Nigeria: Massive withdrawals hits nationalised banks

In a bid to stabilise the banking industry for greater productivity, the Central Bank of Nigeria, CBN, last weekend, revoked the licences of Spring Bank, Bank PHB and Afribank, even as the monetary authority announced the extension of the inter-bank guarantees of the bridge banks to replace the three axed banks until December 31, 2011 to ensure continued operation.

Headquarters of the Central Bank of Nigeria in Abuja, Nigeria

The apex bank expressed confidence in the capability of bridge banks to meet the obligations of depositors and lender-creditors as they arise, by granting all waivers forbearances and exemptions necessary for their operations.

The Managing Director, Nigeria Deposit Insurance Corporation, NDIC, Ibrahim Umar, explained that the decision by CBN to nationalise the three banks was in line with the policy of the apex bank to restructure the banking industry for greater productivity, adding that the action was the last option since the affected banks were very slow in the recapitalisation process, though new management teams were appointed in August 2009.

The three banks were among the 10 financial institutions that failed CBN stress test in June 2009, while Unity and Wema banks repositioned their operations to stay afloat. It followed that new core investors from Access Bank sealed a merger business deal with Intercontinental Bank, First City Monument Bank emerged for Finbank while Ecobank Transnational signed a merger agreement with Oceanic Bank International, even as core investors had emerged for Union Bank and Equitorial Trust Bank.

Thus, while MainStreet Bank Limited has been licensed to take over Afribank, Keystone Bank Limited has already assumed the assets and liabilities of Bank PHB while Enterprise Bank Limited has fully taken over Spring Bank. The three bridge banks acquired the assets and liabilities through purchase and assumption models earlier used by the apex bank, during the tenure of former CBN governor,Charles Chukwuma Soludo.

PANIC /MASSIVE WITHDRAWALS:

Our investigations revealed that the axed banks have been hit by massive withdrawals, as depositors are trooping in to withdraw their money notwithstanding the assurance from CBN that no customer would lose money.

When Sunday Business visited bank PHB branches at Adeola Odeku, Hopewell, Ajose, Tiyamu Savage streets in Victoria Island;  Awolowo Road Ikoyi, Ogba, Oregun, Omole and Ilupeju areas, many customers were seen making huge withdrawals.

Also, at Afribank branch in Victoria Island , over 13 customers who came to make withdrawals were locked outside the bank for coming after 4.pm, the closing time.

RECAPALISATION AND INJECTION OF FUNDS BY AMCON:

Under the new management, AMCON has injected N678 billion into the three new banks to raise their capital adequacy ratio to 15 per cent, to enable them pay back the funds that CBN injected into them in 2009.

As a lender of last resort, the apex bank had injected a N400 billion lifeline into five banks, including Afribank, in the first rescued operation in August 2009, and later injected another N200 billion through its intervention in the operations of three banks: Bank PHB, Equatorial Trust Bank and Spring Bank.

N285 billion is earmarked for Mainstreet Bank formerly Afribank, Keystone Bank formerly Bank PHB Plc N283 billion and Enterprise Bank formerly Spring Bank N110 billion.

In that capacity, AMCON would recapitalise the banks, manage them for about three years, before finding new investors. CBN has emphasised that no depositor would lose his or her money under the new arrangement.

PERSPECTIVE OF FINANCIAL ANALYSTS

However, while some stakeholders said CBN’s action would strengthen the affected banks for improved services, other stakeholders and financial analysts expressed concern about the revocation of licences coming weeks even ahead of the September 30 deadline given rescued banks to recapitalise or have their assets transferred to AMCON.

Financial experts who spoke with Sunday Business expressed their views:

Nationalisation would tackle confidence crisis in the sector:- Professor Fabio Canova, a financial expert from University Pompeu Fabra, Barcelona , Spain: The depositors as well as shareholders in the affected banks should look at the nationalisation as a positive approach because it would tackle confidence crisis in the financial sector.

For instance, with the new management taking over the banks, there is the assurance that depositors’ money is protected. However, monetary policy formulators should be acquainted with appropriate macroeconomic modelling and forecasting techniques needed to stimulate growth and development of the financial sector and the economy at large.

Nationalisation would protect depositors’ funds – Mark Iloh,Registrar, International Logistics and Administration: Nationalisation is the process by which the government of a country takes over the ownership and management of an industry or some banks from private individuals by bringing them under exclusive control. So, it is not something people should panic about.

The initiative by the apex bank to nationalise the banks would protect depositors’ fund because the companies are brought under direct state control and ownership to ensure economic stability.

Since the affected banks were no longer meeting with their primary role, transferring assets is better than total liquidation where depositors would lose their money.

We should realise that nationalised industries exist to provide services, they are not profit-oriented. Nationalisation takes place so that government would be able to influence and control various economic activities of a country.

It should be noted that the previous owners of the nationalised industry would be paid compensation by the state for taking over such industries. Beyond effective management, nationalisation has disadvantages like prevention of private initiative, excessive control, which may hinder development. Resources could be misallocated, consumers could be exploited and there could be low productivity in the long-run.

Banks may give stringent conditions for giving loans – A small and medium scale operator, Mr. Silas Igwe: With the latest development in the banking sector, SME operators would not have easy access to credit facilities to run their businesses.

This is because banks would give entrepreneurs very stringent conditions for granting loans. The apex bank should ensure that the new arrangement favours entrepreneurs especially in the area of start-ups.

There must be no job losses: National President, National Union of Banks, Insurance and other Financial Institutions Employees (NUBIFIE), Ade Martins Odigie. The apex bank should ensure that employees are not affected in any way. This is because the union would resist any reform that would throw Nigerians into the labour market.

-By UDEME CLEMENT 

Source: Vanguard