Accordng to the paper, a central bank decree that requires all banks to call any insider/management loans and to return all deposits obtained from bank governments will threaten the stability and consolidation plans of many.
No specific banks were mentioned in the report. ERHC Energy (OTC BB symbol: ERHE) has a minority partner in First Atlantic Bank PLC of Nigeria, which owns just under 9 percent of the outstanding stock after it serttled a loan dispute with Chairman of the board Sir Emeka Offor by accepting some 63,000,000 shares from Offor's Chrome Energy Corp.
Offor also owns AfEx Bank, the former African Express Bank, but it is not known if that bank has loans to Offor or deposits from his home state of Anambra in the Niger Delta, or is still operating. It has no Website. As the former "godfather" of Anambra State, Offor's bank could well have gotten state deposits and loaned him money; should those deposits and loans need to be returned, there is the possibility that the ERHC chairman might have to sell ERHC Energy stock to avoid problems or shore up the bank's assets.
Here is the Business Day report:
Panic grips banks over insider credit, state govt investments
by Remi Emeka Njoku
2005-04-19 09:04:49
LAGOS -- Many banks operating in the country were thrown into panic last week following three major policy decisions by the Central Bank of Nigeria (CBN).
The decisions include the two- month ultimatum given to the 11 banks part of whose indebtedness to the Central Bank was forgiven by the apex bank, to recover all non-performing owner/insider related loans and advances.
The other is the barring of state governments by the CBN last week from making new investments in banks, as well as the cancellation of all shares purchased from banks through private placements and public offers under the on-going consolidation exercise.
BUSINESS DAY reliably learnt that panic gripped most of the banks late last week as speculations filtered out that the apex bank had submitted a list of owner/insider-related loan offenders to the Economic and Financial Crimes Commission (EFCC) for prosecution at the expiration of the two months ultimatum given offenders to repay these loans.
Speculations are that apart from the planned prosecution of the offending banks chairmen/ chief executive officers of the concerned banks may lose their jobs.
A recent CBN report has it that far greater proportion of non-performing loans and advances in banks are owner/insider-related and granted without adequate collaterisation.
There have also been allegations in some banks that most of the small and weak banks cannot secure merger partners or outright buyers in the on-going banking sector consolidation programme because of the high level of insider/owner related credits and loans by such banks.
Fears in such banks were rife that difficult as it seems to recover these loans, top executives of the affected banks may be asked to leave and surrender their jobs at the expiration of the two months given them by the CBN to recover such loans and advances.
The Central Bank of Nigeria had early last week given some reprieve to 11 weak banks in the financial system, writing off N72.8 billion or 80 per cent of the total N91 billion they owed the apex bank.
But it came with conditions relating to recovery of insider-related credit and shoring up of capitalisation to solvency status, all in two months.
Another wave of panic hit the banking industry last week when the CBN barred state governments from making further investments in the banks and the cancellation of all share purchases from banks through private placements and public offers.
The decision of the apex bank, industry operators said, has sent crashing hopes of many banks which are doing private placements and public offers.
A bank chief told BUSINESS DAY in Lagos last night that CBN pronouncement was injurious to the health of his bank. His bank was said to have mobilised a lot of funds from a recent private placement.
This is the same situation with the many other banks that have recently embarked on mobilisation of first funds from both public and private placements, as many of them had relied on state governments.
Two state governors told BUSINESS DAY recently that they were under tremendous pressure from banks which have besieged them to place funds in their banks.
BUSINESS DAY investigations reveal that the boards of many of the banks met yesterday to review the two CBN policy decisions as they affected their banks.
The chief executive officer of one of the banks that has appointed a new management team confirmed to BUSINESS DAY that his board had a very long meeting on Monday trying to take some drastic decisions on insider related credits and advances as well as government placements in the bank.
“We are in a big dilemma. I hope God will put his hands into what we are doing. We will not give up, especially when the CBN means well for all of us”, he stated.
He argued that there was nothing wrong by states investing in banks as that forms a good investment windows for them.
However, industry operators on their part, say the CBN was right as the Fiscal Responsibility Bill provides that states should not invest in banks.
2 comments:
The post on the banks is not old news at all. The CBN bank decreee came out last week and has just now been reported. It says banks can't get desposits from their state governments and that loans to insiders all have to be repaid within two months from the date of the decree. Please restate your answer to ken1mc, Rancho.
For the benefit of ken1mc and rancho6008, I have added additional commentary to the post to clarify the possible consequences of the issue for ERHC Energy stockholders. We have no reason to anticipate there will be problems; it is a possibility only, and one we want investors to be aware of.
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