BY MICHAEL EBOH
LAGOS — The discordant tune of the Central Bank of Nigeria on the resolution of the eight rescued banks entered another phase yesterday in far away South Africa, where it announced its intention to nationalise the banks should they fail to recapitalise by the September 31st deadline.

This is a reversal from the threat of liquidation issued by the apex bank in May in response to the barrage of court cases by aggrieved shareholders against the sale of the banks to core investors

“While nationalization is not the favoured option, it is preferable to liquidation, Kingsley Moghalu, Deputy Governor, Financial Sector Surveillance said in South Africa.

“If AMCON takes a majority stake in a lender, it may manage the bank for a year or two before selling it.”

Moghalu disclosed that the CBN will move in after September 30, through AMCON, which will become a majority shareholder in the banks by plugging their equity shortfalls, helping them to recapitalise, preparatory to selling them.”

Should this be the case, the rescued banks would effectively become government-owned and hence subject to the whims and caprices of politicians.

But most importantly, nationalizing the banks would be a reversal of the CBN’s policy which restricts government holding in banks to five per cent.

That is why experts have warned that the move would be unhelpful to the economy, as it may further compound the woes of the affected banks.

In 2009, the CBN sacked the executives of the eight rescued banks namely: Union Bank, Afribank, Intercontinental Bank, Oceanic Bank, Finbank, Bank PHB, Spring Bank and Equitorial Trust Bank. Consequently, it appointed new managements and injected N620 billion to help stabilize the banks pending their recapitalization. But the apex bank has been singing discordant tunes on the recapitalization method for the banks.

First, it said the banks would be sold to foreign banks and insisted that existing shareholders no longer have a stake in the banks.

The shareholders fought back, instituting legal action against any attempt to sell the banks to foreign banks. This scared away interested foreign banks, and left local banks and investor groups as prospective core investors. But as the management of the rescued banks announced preferred core investors, shareholders intensif ied legal action, which halted invalidated some of the agreements with core investors.

Apparently irked by this development, the apex bank in May issued a deadline of September 31 for the banks to conclude recapitalization threatening to liquidate those that do not after the deadline.

But analysts see the pronouncements of the CBN to nationalize the banks as a ploy to coerce shareholders into accepting its verdict on the banks, and also ensure a speedy conclusion of the various acquisition talks entered into by the management of the banks with potential acquirers.

This is especially as the threat to withdraw support from the banks came at the time when shareholders of the various banks went to the courts to challenge the planned sale of the banks.

As a result of the uncertainty presented by the pronouncements, shareholders embarked on massive offloading of the banks’ shares.

Opeyemi Agbaje, Executive Officer, Resources and Trust Company, RTC, Limited, had cautioned the CBN about its pronouncements and statements on the fate of the rescued banks, noting that the various pronouncements, reforms and policies have been a major distraction to companies in the financial sector and the banks in particular, making it very difficult for the banks to focus on their core functions of financial intermediation.

According to him, the CBN by its continuous negative pronouncements is undermining public and depositors’ confidence in the sector, and particular institutions.

“The history of the Nigerian banking sector,” he said, “tells us clearly that both liquidation and nationalization would be unhelpful for the economy. Nationalization will import corruption and cronyism into the banks turning them into an object for political and bureaucratic patronage, eventually destroying the institutions.”

Agbajedeclared that the current reforms undertaken by the CBN has negatively impacted the Nigerian economy, especially in the area of access to credit, financial deepening, unemployment, banking system contribution to the Gross Domestic Product among other.

Agbaje advised the regulatory authorities in the financial sector to consolidate on current reforms and allow a period of industry stability to allow participants settle to their core function of savings mobilisation and financial intermediation.

Another analyst, Mr. Johnson Chukwu, Managing Director, Cowry Asset Management Limited, said that the initial position of liquidating the rescued banks would have caused further crises of confidence in the Nigerian banking industry.

“Imagine the implication of liquidating the likes of Union Bank, Afribank, Oceanic and Bank PHB. These banks clearly have systemic implication to the entire banking industry,” he said.

He further stated that the CBN’s announcement of possible liquidation of these rescued banks has led to run by their depositors, adding that the run has further weakened their financial health and made them less attractive to even the proposed core investors.

He expressed confidence that with the reversal of the liquidation threat, it is hoped that depositors will gradually return to the rescued banks.

Chukwu said, “The new decision by CBN to nationalize instead of liquidate the rescued banks that fail to meet the minimum capitalization by September 30, 2011 is a more reasonable way out of the rescued banks crises.

“Finally, the initial plan for AMCON to capitalize the rescued banks to zero shareholders’ fund meant that the Corporation would have funded the larger part of the capital deficit of the affected banks. It therefore makes sense that having already absorbed the huge deficits, AMCON could as well fund the additional amount required to meet the minimum regulatory capital instead of liquidating the banks with the attendant systemic crises.

“AMCON takeover of these banks should however be temporary as the Corporation should sell the banks to core investors after repositioning them, at more auspicious time when the rescued banks will actually be attractive to investors and command reasonable value. AMCON should never plan to hold them to perpetuity.”

Also speaking, Mr. David Adonri, Managing Director, Lambeth Investment and Trust Limited said that the earlier pronouncement to liquidate rescued banks that failed to recapitalise by the deadline was to send a strong signal to recalcitrant shareholders who are bent on derailing the last phase of the rescue mission.

He said, “However, it was not certain that the financial authorities will actualize that drastic measure considering the massive resources and efforts already expended in preventing the banks from outright failure.

As long as nationalising the rescued banks that fail to recapitalise results in protection of depositors fund and creditors, the economy will be the better for it. The financial system cannot be perpetually held to ransom by those bent on frustrating the measures aimed at lifting it out of the damage inflicted by directors appointed by shareholders to manage the rescued banks,” he said.