5 October 2009

Istanbul, Turkey — As part of efforts to reflate the economy, President Umaru Musa Yar'Adua may have directed the Ministry of Finance to release $2 billion from the Excess Crude Account this week to the federal and state governments under a fiscal stimulus package targeted at paying contractors and for the execution of infrastructure projects.

Confirming this to THISDAY last night, sources within the Presidency said the National Council of States (NCS) will be meeting tomorrow to ratify the money, which is an immediate stimulus package for the economy in the wake of a credit crunch following the recent bank reforms.

In the meantime, Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi has unfolded two options open to the apex bank in respect of eight out of the 10 banks it intervened in between August and October.

He listed the options to include controlled liquidation or conversion of government stakes to equity as a last resort until investors are found for the eight banks. He, however, denied that government was nationalising them.

The decision by the NCS might not be unconnected with efforts to jump start economic activities, which had slowed in recent months and was further compounded by the clean-up in the banking sector, resulting in a credit squeeze in the sector.

The goal, explained a government official, is to make sure money trickles down through the system and so that contractors owing the banks can start to repay their loans

CBN Deputy Governor, Operations, Mr. Tunde Lemo, had last Friday said the apex bank was working in conjunction with the finance ministry to stimulate the economy.

According to him, "we are now working in conjunction with the Ministry of Finance to stimulate the economy.

"The Federal Government has accepted to pay contractors the money it owes them so that they can in turn repay their bank loans. A fiscal stimulus is being worked out to reflate the economy," he said.

Analysts said once part of or the entire N620 billion injected into the eight banks is converted into equity, this would translate to nationalisation, even if it is done on a temporary basis.

The United Kingdom adopted the same approach last year when the Exchequer took a direct stake in the banks and called it nationalisation, even though the Chancellor, Alistair Darling, made it clear that it was temporary.

Sanusi also said the banking watchdog might be compelled to publish names of debtors with non-performing loans in the three banks whose managements were axed last Friday, if such banks are placed at risk over their non-performing loans.

The CBN Governor made these known to newsmen yesterday at a joint news conference with Finance Minister Mansur Muhtar at the ongoing 2009 annual meetings of the World Bank/International Monetary Fund (IMF) in Istanbul , Turkey .

The CBN had fired the executive management of eight of the 24 banks in the country in the last two months and had provided N620 billion ($3.9 billion) in liquidity and loan support to the institutions.

The latest bank chiefs to be sent packing are Francis Atuche, BankPHB Plc, Charles Ojo, Spring Bank Plc, and Ike Oraekwuotu, Equitorial Trust Bank Ltd.

The sum of N200 billion was injected into the three banks taken over by the CBN last Friday.

CBN had earlier injected a N420 billion lifeline into FinBank Plc, Union Bank of Nigeria Plc, Afribank Nigeria Plc, Oceanic International Bank Plc and Intercontinental Bank Plc - after sacking their chief executives, saying lax management had left the banks dangerously undercapitalised.

These institutions had since been taken over by CBN appointed managements, which had since been running the banks as going concerns until new investors are found to recapitalise them.

The managements of the first five banks were removed following the outcome of the first round of the audit concluded by CBN early August - covering 10 banks of which five comprising First Bank of Nigeria Plc, United Bank for Africa (UBA) Plc, GTBank Plc, Diamond Bank Plc and Sterling Bank Plc were certified fit.

The banks found wanting in the second round of audit were those whose CEOs were sacked last Friday.

Sanusi said: "Our preference is to move straight from the Tier II loans we have given these banks to private investment. If you are running an institution like the CBN you've got to ask yourself - what if our plans do not materialise in terms of what we consider to be appropriate or what happens if we do not see an investor for any of these banks?

"The two options that we have are that if any of the banks is not systemically important to Nigeria, we will look at the possibility of controlled liquidation that will ensure that all depositors are paid back their money until the bank is wound up.

"But where the bank is systemically important to Nigeria and its survival is considered critical to the financial system, there is a possibility of government converting its stake into equity till it finds a buyer.

"That is different from an active policy of nationalisation and that may happen by default."

The CBN governor was obviously responding to a Bloomberg report that allegedly misquoted Muhtar as saying that Nigeria would nationalise some banks in the interim.

According to him, "there is a limit to the time government can continue to run a bank on loans, because these banks need capital to run, which must come from private or government sources.

"Where the capital fails to come from private sources, then there may be need for government to take up equity to pay to the central bank loan as quickly as possible."

Sanusi said experience had shown that Nigeria had not been able to manage liquidation.

He said CBN was desirous of selling the weak banks because banking is not a business for government, given past experiences of government-owned banks.

The CBN governor acknowledged that only four banks - Oceanic, Union, BankPHB and Intercontinental - out of the 10 banks, in which the apex bank had intervened, have systemic importance to Nigeria because each of them controls five per cent of the market share.

He, however, said that currently, CBN assumes that all the eight banks have a future until proved otherwise.

On the criteria used in the selection of all the managing directors appointed to run the eight of the banks whose management were removed, Sanusi said they were appointed based on their pedigree, track records and ability to turn the banks around.

"The managing directors we appointed have always being on the list whenever we are looking for MDs. They are bankers and have distinguished themselves, have track records, reputation and ability to manage those institutions, turn them around, cope with the challenges and run these banks as going concerns. They (MDs) were appointed by both CBN and the National Deposit Insurance Corporation (NDIC)," he explained.

On inflation, he noted that CBN had been able to bring it down to 11 per cent last August, stressing that there is a likelihood that inflation might fall further to 9 per cent by the end of this year.

On foreign exchange management, the governor, who observed that Nigeria had been losing $2 billion monthly in a bid to defend the naira between last January and June, said the country had not lost any foreign exchange in the last two months.

He said the difference between the official and parallel market rates had narrowed from 25 per cent to 2.9 per cent in the last two months.

Giving an overview of the CBN findings in all the 24 banks, Sanusi said that a stress test was conducted in all the banks with the assistance of some officials of IMF.

He said the CBN gave the IMF officials the financial statements of all the 24 banks without naming any of them and that results showed that the first five banks - Intercontinental, Oceanic, FinBank, Afribank and Union - whose managements were removed in August 14 were distressed.

On the redenomination of Nigeria's currency, Sanusi felt that the time was not ripe and that he had since voiced this out when he was the Managing Director of First Bank of Nigeria Plc.

"Redenomination is usually taken to signal the end of a reform programme in a country where inflation has taken place. So, I think it is too premature to talk about redenomination," he said.

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