BANKING SECTOR REFORMS: SECOND ROUND OF AUDIT REVEALS ROT


Despite assurances by the Central Bank (CBN) governor, Mallam Sanusi Lamido that he does not expect many surprises from the second round of audit of banks in the country, reports reaching Sunday Vanguard suggest that the rot in a few of the 14 banks is not significantly different from the first five whose MDs were removed last month.

Officials of the CBN were said to have found that the managing director of one of the banks whose shareholders have strong political connections allegedly allocated to himself share capital of N85 billion which has not been paid for.

Besides, he was alleged to have allocated shares to a local airline to the tune of N18 billion as corporate investment. The airline is denying knowledge of the deal. The bank MD is also alleged to have invested N12 billion depositors’ funds in a supposed subsidiary of the bank.
CBN building Abuja

The Central Bank of Nigeria(CBN) , Abuja

The company was found to be his private firm. The conclusion of the latest audit has already sparked fear in the financial sector. Bankers who spoke to Sunday Vanguard said the CBN examiners concentrated on liquidity, loan verification such as loans to stock brokers, petroleum products importers, performing and non performing loans; corporate governance issues; processes and resources spent on information technology.

It was gathered that the apex bank is yet to conduct what they described as forensic accounting investigation on any of the 24 banks in the country.

The managing director of at least one bank has reportedly visited the State Security Service (SSS), to deposit his passport. This is to prevent him from travelling abroad.

Bankers are of the view that two or three banks may be affected by the decision of Mallam Lamido not to allow family banks in the country. They are of the view that the CBN governor’s policy frame of mind to end family owned banks may have been partly responsible for the fate of Oceanic Bank and Intercontinental Bank which are seen as being dominated by the personality of their managing directors.

Sanusi had while briefing capital market operators on Wednesday warned that he would not allow banks to be run as a sole proprietorship but as institutions that would imbibe the tenets of good corporate governance, promising to treat shareholders of the affected banks fairly and also ensure that, henceforth, banks in the country are run as institutions rather than as a sole proprietorship.

Sanusi at that briefing allayed fears of nationalising the five troubled banks whose managing directors and executive directors were sacked following alleged misuse of shareholders’ funds.

The CBN governor said that the results of the remaining banks would be made known in October, but noted that their results would be better than those of the 10 banks examined earlier from which five were hammered.

The CBN governor had on August 14 sacked the managing director of and executive directors of Afribank Plc, FinbankPlc, 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 according to the CBN were:

*Excessively high level of non-performing 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 non-performing loans stood at Nl,143 billion representing 40.81 per cent.

From one and two above, it is evident that the five banks accounted for a disproportionate 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.

*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 liquidity.

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 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 2, 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)

Vanguard

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