their loans to deposit ratio is at an all time low, not enough to generate interest to cover their overheads which is not going down, they have to pay interest on deposits and even pay 11 per cent interest per annum on the fund injection from the CBN.

Faced with such high costs and low earnings, they have no chance of making profits soon. Definitely not in 2010 financial year.”

A very senior officer of the bank who should know described the bank’s condition as “precarious” and was mobilising staff  “to think about strategies to fight this threat that is upon us.”

Analysts are quick to add that the bank’s worsening fortune was not unrelated to the low-level of confidence that the banking public has on the leadership that has been dogged by controversies since its appointment in October 2009.

Signing of MoUs by rescued banks

On the Memorandum of Understanding signed between managements of rescued banks and prospective core investors, the CBN in a statement signed by the Head Corporate Communications, Alhaji Mohammed Abdullai said: “The Central Bank of Nigeria has noted with concern various speculations and unsavoury comments on the proposed mergers and acquisitions of rescued banks and wish to categorically state that no approval for any Memorandum of Understanding, MOU, has been granted by the CBN so far.

“Whereas the trend of signing the MOUs is welcome and shows the intrinsic value that investors see in Nigerian banks and the process which signals that the solution to the banking crisis is in the horizon; MOU can only lead to actual transaction if and when CBN issues no objection and other regulatory approvals.

“The CBN and other regulators will ensure that all relevant factors, including professional advice from the financial advisers are adequately considered before any approval is granted. The process which is being driven by the parties involved and not the CBN will have to be approved by the Board and Shareholders of the banks concerned. Therefore, all speculations and unsavoury comments on the process are premature and unnecessary.”

“For the avoidance of doubt, the CBN and other relevant regulators will be guided by appropriate considerations including due diligence on investors and the advice provided by financial advisers to the parties before approving MoUs and subsequent transactions.”


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