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Cablegate: Central Bank Position On Recapitalization

This record is a partial extract of the original cable. The full text of the original cable is not available.

201158Z Dec 04

UNCLAS ABUJA 002103

SIPDIS

SENSITIVE BUT UNCLASSIFIED

ALSO FOR EXIM - THOMAS MATTHIAS AND BERT UBAMADU

E.O. 12958: N/A
TAGS: EFIN ETRD NI
SUBJECT: CENTRAL BANK POSITION ON RECAPITALIZATION

REF: (A) LAGOS 1936, (B) EXIM MCADAMS-SALUDO LETTER OF

SEPTEMBER 8,2004
1. (SBU) Summary. Central Bank of Nigeria (CBN) deputy
governor Tunde Lemo told us December 20 that banks that do
not meet the naira 25 billion capitalization requirement by
December 2005 will not be allowed to engage in banking
business. The top thirty banks in the country will meet the
new capitalization requirement, he said. He also said the
December 2005 deadline will be unaffected by the proposed
amendment of the Banks and Other Financial Institutions Act
since the National Assembly is unlikely to pass the bill.
End summary.

2. (SBU) Econoff and Econ Specialist met with Tunde Lemo,
Deputy Governor of the Central Bank of Nigeria (CBN) in
charge of Financial Sector Surveillance, on December 20.
Lemo said the banks the Export-Import Bank of the United
States habitually deals with are likely to recapitalize
successfully. EXIM deals mostly with the top 30 banks in
Nigeria. Lemo is confident that these banks will
recapitalize without difficulty. The paid-in capital of
some of them already exceeds naira 25 billion.

3. (SBU) Lemo said the banks are heavily engaged in merger
talks, except those known to be "comatose." Many banks have
signed MOUs and are along in the due diligence process. The
big banks are acquiring, and the smaller banks are
attractive. Lemo suggested that whether the banks acquire
capital through mergers or IPOs is not little concern to the
CBN, even if shareholders might prefer that banks merge
before engaging in IPOs so as not to dilute investors'
equity positions.

4. (SBU) Lemo said the CBN will look at the preliminary
results of recapitalization in March 2005. The banks that
will fail to meet the new capitalization requirement by the
end of the year will not be allowed to operate. The
December 2005 deadline will not be extended, he said. Lemo
dismissed the proposed legislation in the National Assembly
to compel the CBN to categorize banks according to three or
more levels of capitalization. He acknowledged that the
Senate is considering the bill, but noted that the Senate is
divided. Lemo expects the bill to die in the House of
Representatives since it supports the CBN's position.

5. (SBU) Lemo commented on the list of 27 Nigerian banks
that EXIM has been doing business with (ref B). He
expressed reservations about two or three of the banks, but
declined to identify them by name. Lemo opined that EXIM's
loans to these banks would not be jeopardized if the banks
were to fail to meet the new capital requirement, because
the loans have financed projects viable from the onset. If
the guarantor banks were to become insolvent, he said, the
obligors could easily negotiate with other banks to act as
guarantors.

6. (SBU) Lemo requested that EXIM send CBN another list
showing the exposure EXIM has with each bank. He would then
be willing to discuss individual banks in more detail.

FUREY

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