Business

‘No Cause For Alarm In Banks’

Published

15 years ago

August 21, 2009

Lamido Sanusi

Being address by Mallam Lamido Sanusi, Governor of the Central Bank of Nigeria, on developments in the banking system in Nigeria
As we are all aware, the world economy has been hit by the repercussion of the financial meltdown that started with the sub-prime mortgage crisis in the United States of America and spread to Europe and other parts of the world. This crisis has led to the collapse of many banks and other financial institutions, and even rendered an entire nation bankrupt.
In Nigeria, the banking system appears to have weathered the storm due to a number of factors. Among these are the facts that our financial system is not strongly integrated into the international financial system, as well as the relatively simple nature of financial products and strong capitalisation and liquidity of Nigerian banks.
However, there are many who have been aware for a while now that whereas the system in general is likely to absorb and survive the effects of crisis, the effects vary from bank to bank. A few Nigerian banks, mainly due to huge concentrations in their exposure to certain sectors (capital market and oil and gas being the prominent ones ) but due to a general weakness in risk management and corporate governance, have continued to display signs of failure.
As far as October last year, some of the banks showed serious liquidity strain and had to be given financial support by the Central Bank in the form of an “Expanded Discount Window” (EDW), where the CBN extended credit facilities to these banks on the basis of collateral in the form of Commercial Paper and Bankers’ acceptances, sometimes of un doubtful value
As at June 4, 2009, when I assumed office as governor of the CBN, the total amount outstanding at the Expanded Discount Window was N256.571 billion, most of which was owed by the five banks.
A review of the activity in the EDW showed that four banks had been almost permanently locked in as borrowers and were clearly, unable to repay their obligations. A fifth bank had been a very frequent borrower when its profile ordinarily should have placed it among the net placers of funds in the market. Whereas the five banks were by no means the only· ones to have benefited from the EDW, the persistence and frequency of their demand pointed to a deeper problem and the CBN identified them as probable source of financial instability, most likely suffering from deeper problems due to nonperforming loans.
The impact of the situation of these banks was being felt by the market in different negative ways. Because of this strain in their balance sheets, the banks pushed up the interest rate paid to private sector deposits and their competitors had to follow suit. They also contributed to the destabilisation of the interbank market as many of their competitors were unwilling to take an unsecured risk on them. It was primarily because of these banks, or at least some of them, that the CBN took the step of guaranteeing the inter-bank market when it stopped granting new lines under the EDW. Without that guarantee, almost four banks would not have been able to borrow in the inter-bank and would probably have collapsed.
As you are aware, we guaranteed the inter-bank market to give us the time to conduct thorough diagnostic of the’ banks and ensure that appropriate remedial action is taken. At least, four of the banks in question have since the guarantee came into force either remained heavy users of funds at the EDW or drawn heavily from other banks under cover of the CBN guarantee to wind-down at this window. In all events, it is clear that they do not have the ability to meet their obligations to depositors and creditors as they are in a grave situation.
In view of the aforementioned circumstances, I instructed the Director of Banking Supervision of the CBN to carry out a Special Examination of the following five banks: Afribank Plc Finbank PIc, Intercontinental Bank Plc, Oceanic Bank Plc and Union Bank Plc.
The examination was conducted by a joint team of CBN and NDIC officials. The major findings on the five banks included:
Excessively high level of nonperforming loans in the five banks which was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the bank’s credit risk management practices. Thus the percentage of non-performing loans to total loans ranged from 19 per cent to 48 per cent. The five banks will therefore need to make additional provision of N539.09 billion.
The total loan portfolio of these five banks was N2,801.92 billion.
Margin loans amounted to N456.28 billion and exposure to Oil and Gas was N487.02 billion.Aggregate nonperforming loans stood at N 1,143 billion representing 40.81 per cent.
From 1 and 2 above, it is evident that the five banks accounted for a proportionate component of the total exposure to Capital Market and Oil and Gas, thus reflecting heavy concentration to high risk areas relative to other banks in the industry. The huge provisioning requirements have led to significant capital impairment. Consequently, all the banks are undercapitalised for their current levels of operations and are required to increase their provisions for loan losses, which impacted negatively on their capital. Indeed one is technically insolvent with a Capital Adequacy Ratio of (1.01 per cent). Thus, a minimum capital injection of N204.94 billion will be required in the five banks to meet the minimum capital adequacy ratio of 10 per cent.
5. The five banks were either perennial net-takers of funds in the inter-bank market or enjoyed liquidity support from the CBN for long periods of time, a clear evidence of illiquidity. In other words, these banks were unable to meet their maturing obligations as they fall due without resorting to the CBN or the inter-bank market. As a matter of fact, the outstanding balance on the EDW of the five banks amounted to N 127.85 billion by end of July 2009, representing 89.81 per cent of the total industry exposure to the CBN on its discount window while their net guaranteed inter-bank takings stood at N253.30 billion as at August 02, 2009. Their Liquidity Ratios ranged from 17..65 per cent to 24 per cent as at May 31, 2009. (Regulatory minimum is 25 per cent).
It is important to note that at least three of the banks are systemically important (accounting for more than 5 per cent of Assets and Deposits in the Banking System) and together, the five banks account for 39.93 per cent of loans, 29.99 per cent of deposits, and 31.47 per cent of total assets as at May 31, 2009.
Given the extent of the asset quality problem leading to liquidity stresses, and the variety of stress points on the banks’ balance sheets, failure to act to secure the financial health of these banks will clearly place the system at risk. The Central Bank has a responsibility to act to protect all depositors and creditors and ensure that no one loses money due to bank failure. The bank also needs to move decisively to remove this principal cause of financial instability and restore confidence in the banking system.
Consequently, having reviewed all the reports of the examiners and the comments of the Directors and Deputy Governors, 1 am satisfied that these 5 institutions are in a grave situation and that their managements have acted in a manner detrimental to the interest of their depositors and creditors. Therefore, in exercise of my powers as contained in Sections 33 and 35 of the Banks and Other Financial Institutions Act 1991, as amended, and after securing the consent of the Board of Directors of the CBN, I hereby remove the Managing Directors and the Executive Directors of the following banks from office with effect from Friday, August 14, 2009.
1. Afribank Plc
2. Intercontinental Bank Plc
3. Union Bank of Nigeria Plc
4. Oceanic International Bank-Plc
5. Finbank Plc
These persons forthwith cease to be directors and officers of their respective banks.
The Board of the Central Bank of Nigeria has also appointed the following as the MD/CEOs of the affected banks:
1. Mr John Aboh – MD/CEO Oceanic International Bank Plc.
2. Mr Mahmud L. Alabi – MD/CEO Finbank Plc
3. Mr Nebolisa Arah – MD/CEO Afribank Plc
4. Mrs. Suzanne Iroche – MD/CEO Finbank Plc.
5. Mrs. Funke Osibodu – MD/CEO Union Bank Plc.
Each of the above will head a management team that will include executive directors and Chief Financial Officers to be appointed by the CBN. This team is tasked with continuing the business of the banks as a going concern. I, therefore, appeal to the Boards of the affected banks, in their own of interest, to cooperate with the newly appointed executive management.
We are conscious of the fact that changing management alone will not resolve this problem. Consequently, the CBN is injecting a total of about N400 billion into these five banks with immediate effect in form of Tier 2 Capital to be repaid from proceeds of capitalisation in the near future. This injection is sufficient to resolve and stabilise all the institutions and enable them continue normal business. The injection of fresh capital by the CBN is temporary measure as government does not intend to hold the shares for long and shall divest its holdings as soon as new investors recapitalise these banks.
Let me also advise all debtors of Nigerian banks, that the CBN and all government agencies are united in our commitment to support the recovery efforts of the banks. Debtors who do not pay shall have their names published in national newspapers” in due course and we will solicit the support of law enforcement agencies in recovery.
Let me reassure especially the customers of the affected banks and all the banks in general that there is no cause for alarm. They should continue to transact their normal business in the banks where their accounts are domiciled as this exercise is meant to further strengthen the banking industry and recapitalise the affected banks.
I should also state at this point that the scope of the Special III Examination was widened to cover all 24 banks. So far, we have Id concluded the audit of 10 banks at including these five, the others being Diamond Bank, First Bank, United Bank for Africa, Guaranty a Trust Bank and Sterling Bank. We have also commenced the next s. batch of 11 banks and hope to conclude them by end of August. i5 All in all, we expect to conclude the al audit in mid-September. The Central d, Bank is requiring all banks “to make appropriate provisioning for non-performing loans and disclose them.
We hope that by the end of this quarter, all banks would have ;e cleaned up their Balance Sheets. On 4, the basis of the information available to us so far, we are confident that the banking system is safe and sound and we have dealt with the major sources of systemic risk.
I will conclude by restating that, to going forward, the CBN will not waiver in its desire to ensure that public confidence in the Nigerian of banking system is maintained through appropriate disclosures le and the reinvigoration of its policy of zero tolerance on all professional and unethical conducts.
We will not allow any bank to fail. However, we will also ensure that officers of banks and debtors who contribute to bank failures are brought to book to the full extent of the law and that all proceeds of infraction are confiscated where legally feasible.
Thank you.

Business

Paper Industry’s Economic Contribution Hits N398bn

Published

4 days ago

April 22, 2024

The Tide

The contribution of the paper industry rose to N398.8billion in 2023 from N356billion it recorded in 2022.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Musa Yusuf, disclosed this in a report released to mark the inauguration of World Envelopes Day in Lagos.
Marking the event, which also commemorated the 50th anniversary of envelope manufacturing firm, FAE Limited, Yusuf stated that the paper industry has a profound economic impact across all sectors of the economy.
He, however, noted that the growth in digital technology had greatly disrupted the sector, especially as a mode of communication.
“As of 2023, the value of the Nigerian paper industry was N398.8billion naira, according to the National Bureau of Statistics.
“The value was N365bn in 2022; N363 billion in 2021; and N255billion in 2020. This is a significant contribution to our GDP. However, when compared to the size of our economy, which is estimated at N230trillion as of 2023, it is still very small”, the CPPE boss stated.
Yusuf said the paper industry had been largely in recession because of the digital technology disruptions and other macroeconomic headwinds, especially relating to exchange rate depreciation, forex liquidity crisis and high cost of fund and energy cost escalation.
He emphasised that the paper industry had a profound economic impact across all sectors of the economy, which underscored the need for government intervention in the sector.
In her opening remarks, the Managing Director of FAE Limited, Funlayo Bakare, described World Envelopes Day as the brainchild of the company, which sought to set aside April 16 as a day to celebrate the fundamental role envelopes play in daily communication.
“As we celebrate our golden jubilee, we are delighted to announce the inauguration of World Envelopes Day, to be celebrated annually on the 16th day of April.
“This is a pioneering initiative by FAE Ltd in accordance with our leadership position in the sector.
“The establishment of World Envelopes Day is to raise awareness about the importance of envelopes in various aspects of human endeavour, including personal correspondence, business transactions, and creative expressions”, she said.
The Publisher of The Guardian Newspaper, Maiden Ibru, who chaired the occasion, stressed the need to strike a balance between digitalisation and physical paper production, especially due to the indispensable role paper plays in cultural preservation.
Nigeria once had three paper mills: the Nigeria Paper Mill Limited, located in Jebba, Kwara State; the Nigerian Newsprint Manufacturing Company Limited, Oku-Iboku, Akwa Ibom State; and the Nigerian National Paper Manufacturing Company Limited in Ogun State.
The mills are no longer operational, and the country has had to depend on importation to make up for the shortfall.
The Asset Management Company of Nigeria has taken over the management of NNMC over unpaid debts.

Business

Aviation Union Threatens Strike Over Revenue Deduction

Published

4 days ago

April 22, 2024

The Tide

The Air Transport Services Senior Staff Association of Nigeria (ATSSSAN) has said it would embark on industrial action if the Federal Government refuses to exempt aviation agencies from a directive that seeks to deduct 50 per cent from their Internally Generated Revenue (IGR).
ATSSSAN disclosed this in a communique issued by its National Executive Council (NEC) after its National Economic Council meeting in Ibadan, Oyo State.
The NEC, which had in attendance all 17 affiliates of ATSSSAN comprising all branch Chairmen, Secretaries, and national officers, reiterated calls for the exemption of the aviation agencies from the deduction of 50 per cent of their IGR under the Fiscal Responsibility Act.
The association said the agencies were not established for profit, hence stifling them of the required funds would jeopardise the effective performance of their safety and security mandates.
ATSSSAN warned that if the Federal Government insist on the deduction, it would compound the current financial state of the agencies, and “we may be forced to direct all aviation workers to down tools until the government reverses itself”.
Last year, the Federal Government directed the Office of the Accountant General of the Federation to immediately commence the presidential directives on a 50 per cent automatic deduction from the IGR of Federal Government-owned enterprises.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, had issued a circular titled, “Re: Implementation of the Presidential Directives on 50 per cent Automatic Deduction from Internally Generated Revenue of Federal Government Owned Enterprises (FGOEs)”.
According to the circular, all partially-funded Federal Government agencies and parastatals (receiving capital or overhead allocation from the Federal Government’s budget) should remit 50 per cent of their gross IGR, while all statutory revenues, like tender fees, contractor’s registration, and sales of government assets, among others, should be remitted 100 per cent to the sub-recurrent account.
ATSSSAN stated its apprehension over what it perceives as deliberate efforts by certain private airlines to stop their employees from forming labour unions.
Citing Section 40 of the Nigerian Constitution and international labor norms, the association contends that such actions constitute a violation of workers rights.
The statement, however, did not specify the airline operators suppressing workers from joining unions.
Part of the statement read, “The NEC-in-session calls on all employers in the private sector in the aviation industry to respect collective bargaining agreements in order to avert industrial crises at the workplace.
“NEC-in-session was seriously disturbed by the continuous willful acts by some private airlines towards frustrating the unionization of their employees, contrary to the letters and spirit of Section 40 of the Constitution of the Federal Republic of Nigeria and relevant international conventions and laws”.
The association, therefore, called upon the Federal Ministry of Labour and Employment to uphold and enforce employees’ rights to unionise within the aviation industry.
It urged the Minister of Aviation and Aerospace Development, Festus Keyamo, to orchestrate a dialogue involving all relevant stakeholders, including the non-compliant airlines and labour unions, under the auspices of the Labor Ministry.
At the meeting, other issues affecting workers, especially members’ welfare and working conditions, and the aviation industry at large were discussed, and positions and resolutions were taken.
The aviation group decried what it perceive as a dearth of avenues for career progression within government-owned aviation entities.

Business

NCDMB Rakes In $1m Return On NEDOGAS Investment

Published

4 days ago

April 22, 2024

The Tide

Management of the Nigerian Content Development and Monitoring Board (NCDMB) says it has received a cheque of $1 million from Nedogas Development Company Limited (NDCL).
A statement made available to newsmen by the Directorate of Corporate Communications and Zonal Coordination of the Board said the sum received was part of the return on investment (ROI) on one of its strategic investments.
The statement added that: “The cheque was presented by the Chairman of the company, Engr. Emeka Ene, when he visited the Nigerian Content Tower in Yenagoa, Bayelsa State, where he was received by the NCDMB’s Executive Secretary, Engr. Felix Omatsola Ogbe, and other members of the Board’s management.
“Nedogas Development Company Limited (NDCL) is a joint venture company between Xenergi Limited and NCDMB Capacity Development Intervention Company.
“As part of the project, Nedogas NDCL constructed and commissioned a 300 MMscfd Capacity Kwale Gas Gathering (KGG) and injection facility located in the Umusam Community, near Kwale in Delta State, Niger Delta, Nigeria.
“The KGG Facility was designed to handle stranded gas resources in Nigeria’s OML56 oil province by providing the opportunity for independent operators in the area to monetize natural gas from their fields through the gas gathering, compression, injection and metering infrastructure of the KGG for quick market access.
“Nedogas is one of the several strategic and successful investments of the NCDMB funded from the Nigerian Content Development Fund (NCDF), in line with the Board’s mandate to build capacity and catalyze local projects in the Nigerian oil and gas industry as enshrined under the Nigeran Oil and Gas Industry Content Development (NOGICD) Act”.
In his remarks, according to the statement, the NCDMB Executive Secretary stated that the success story of NEDOGAS at Kwale, Delta State, could be replicated in other oil and gas producing communities to minimise gas flaring, saying that Ogbe also declared the Board’s readiness to continue collaborating with the company.
“Their model should be extended to other parts of the country where gas flaring is continuing.They have shown that with the modular system, we can quickly remove flaring from our operations in Nigeria.
“The NCDMB had continued to receive briefings from its investment partners. We’re still waiting for them to come back with success stories. Some of them are near completion and have not started operations yet”, the NCDMB’s Executive Secretary said.
In his remarks, Chairman of NEDOGAS, Mr. Emeka Ene, conveyed the company’s excitement in returning part of the credit and profit, adding that it was a proof that the NCDMB’s investment was a success and they are getting back that investment, adding that the firm looks forward to further collaboration with the NCDMB to expand its scope.
Responding, the NCDMB boss said the Board was now doing effectively and practically and tangibly what it was set up for, saying its mandate was to impact the economy by direct interventions.
“That’s the way the economy can grow, improve the gas infrastructure in such a way that’s sustainable despite the tight economic conditions”, he said.
He added that, “the value propositions of the Nedogas project include total eradication of flared gas and conversation of environmental pollutants into products of value and creation of a strategic gas gathering hub and injection node for quick access to market for gas owners to monetize gas”.
Other benefits, according to Ogbe, include the provision of alternative gas supply to western flank of the OB3 line to add to the volumes of economic sustainability and increase in Nigeria’s Gross Domestic Product (GDP).
“The partnership with NEDOGAS is one of NCDMB’s 15 strategic investments geared towards actualizing the Federal Government’s aspirations in key areas of the oil and gas industry.
“Most of the projects were targeted at actualizing the Federal Government’s Decade of Gas programme.
“Some of NCDMB’s notable third-party investments include Waltermith’s 5000 barrels per day (bpd) modular refinery in Imo State, Azikel Group12,000 bpd hydro-skimming modular refinery in Gbarain, Bayelsa State, and Duport Midstream’s 2,500bpd modular refinery in Edo State.
“Other investments of the Board include Better Gas Energy for LPG terminal and gas distribution, partnership with Rungas Prime Industries Limited to establish a cooking gas cylinders manufacturing plant in Polaku, Bayelsa State, and Alaro City in Lagos and the partnership with Butane Energy to deepen LPG utilization in the North”, he stated.
The Executive Secretary also noted that there was the partnership with BUNORR Integrated Energy Limited in Port Harcourt, Rivers State, to produce 48,000 litres of base oil per day and partnership with the Nigerian National Petroleum Corporation (NNPC) Limited, Brass Fertilizer and Petrochemical Company Limited, and DSV Engineering to establish a 10,000 Ton Methanol Production Plant, Odioama, in the Brass Local Government Area of Bayelsa State.