*From Bailout To Liquidation: CBN’s Troubling Track Record
John Danjuma Omachonu
The Central Bank of Nigeria (CBN) has taken a courageous and bold steps in approving the first bank merger since increasing capital requirements few months ago and ordering lenders to consider equity offers and business consolidation to meet local and international standards.
Specifically , the Abuja-based regulator, under the leadership of the 67 year old banker, Yemi Cardoso, sanctioned a tie-up between Providus Bank Ltd. and Unity Bank Plc, with a forebearance of N700 billion.
According to the CBN, the strategic move is designed to bolster the stability of Nigeria’s financial system and avert potential systemic risks.
Commendable as the action is, it has, according to some stakeholders, reignited old and sad memories of public funds that had gone down the drain even as the ghosts of bank bailouts in Past are still hunting.
However, they are unanimous in their
submissions that the union of both
banks is also important for financial
inclusion, which is one of
the key goals of the CBN in a country
where over 37 percent of rural Nigerians are
financially excluded.
The paid-up share capital of the two
banks will amount to N48.2 billion,
requiring the consolidated bank to raise
N151.8 billion to maintain the national
banking license under the new consolidation
requiring the national banking license operations.
Of utmost relevance is the fact that the
merger will afford Providus Bank the
Northern market reach, which is
expected to make it have competitive edge inview
of the primodal legacy attachments.
This is because Unity Bank has one of the most extensive branch networks in Northern Nigeria, inherited from some of its legacy banks, particularly Bank of the North, Tropical Commercial Bank, Intercity Bank and New Africa Bank.
Despite its troubled legacy, Unity Bank held a unique position in Nigeria’s financial ecosystem, particularly in the northern regions. The bank was the lifeline for many communities, servicing states and local governments where access to financial services was limited.
Victor Ogiemwonyi, Lagos based retired Investment Banker, in a write-up,”A Creative Transaction, To Stabilize The Banking System, Protect Depositors And Save Jobs” commended, what he regards as CBN’s innovative solution and demonstration of commitment to putting the banking system in a better position to fast track economic growth.
”In the past week, the Central Bank of Nigeria ( CBN) announced its approval of the merger of two Banks, Unity Bank Plc and Providus Bank limited, throwing in a 20 year, N700billion loan to make the transaction work.
On the surface, the question will be, why is the CBN doing this ? What may seem like a favour done to the shareholders of these two Banks, is actually no favour at all.
“The transaction, is an innovative solution, that solved many problems, creating a more viable Banking entity, to help stabilise the Banking system, protect depositors, and also save jobs. Those who structured this transaction, should be praised.. I personally will nominate it, for the Investment Banking transaction of the year, for the very thoughtful structuring of the transaction.
“Unity Bank plc, has been a basket case, and a risk to the Nigerian Banking system, since it was created, after Soludo’s “CBN “ induced Banking consolidation. Unity Bank came out of a collection, of 9 Banks, most of them already failing. The Balance sheets, of some of those Banks, had negative balances with loan books, that were never going to be recovered.
“Unity Bank started life as a shaky entity, and has not stabilized ever since. So, from the start, it was not a solid Bank and was a risk to the Banking system, but the CBN found it difficult to liquidate, because of the possible systemic convulsion, it may trigger. Apart, from the political undertones that created Unity Bank, in the first place. It was the entity that collected all the failing Northern Banks at the time, only 4 of the Banks which included, Intercity Bank, and NNB International Bank, were the only viable Banks amongst them, at consolidation.
” Unity Bank brought together all the branches and customers, of these 9 ( nine) Banks, resulting in a large Branch network, with a very broad Customer base, spread across many regions. It was also unique for the cash deposits, that keeps coming into the Bank, despite, its shaky Balance Sheet. The old branches of “ Bank of the North, “ Kano Co – operative Bank, “ Kaduna Co- operative Bank, “ Tropical Commercial Bank, “ and their customers, for example, just keep pouring their deposits into the new Unity Bank.
” Liquidating this Bank, will affect so many, in terms, of branch closures, customers, and number of employees that would be affected. Liquidating it, was therefore complicated, and may create more problems than it will solve. This is probably why the CBN has kept it in the system, and remained a risk to the Banking system. The new lifeline, and merging it, with a more viable Bank, to create a new entity altogether, has solved that problem and has also stabilized the Banking system as a whole.”
Despite these laudable achievements likely to come out from the successful implementation of the policy, they have not eroded financial impunity that characterized the previous bailout exercises where the institutions either turned out to providing shady services to customers or reported cases of corruption that led to eventual liquidation, all at the expense of tax payers.
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For instance, it was alleged that sometime in 2006, the CBN removed about $7 billion from the nation’s foreign reserves and fixed it in 14 commercial banks.
The deposit and the accrued interests were not recovered from the banks, only for the CBN claiming that it had forgiven “the forbearance”.
Similarly, the CBN took over Heritage, Keystone, Union
and Polaris Banks and allegedly spent trillions of Naira to revitalise them only to turn round to sell them under circumstances yet to be cleared to the public.
For instance, CBN also allegedly invested N1.3 trillion in Polaris Bank but sold it for N50 billion.
Interestingly, the banks are yet to be fully on their feet, as are presently under interim management or the apex bank is yet to make official pronouncements on the way forward for them.
Metrobusinessnews.com (MBN) investigations further show other troubling examples of affected banks to include, the defunct Intercontinental Bank, which received a ₦250 billion bailout in 2009, only to be nationalized and sold to Access Bank in 2012.
Others were Oceanic Bank, which got a ₦150 billion bailout in the same year but was later sold to Ecobank in 2011, while Afribank received a ₦200 billion bailout in 2009, but was nationalized and sold to Mainstreet Bank in 2011 (later renamed Skye Bank).
Bank PHB got a ₦150 billion bailout in 2009, but was later sold to Keystone Bank in 2011, while Spring Bank received a ₦100 billion bailout in 2009, but was later merged with Ecobank in 2011.
“These examples illustrate the public skepticism surrounding CBN’s forebearances, as significant amounts of public funds were used to bail out banks, only for them to be sold or liquidated later,” says an analyst
.