Wednesday, August 10, 2011

Issues in the Nationalisation of Three Nigerian Banks

The withdrawal of licences of Afribank, Springbank and Bank PHB, three of the 2009 eight rescued banks by Nigeria Deposit Insurance Company on Friday, August 5, 2011 is another sad chapter on the lingering distress in Nigeria’s banking nay financial sector. It is unfortunate and pre-emptive of NDIC and Central Bank of Nigeria. I should think these regulators ought to have waited till September 30 which was the end date given for recapitalisation after which the hammer can now fall on defaulters. Indeed, I prefer the regulators (NDIC and CBN) should have given a grace period of additional one month after the initial deadline to enable defaulting banks recapitalise after which such harsh measure can then be meted to them. The step has the potential to scare away foreign investors into Nigeria’s economy as it is an indication of mismanagement and ineptitude. As things stand, there will be further job loss in spite of the already saturated unemployment market while the shareholders will also face further devaluation of their shares which is another economic loss. In fact as much as N32 billion was alleged to have been lost to the nationalised banks by their shareholders.

News report has it that depositors are already making panic withdrawals in spite of the reassurance by CBN and NDIC that no depositor will lose his or her money. It is also very heart-rending that those who initially run these banks aground in the first place, though have been charged to courts since 2009 or thereabout, almost two years after, the courts are yet to make firm pronouncements on their cases. Indeed, of the eight arraigned former bank managing directors, it is only the ex-MD of Oceanic Bank who went into plea bargaining that had been convicted. Others have been using all tactics in the statute books to frustrate their prosecution. There have also been several litigations by former MDs on what they termed their ‘illegal removal from office’ as well as litigations from shareholder associations of the rescued banks. This disquiet is expected to continue with the latest development. All these are bad for business.

However, the creation of bridge banks to take over from the nationalised banks is novel and commendable. It would be recalled that under the new arrangement, MainStreet Bank Limited takes over the assets and liabilities of Afribank; Keystone Bank Limited acquires the assets and liabilities of Bank PHB, while Enterprise Bank Limited takes over that of Spring Bank. The swift appointments of new managements and boards for the nationalised banks are also laudable. In fact, it is praiseworthy that the distressed banks are not liquidated but nationalised. If there had been liquidation, the negative impact would have been worse. Also creditable is the injection of a total of N679billion into the three banks by the Asset Management Corporation of Nigeria (AMCON) to bring the banks to capital adequacy.

I recommend that the entitlements of staffs of these nationalised banks who might lose their jobs should be paid on retrenchment. They should also receive pre-disengagement training in small and medium scales enterprises and be given soft loans as start up capital for their potential new businesses after their disengagement from the affected banks. These palliatives are necessary to cushion the negative impact of their job loss and to make their post service years tolerable and pleasant. Also, all lawful and legal means must be used to ensure that the nationalised banks debtors are made to pay back their debts. The fact that the banks have been taken over by the regulators must not make the debts of those banks to become bad debts. Moreover, Economic and Financial Crimes Commission, EFCC and judges handling the cases of those arraigned former bank directors must see to effective and timely prosecution of the alleged culprits who have brought tears, sorrow and untimely deaths to their banks shareholders and staffs. This is to serve as deterrent to those who may wish to mismanage our financial institutions in future. Lastly, the regulators must continue to be alive to their responsibilities by ensuring that periodic forensic audits of accounts of banks and microfinance institutions are held and preventive measures are taken to halt this ugly trend which has constitently brought untold hardship on shareholders and staffs of financial institutions.