By NBF News
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CBN Governor Mr. Lamido Sanusi
The eight rescued banks that failed the stress test jointly conducted by the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation are still technically insolvent, the Central Bank of Nigeria has said.

The CBN, which disclosed this in an advertorial on Friday (today), added that the value of the banks' negative assets stood at N1.28tn as at December 31, 2010.

The advertorial, signed by the CBN Governor, Mr. Lamido Sanusi, stated that the situation of the banks would continue to worsen as long as the holes in their balance sheets, which were 'created by mismanagement and outright theft,' were not filled with capital.

The rescued banks are Intercontinental Bank Plc, Equitorial Trust Bank Limited, Spring Bank Plc, Union Bank of Nigeria Plc, Bank PHB Plc, Afribank Plc, Finbank Plc and Oceanic Bank International Plc.

The managing and executive directors of the banks were sacked after two rounds of stress test in 2009 and a N620bn lifeline was given to them.

Intercontinental Bank, according to the advertorial, had the highest negative assets value of N330.709bn as at December 31, 2010, while Afribank followed with N260.94bn.

Bank PHB's negative assets stood at N242.309bn, Union Bank had N135.894bn, while Finbank recorded negative assets of N104.751bn as at December 31, 2010.

Others are Oceanic Bank, N94.261bn and Spring Bank, N87.869bn. Equitorial Trust Bank recorded the lowest negative asset value of N27.253bn.

The CBN said, 'Despite the various improvements that have been implemented by the CBN-appointed management since taking over, the banks remain in a grave situation. There continues to be value attrition as the banks record operating losses and the potential cost to the government therefore increases.

'This situation will continue to worsen as long as the holes in the balance sheets of these banks, which were created by mismanagement and outright theft, are not filled with capital. So long as these banks continue to fund this gap with interest bearing liabilities, they will continue to run operating losses, especially in an environment of rising interest rates.'

The apex bank, however, said that the situation could not be allowed to persist as it was affecting the overall objective of restoring normalcy and maintaining financial system stability.

It stated, 'The CBN cannot afford to keep the inter-bank guarantee in place indefinitely, whereas it is solely by this that the banks have been able to keep their doors open. Further, the cost to the nation, if the banks continue to operate without capital, is incalculable.

'The risk to the financial system of these banks failing is imminent and cannot be afforded. In the face of the attempts by a small minority of shareholders to block the return of the 'grave situation' banks to normalcy and stability, the CBN is re-evaluating the options available to it under the Nigerian law.'

Sanusi noted that the route for each bank would be assessed on a case-by-case basis, noting that the CBN's priority remained to find an expedient solution that would protect the interests of depositors and creditors of these banks and ensure the integrity of the financial system.

'In sum, the CBN will do all it can to ensure that depositors and creditors do not suffer losses, while ensuring that financial stability persists throughout this final stage of the recapitalisation process,' he added.

The CBN boss reaffirmed the apex bank's commitment to ensuring that no depositors or creditors lost their money in Nigerian banks.

He added, 'It is on record that the CBN has in the past, in line with the law, legally taken over distressed banks and handed them to the NDIC for management, resale or liquidation. This option has always been available, and if the current attempt to arrive at a win-win situation is frustrated by shareholders, the CBN assures creditors and depositors that their savings, deposits and loans will be fully protected.

'However, in such an eventuality, the CBN has no obligation to protect or give any value to shareholders and they will have to face the reality that their investments have been wiped out by the management teams they appointed.'