Managing Director of NDIC, Alhaji Umaru Ibrahim, explains in this interview that the take-over of the banks was in the interest of depositors.  He said shareholders’ capital had been long eroded and that the banks could have precipitated a run in the system if left until the September 30 deadline.
Excerpts:

Nigerians are really worried that NDIC and  CBN took over the three banks before the September 30 deadline.  What prompted this measure? What was the state of the banks?

This is public knowledge.  You would recall that a month ago, the CBN governor  warned the affected banks that if they failed they will be handed to us to manage or sell or liquidate.  Now, you can say September is the deadline but the bottom line is that there has been a continuous deterioration in the financial condition of these banks.

They have totally lost their capital. The shareholders funds are zero. These banks have been living on the life-support system of the CBN guarantee —  that is largely the inter-bank.  They are not able to mobilise new deposits, new customers.  They don’t have liquidity except the one they are resorting to by borrowing from other banks and other banks will naturally not give them a kobo but for the CBN guarantee.

So, what is banking when you are living on borrowed fund?

You are not able to attract more customers and the customers are running away, withdrawing the remaining money, you are not growing the business, you don’t have your own money, I mean you are almost dead, almost bankrupt. So, with that in mind and conscious of the need to protect depositors’ funds we had to move in to save the situation.

In NDIC Act 2006, there is a provision which empowers us to step-in in a situation where a bank is clearly failing. And, what are the indicators? Total loss of capital, lack of liquidity except for loan, life-support they are not able to do all the business, the customers are running away, they are not able to come out with credible investors that we – NDIC and CBN- are comfortable with, that yes, by end of September they have found investors and the rest is a matter of negotiation.  You don’t have to wait until the deadline.   If your parents give you the deadline to find a partner and get married, if they know that you have not found one, what will they do? They’ll find one for you or they declare you something else. This  is more or less the case here.

The most important matter for depositors is that they need to be sensitised, they need to be educated, they need to be assured that their funds are safe in all these banks and there is no need to panic for alteration.

What becomes of the former CBN-appointed managers of those banks? Are CBN and NDIC going to sanction them? It was a failure on their part not to have repositioned the banks after two years.

No, you have to be very fair to those people.  They were appointed barely two years ago. And, in fact, their mandate is for two years expiring, may be, by the end of this month. Given the complication, there is not too much that you expect these managements to do. We all know what  happened.  I don’t have to mention the bank where  we have witnessed the extent of the problems.

This outgoing teams were, of course, carefully selected, given the mandate to go and run those banks in the best professional manner, hoping that they could turn them round, arrest the rot, determine the health, the condition, identify malpractices, fraud and abuses. Of course, there were aplenty.

A lot of the banks were saddled by non- performing insider loans; loans that were granted to the majority leading shareholders, owners of the banks, we all know what happened. We don’t have to mention names, some people are going to jail and forfeiting billions of naira.

If it has taken somebody 10 years to run a bank aground, at the end of the day what miracle do you expect from somebody within two years?  They have tried except in the case of the three banks, they have moved the banks to a situation where they have found new owners who are willing to invest in these banks, these are the type of the banks that have already signed implementation agreement which is like a binding marriage in which they pledge to execute and consummate before the end of the September deadline and that is why they are off the hook. They have done their best, some of them are going back to their private businesses.

There were allegations of extravagant lifestyle and wastage against some of the outgoing MDs, but we did not hear anything from the regulators. What is the guarantee that the new boards and managements are not going to worsen the situation of the banks?

Well, you cannot guarantee human behaviour, you can only try to make sure that you choose the best people, professionals, good people in terms of character and also you establish a governance system, a credit management system etc. You must have a good system of sanctioning those who violate the regulations in any business and moreso in banking. It is not  correct to say that nothing has happened.

I don’t want to sit here and start mentioning names; if you have been following cases of people who have been arraigned by EFCC and even some people have been convicted, some have forfeited assets worth billions of naira.  One person forfeited 30-something billion naira to the Federal Government. So, the law will take its course.

As I said, you cannot guarantee human behaviour.

The point we try to make is on the managements who ran these banks for two years. What we are saying is that, some of those chief executives were reported to be living very extravagant lifestyles, for instance, one of them took double what the MD that was removed used to spend on vacation.  Now, we are having a new management team in these banks again.  Will you now take practical steps in terms of trying to put in place regime of allowances?

No, we are not putting any regime of allowance for anybody, just like we have no business in putting for UBA, Zenith etc.  The amount to pay — we pay people according to their skills and competences and according to your pocket. So, it depends.  It is up to the new banks to negotiate their own package in accordance to what they can afford, and what the industry dictates.  They are in the market.

If I want a good journalist to be employed in NDIC, the Nigeria Union of Journalists has no business in telling me how much to pay him or not to pay him.  It is a matter of contract here, it will be dictated by the business and, of course, whatever the press say is not quiet sacrosanct, it is a matter of detail.

Would you say the out-going managements in the acquired banks did their utmost best?

Well, I will say they did their best.  As I said, they took over the banks that have suffered abuses and they tried to rehabilitate them, as much as they could and put them in a position that will attract investors.

Why then couldn’t they find investors?
There are various reasons. It depends on the banks, but generally speaking, investors are difficulty to come by. Though, some local and foreign investors have shown interest but the terms and conditions may not be favorable to them. That is why the deal cannot be struck up to the time we moved in to rescue the situation. So, it could be a matter of price, or an issue of the credibility of investors.
We know that Afribank got talking with an investor.

The truth is that the regulatory authority did not advise that it should go ahead with such transaction for reasons that border  on credibility and governance.

Can you shed more light on this issue of credibility?

I don’t want to belabour the matter.  What has happened has happened. We are moving forward.  The most important thing is that we have set a resolution framework which I have assured you of continuity of banking services to all customers of the acquired banks and the new banks and depositors’ protection is assured.

You said the new banks are still open to investors  and that these new managements will manage the banks for three years maximum.  How do we marry these positions?

If one of them finds an investor now they can buy them and terminate the regime of these new boards.

What happens to former shareholders of these banks?

SEC has issued a statement indicating that trading of those shares is under a technical suspension. I am not in a position to make any authoritative statement.

What about ETB?
In the case of ETB which is a small bank, it is not even publicly-quoted, they are in active negotiation with some interested buyers, there is an arrangement which will ensure that ETB strikes an acceptable deal before the deadline. We are quite optimistic that it will happen.