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Cablegate: Nigeria: The Gon Temporarily Takes Over Five Banks

VZCZCXRO6955
PP RUEHMA RUEHPA
DE RUEHUJA #1497/01 2301628
ZNR UUUUU ZZH
P 181628Z AUG 09 ZDK
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 6809
INFO RUEHOS/AMCONSUL LAGOS 1814
RUEHJO/AMCONSUL JOHANNESBURG 0079
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001497

SENSITIVE
SIPDIS

DEPT PASS AID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF
DEPT PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER AND KJACKSON
DEPT PASS TO USTR-AGAMA
JOHANNESBURG FOR NAGY
USDOE FOR GEORGE PERSON
TREASURY FOR PETERS AND IERONIMO
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED

E.O. 12958: N/A
TAGS: EFIN ECON ENRG PGOV ELAB EPET NI
SUBJECT: NIGERIA: THE GON TEMPORARILY TAKES OVER FIVE BANKS

ABUJA 00001497 001.6 OF 002


SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY.
1. (SBU) Summary: The Central Bank of Nigeria fired the senior
management of five banks following a financial viability audit that
indicated the banks faced collapse due to excessive non-performing
loans and over-exposure to capital markets and the downstream oil
and gas sector. The CBN injected 400 billion Naira ($2.5 billion)
into the banks to ensure their liquidity. Fourteen other banks are
undergoing similar audits. Banking and finance contacts, along with
politicians and civil society groups like the Nigerian Bar
Association, largely hailed the CBN action as a blow against
corruption and opaque bank lending practices. End Summary.
2. (SBU) On August 14, Central Bank of Nigeria (CBN) Governor Lamido
Sanusi summoned the managing directors of the Nigeria's private
banks to discuss the CBN's ongoing bank audits and concerns over the
health of the Nigerian banking sector. Afterwards, he met
individually with and fired the Managing and Executive Directors of
Afribank, Finbank, Intercontinental Bank, Oceanic International
Bank, and Union Bank. (Note: Sanusi, formerly the MD of First Bank
and an expert in risk management, was recently appointed by
President Yar'Adua with the mandate to examine the health of the
banking sector. End Note).

3. (SBU) At a subsequent press conference, Sanusi stated that of the
ten banks audited so far, the following were judged to be sound:
Diamond Bank, First Bank, United Bank of Africa, Guaranty Trust
Bank, and Sterling Bank. Fourteen other banks remain under
examination and their financial health should be known by
mid-September.

4. (SBU) According to the CBN, the audits discovered that the five
sanctioned banks have non-performing loans (NPL) ranging from 19 to
48 percent, which was attributed to poor corporate governance, lack
of good credit risk management, and excessive exposures to the
capital and the downstream oil and gas markets. The CBN also found
these banks to be undercapitalized for their current levels of
operation. As of May 31, the banks' liquidity ratio was 17 to 24
percent, while the minimum regulatory requirement is 25 percent.
Together, the five banks account for 39.93 percent of loans, 29.99
percent of deposits, and 31.47 percent of total assets. These banks
were also regular beneficiaries of inter-bank market funds and
liquidity support from the CBN, which the CBN took as evidence of
illiquidity.

5. (SBU) The CBN Governor, invoking his authority under the Banks
and Other Financial Institutions Act of 1991, appointed the
following as interim Managing Directors:

--John Aboh, MD/CEO Oceanic International Bank Plc (replacing
Cecilia Ibru);
--Mahmud L. Alabi, MD/CEO Intercontinental Bank Plc (replacing
Erastus Akingbola);
--Nebolisa Arah, MD/CEO Afribank Plc (replacing Sebastian Adigwe);
--Suzanne Iroche, MD/CEO Finbank Plc (replacing Okey Nwosu); and
--Funke Osibodu, MD/CEO Union Bank Plc (replacing Berth Ebong).

6. (SBU) The CBN Governor, saying that changing management alone
would not solve the problems, also injected 400 billion naira ($2.5
billion) into the five banks to stabilize them. He emphasized that
three of the five banks are systemically important to the overall
economy as they hold significant assets and deposits in the banking
sector. He stressed that this is a temporary measure, and that the
GON does not intend to hold shares in the banks for long and will
divest its holdings as soon as new investors recapitalize them. He
added that the names of bank debtors will be published in the
newspapers and that he will ask law enforcement to help recover
funds.

7. (SBU) Olusegun Adeniyi, spokesman for President Yar'Adua, assured
the public on August 16 that the GON will guarantee the safety of
bank deposits and will continue to demand best corporate practices
and better credit administration from bank management. As part of
this effort, President Yar'Adua over the weekend nominated Kingsley
Chiedu Moghalu, a former senior United Nations official, to be the
new CBN Deputy Governor to oversee bank governance issues.

8. (SBU) As a confidence building measure, newly appointed MD/CEO of
Oceanic International Bank Plc John Aboh on August 16 assured a
press conference that his bank's depositors are safe and that the
CBN had pumped 100 billion naira ($632 million)into his bank's
coffers. On August 17, the Nigerian Stock Exchange announced that

ABUJA 00001497 002.4 OF 002


the shares of the five banks had been suspended for two weeks to
protect investors from capital erosion.

9. (SBU) Cecelia Ibru, the former Managing Director of Oceanic
International Bank, complained to the media that the CBN had neither
shared the results of its audits nor consulted with her before
taking its decision. The International Monetary Fund (IMF) Country
Director told us that though they appreciate the CBN's intentions,
they were concerned by dissolution of bank management via the media
since it could have triggered widespread panic in the banking and
financial sector. The IMF had presented to the CBN in late July the
results of its stress tests on Nigerian banks, which showed that
some banks could experience liquidity challenges but the overall
banking system was resilient.

10. (SBU) Comment: Reaction to the CBN action has been generally
positive. Business contacts noted that the new management teams at
the five banks are well and favorably known as bankers, while
politicians and civil society groups like the Nigerian Bar
Association hailed the action as a blow against corruption since
many of the non-performing loans are assumed to reflect unsound or
even fraudulent activity.

11. (U) This cable was coordinated with Consulate Lagos.

MCCULLOUGH

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