Monday, January 16, 2006

14 Banks, Including Offor's, Lose License To Operate

Saying that it had extended its deadlines four times for the Alliance Bank consolidation that included Sir Emeka Offor's African Express Bank, the Central Bank of Nigeria today took away the licenses of 14 banks, including Offor's.

The central bank said all 14 banks had a negative net worth, meaning they lacked the money to pay depositors.

The bank has already said that bank executives and borrowers could face criminal prosecution if the missing funds do not turn up.

True to form, Offor has made no comment on any of the developments surrounding his bank and it remains unknown whether the bank failure will have any consequences for ERHC Energy. He has not been directly quoted in several years.

Here is the latest on the topic from ThisDay Online:

CBN Revokes Licences of 14 Banks
... N177 billion trapped

From Kunle Aderinokun in Abuja, 01.16.2006

Following the withdrawal of operating licences of 14 under-capitalised banks by the Central Bank of Nigeria (CBN) yesterday, the apex bank has disclosed that, at least for the next three months, N177 billion depositors’ funds are now trapped.

The affected banks, according to the CBN, were found to be insolvent with negative shareholders’ funds and also failed to cross the N25 billion minimum capitalisation as prescribed by the CBN as at December 31, 2005.

They are African Express Bank, AllStates Trust Bank, Assurance Bank of Nigeria, City Express Bank, Eagle Bank, Fortune International Bank, Gulf Bank, Hallmark Bank, Lead Bank, Liberty Bank, Metropolitan Bank, Societe Generale Bank, Trade Bank and Triumph Bank.

Also, the apex bank vowed to handover “chronic debtors” of these banks to the Economic and Financial Crimes Comm-ission (EFCC), while their names would be published.

Speaking to newsmen in Abuja yesterday, the CBN Governor, Professor Charles Soludo, said of the N177 billion trapped, N107billion was uninsured private sector deposits.
He also said that the decision to withdraw these banks’ licences was reached yesterday at the meeting of the apex bank’s board which lasted for several hours.
He said the January 16 date (yesterday) of the announcement of the license withdrawal of the 14 banks coincided with January 16, 1998, when 26 banks were liquidated during the late General Sani Abacha regime.

Soludo said the apex bank was exercising the powers conferred on it by the Banks and Others Financial Institutions Act (BOFIA) to revoke licences of the 14 banks after they failed to fulfill the necessary compliances even after extensions like in the case of the Alliance Group which compliance deadline were extended four times.

According to Soludo, “At the expiration of the December 31, 2005 deadline, a number of banks failed to secure merger partners and were not able to make the minimum capitalisation requirement on their own.

“Towards the end of the first phase of the exercise, eight banks hurriedly formed themselves into a group (Alliance Group) when they failed to secure merging partners. All of them were bedeviled by poor operational performance, insider abuse, poor corporate governance and negative net worth.

“The group’s negative shareholders fund was N54.3 billion. The CBN compassionately reviewed the proposal for merger and granted a conditional approval-in-principle on the strong affirmation by the promoters of the group that they would recover and pay into a CBN escrow account the sum of N10.5 billion insider-related debts before December 30, 2005.

“The Alliance Group did not comply with the conditions of the AIP and CBN on January 4, informed the group that the AIP had lapsed as a result of its inability to meet the stipulated conditions. Another group of 6 banks that could also not meet the recapitalisation conditions were characterised by precarious financial conditions. This brings the number of unhealthy banks in the system to 14.

“In CBN's last ditch effort to save these banks, the 25 healthy banks were invited to absorb any bank of their choice among the group. Unfortunately, no serious effort has been made to absorb any of the weak banks.

“In the interest of the credibility of the reform agenda, and in the interest of the general public, we have decided to take some decisive steps. We have repeatedly made our position clear that we are not going to extend the compliance deadline. The general public is therefore awaiting the next line of action. In the exercise of the powers conferred upon us by the Banks and Other Financial Institutions Act, the operating licenses of the following 14 banks are hereby revoked.”

Soludo said given the withdrawal of their licences, the 14 banks will be handed over to the Nigeria Deposit Insurance Corporation (NDIC), adding, however, that the NDIC will have to obtain court approval to commence the process of liquidation of the affected banks.

He reiterated CBN’s earlier assurance to the private depositors of these banks that “their deposits are safe.”

“It is pertinent to state here that the guarantee of 100 per cent payout of private sector deposit covers both individual and corporate depositors,” he said, while assuring that “the premises of the banks are being protected by the Police while examiners will immediately move into the banks for final deposit verification and the compilation of the depositors registers.”

Similarly, he said, “negotiation will also commence soon with the 25 banks for the payment or transfer of such deposits to safety and security reasons. All these should be completed within 90 days.” While appealing to the banking public, especially the depositors in these failed banks and other stakeholders to cooperate with the CBN and the NDIC, he stated that, “our goal is that all stakeholders, especially the depositors, will not suffer undue inconveniences in the process of liquidation.”

Soludo said the CBN was ready to face the challenges of corporate governance and integration in consolidated banks.

He vowed that management and directors that have incurred heavy insider-related credits will be made to face the full weight of the law noting that the apex bank was compiling the list of the “chronic creditors” which will be made public and handed over to the EFCC. He disclosed that the list of debtors of banks was being screened to ensure that no non-performing debtor was left on the boards of the 25 banks.

Noting that there will be zero tolerance regarding infractions, misreporting, non-Transparency, amongst others, he disclosed that the CBN maintained a black book of discredited practitioners in the system. The black book, according to him, was being automated for easy identification of persons on the list.

He noted that “the prudential supervision arm of the CBN is migrating to a risk-based approach to supervision, the framework for this which he said has been released and implementation process is close to launch.

“The capacity of supervisors is being enhanced through training, especially in risk management. The supervision software deployed in the CBN has been significantly upgraded and is now being operationalised,” he added.

Similarly, the CBN governor also disclosed that, “a post consolidation due diligence exercise is slated to be carried out on all the banks within the first quarter of this year.” The exercise, he explained, would involve a re-verification of each bank's capital to prevent or eliminate any incidence of "bubble capital".

He said, “in the event that a bubble that had existed bursts, a contingency plan, which includes getting stronger banks to acquire any shaky bank, is in place and the CBN stands ready to play its role as lender of last resort.”

He said the CBN will closely monitor the banks to ensure that the provisions of the merger scheme documents are complied with.

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