Bridged Banks Step Into Line

A little over a year ago, the last plank in the Nigerian Central Bank’s rescue mission for the country’s banking industry was laid when the management of three distressed banks was handed over to the Asset Management Corporation of Nigeria (AMCON).

As part of the Central Bank of Nigeria’s governor, Malaam Lamido Sanusi’s thorough clean-up of the system following a crisis which saw the entire banking industry teetering on the brink of an abyss. The management of three banks,  former BankPHB (Keystone Bank), Former Afribank (Mainstreet Bank) and former Spring Bank (Enterprise Bank) had their licences withdrawn and the management handed over to the Asset Management Corporation of Nigeria (AMCON).

The banks had failed to recapitalise as required by the CBN and the Nigerian Deposit Insurance Corporation (NDIC), which had been on the point of taking over their assets when AMCON stepped in to take full ownership of the banks after injecting N679bn ($4.2bn) into them. The banks were then renamed.

Subsequently, the assets of the banks were transferred to AMCON and they are now expected to rebuild their business operations, develop their new brands and create value for their shareholders. AMCON was set up in 2010 to clean up the banking system following a $4bn rescue of nine banks that had come close to collapse. The Corporation is planning to exit the banks by 2013 after new buyers are found.

AMCON CEO, Mustafa Chike Obi said that confidence has been restored in the bridged banks and they are now competing like any other in the country. He explained that the banks’ costs have reduced as they have diversified the bulk of their deposit base from term deposits to current accounts. “The current account balances have increased from 30% to almost 50% and that has reflected in the confidence back in the banks. It has reduced the case of frauds and increased income from fees and commissions because customers don’t just put money in current accounts,” he said.

“The banks now have more focused management teams that are committed and purpose-driven. They have specific terms of reference. They are measured particularly against the background that what went into these banks is coming from a sinking fund that is contributed by other banks,” he said.

Managing Director, Mainstreet Bank, Faith Teudor-Matthews said that initially the intervention by CBN and AMCON had created short-term uncertainties and panic amongst customers and other key stakeholders. These reactions were driven by the natural instinct to run to safety. “We will make sure that there is a transparent process that every Nigerian will look at and say we have done fairly. Our overarching objectives were to stabilize the bank, refocus it, win the confidence of customers, achieve greater buy-in from the workforce and return the bank to sustainable growth and profitability. I assumed duty in a bank that was characterised by an absence of a clear strategy, diffused market focus and persistent losses over the years. In fact, over 90% of the branches were loss making,” Teudor-Matthews said.

Despite these challenges, she said that over the last year, she has been able to stabilise the bank, regain the confidence of all our stakeholders including customers, staff, shareholders and regulators and rekindled the spirit of performance and accountability in the lender’s workforce.

“We have also commenced streamlining of our business processes, refocusing the business on our traditional areas of strength – retail, commercial and corporate segments, as well as the public sector of the economy. We have established a new corporate governance framework, improved customer service delivery and instituted an enterprise risk management framework to safeguard the assets of the bank,” she said.

According to her, the bank has recorded a steadily improved performance, a considerable feat given that at inception, the bank was making an average monthly loss of N2.5bn ($15.8m) owing to the inability of most branches to cover their operational costs.

This continued until management rolled out cost saving measures which drastically reduced overheads and stopped the financial bleeding that threatened the bottom-line of the bank. The non-performing loans (NPL) ratio has reduced from over 50% to below 4%, which is within the regulatory threshold.  The bank has also achieved liquidity and other ratios that meet CBN’s prescribed limits. The CEO of Enterprise Bank Limited, Ahmed Kuru said the bank has been fully recapitalised as it now has enough funds to run its businesses. He said the new management has a mandate to improve the performance of the bank and add value to shareholders. Likewise, the CEO of Keystone Bank, Oti Ikomi assured customers of the bank that it has met the required capital adequacy level after it received lifelines from AMCON. The bond, Oti said, has helped the bank to fully pay off the N70bn ($443m) loan taken from the CBN in 2009. The fund has also enabled it to meet the CBN minimum capital requirement of N25bn ($158m), wipe off negative shareholders’ funds and met the CBN requirement on minimum capital adequacy ratio (CAR).

AMCON’s Chike-Obi said the corporation may list shares of the bridged banks on the Nigerian Stock Exchange (NSE). “One of the options available to AMCON is to make these institutions public, so that the Nigerian public can have a chance to invest in them,” he said and so far, over 20 different bodies – banks and other investors – have expressed interest.

It was on the basis of evaluating all the options available that the corporation has appointed two financial advisers – Citibank consortium and Renaissance Capital consortium for the sale of the three bridged banks. The Citibank consortium is already evaluating Mainstreet Bank and advising the corporation on the best way to maximise value in the sale. The Renaissance Capital Consortium is doing same for Keystone and Enterprise banks.Chike-Obi said the advisers have been given a time frame of between three to six months beginning from August to complete their assignments.  “We will make sure that there is a transparent process that every Nigerian will look at and say we have done fairly. We don’t want anybody to think that these banks were taken over and handed over to special interests. It must be a very transparent process,” he said.

Shareholders up in arms

Some shareholders of the three banks had gone to court challenging the bridging of the banks and claiming that they lost over N32bn ($201m) after AMCON took over the banks but the Federal High Court sitting in Lagos has declared that a suit instituted by the Progressive Shareholders Association of Nigeria (PSAN) against the CBN was unsustainable. National co-ordinator of PSAN, Boniface Okezie said the group will fight on until it reclaims the investment of its members.

But the managing director of Financial Derivatives Company Limited, Bismarck Rewane said the shareholders request was reckless and frivolous. Also, the managing director, of Afrinvest West Africa Limited, Ike Chioke said the step taken by the shareholders was baseless because they had already lost their funds in the banks before the institutions were recpaitalised.

Labour unions have also been fighting the management of the three banks which sacked more than 8,000 workers last year. The unions are asking for payment of benefits for their sacked members. The Association of Senior Staff of Banks Insurance and Financial Institutions (ASSBIFI) threatened to shut down the operations of Mainstreet Bank if it fails to pay its sacked workers. Mainstreet Bank, like Keystone Bank and Enterprise Bank, had absorbed certain assets and liabilities of the defunct Afribank Nigeria Plc, but excluded pension and gratuity liabilities. The president of ASSBIFI, Comrade Sunday Salako also called on Nigerians to intervene, saying that the affected workers are in serious financial predicament as most of them are finding it difficult to meet their obligations.

The CBN’s position

The CBN has said that the bridged banks are healthy and will compete favourably with other lenders in the country. CBN Deputy Governor, Financial System Stability, Kingsley Moghalu said that recently, the IMF had recently conducted a stress test for the banking system and that the results showed that the banks are in a sound state of health.

According to him, Nigerian banks are about the most capitalised in Africa with average capital adequacy ratio at about 18%, and the average liquidity ratio is about 64%. Also, the average non-performing loan ratio is about 4.4%, a sharp contrast with the 30% it stood before the reform.

The total assets of the sector stand at about N18.5 trillion ($117bn) while total deposits are N12.5 trillion ($80bn). Total credit is N7.3 trillion ($46bn) while only N335bn ($2bm) is non-performing — that is about 4.4%.

He said the regulator was working out modalities that will make it difficult for any bank operating in the country to fail. It is therefore considering adoption of a macro-prudential regulatory framework for banks. This, he said, requires the measuring of the health of the entire banking system, and how it contribute to the growth of the economy, rather than concentrating on the health of individual banks.

Assessing the CBN reforms so far, Renaissance Capital said the global financial crises of 2008 and 2009 altered the equation of the country’s banking industry.

“The big Nigerian banks have remained big, and some of the previously mid-to-small-scale banks have leapt into the big banks’ league, creating more top-level concentration.

Going forward, we believe size, liquidity, capital and efficiency will define the champions in the emerging banking landscape and the healthy banks will have first mover advantage,” Renaissance said.