WHY WE DIDN'T CLOSE DOWN DISTRESSED BANKS - NDIC
Interest of the depositors and that of the nation are the reasons why all the distressed banks in the country were not completely closed down by the Central Bank of Nigeria (CBN), but were allowed to go through the option of bridge-banking, Mr. A. A. Adeleke, director, Asset Management Department, Nigeria Deposit Insurance Corporation (NDIC), has explained.
NDIC is the agency set up by the Federal Government to protect depositors and guarantee the settlement of insured funds, when a deposit-taking financial institution can no longer repay their deposits, thereby helping to maintain financial system stability in the country.
Speaking on the rationale for opting for the bridge bank option at the Manpower Development Institute, Dutse, Jigawa State, venue of this year's edition of the annual workshop for finance correspondents and business editors, Adeleke said while depositors' funds in the banks stood at N12 trillion, the banks' paid up capital stood at N224 billion, insisting that 'the interest of the depositors must be protected.'
The Asset Management Department boss recalled that 'rehabilitation' via take over of ailing banks in the country began with banks that had no national spread. It started in 1992 with one bank. By 1993, the number had risen to five while it shot up to ten in 1995. In 1996 and 1999, two banks were taken over while seven banks were sold to new investors.
He said the intervention of the regulatory authorities in ten distressed banks in the country in May showed that N11.3 trillion was total depositors fund while that of eight of the banks stood at N2.944 trillion.
He said the bridged banks which had a total deposit fund of N816. 29 billion, could get investors, a situation that made their situation worse, necessitating the option of bridge banking for them.
Nigeria had its fair share of the global financial crisis system and the challenges posed by the banking consolidation of programme that was concluded in 2005 and other developments within the economy led to another round of crisis in 2008/2009 as the joint Special examination of the CBN and NDIC showed.
According to the joint report, ten out of the 24 money deposit banks were in grave financial dangers. Eight CEOs of the distressed banks were sacked alongside their board and replaced with managements appointed by the CBN which injected N620 billion in the affected banks as tier 2 capital.
Of the ten banks, owners of Wema Bank and Unity Bank were able to adequately re-capitalise while court actions stalled efforts of the regulatory authorities to recapitalise. The CBN had given the eight banks a 30th September deadline to recapitalise or have their licences revoked. In response, five of the banks; Intercontinental Bank plc, Oceanic Bank Plc, Union Bank of Nigeria Plc, FinBank Plc and Equitorial Trust Bank Plc got court injunctions vacated and entered int negotiations with prospective core investors.
But prior to the expiration of the deadline, five of the banks had executed Transaction Implementation Agreements (TIAs) and convened court-ordered extra-ordinary general meetings where the shareholders approved the recapitalisation/merger transactions. The banks and their preferred investors were Intercontinental Bank Plc (Access Bank); Oceanic Bank Plc (Ecobank Plc); Union Bank Plc (shareholders and African Capital Alliance Group); Finbank Plc (First City Monument Bank Plc); and Equitorial trust Bank Plc (Sterling Bank).
The three banks that could however not find preferred investors/merger partners had three bridge banks established for them by the NDIC to assume their assets and liabilities as a going concern. The bridge banks are Mainstreet, Keystone and Enterprises banks emerging from the ashes of Afribank Plc, BankPHB Plc and Spring Bank Plc respectively. The bridge banks were immediately sold to the Asset Management Corporation of Nigeria (AMCON), a special vehicle agency, through share subscription while the banking licences of the three former banks were revoked by the CBN.