The recent third quarter results announced by banks in Nigeria is evidence that the crisis in the nation’s banking sector would have been worse if the Central Bank of Nigeria did not intervene when it did, the bank said at the weekend.
The CBN, according to a statement issued by its Head, Corporate Affairs, Mohammed Abdullahi , said the usefulness of its intervention in the management of nine of the 24 banks early in the year has been borne out by the bank declarations.
The result, he said, revealed the ‘grave situation’ in most of the banks, especially those who failed the stress test.
The huge losses reported in the third quarter earnings of the banks, which were in accordance with “stringent standards for corporate governance, transparency and disclosure” reflected the true position of the lending portfolios of the banks, particularly evident in the nine banks assessed following the outcome of the combined CBN /Nigerian Deposit Insurance Commission examination, Mr Abdullahi said.
Could be worse
Last week, one of the central bank’s deputy governors, Kingsley Moghalu, on at least two occasions in Abuja justified the recent actions of the CBN in the wake of the special audit on the nation’s banks, saying the situation could have been catastrophic if the intervention was delayed much longer.
Mr. Abdullahi, in the statement, said detailed investigations by the new management of the affected banks not only revealed that the situation was worse than originally thought, but also that a lot of other issues came to the fore after their resumption, which afforded them access to more up-to-date information.
“As a result of these findings, the banks had to make provisions over and above the CBN’s initial recommendations,” he said.
Expressing confidence that the CBN’s intervention has put the worst behind for the banks, Mr. Abdullahi said the current management teams of the affected banks have made significant strides in their efforts not only to restore stability in their operations, but also ensure that sustainable, long term solutions are in place to help build a solid platform for future growth.
“The CBN remains steadfast in its commitment to the affected banks and will continue to see that the interests of both their depositors and creditors are safeguarded,” he said. “As part of our mandate of preserving the integrity of the Nigerian banking system, the CBN will continue to support efforts towards restoring good governance, best practice, liquidity and capital in the Affected Banks. To this end, the Tier 2 capital injected in the banks in August and October to help bolster their capital positions will remain in place. Furthermore, the CBN will continue to stand by its inter-bank guarantee issued in July this year.”
No return to days of loss
He said the CBN, as a demonstration of its commitment to support the banks in protecting depositors’ funds and meeting obligations to creditors, will introduce additional liquidity as required to ensure that the banking system continues to function normally.
Apart from actively supporting the management of the nine banks to recover outstanding loans as well as improve corporate governance in their operations, the CBN is determined to ensure such lapses are not allowed to recur, the CBN spokesperson said.
He reiterated plans by the bank to put in place stringent conditions and measures that would make it difficult for unqualified chief executives of banks to emerge, pointing out that the intention is to place much emphasis on the technical capabilities of such interested parties, to ensure the “transition (of) the affected banks into the hands of institutions and people that will safeguard the interests of depositors.”
On the proposed Asset Management Company (AMC) being planned in conjunction with the Federal Ministry of Finance, the CBN says its mandate would focus on taking impaired assets off banks’ balance sheets and replace them with government guaranteed bonds, to provide liquidity to the entire Nigerian banking system and bolster the prospects for long-term growth.