Bad loans bane of shareholders' fund

There is hope for the shareholders who invested in the distressed banks if the non performing loans of the banks are recovered, a top official of the Central Bank stated over the weekend.

Mohammed Abdullahi, the head of corporate affairs of the Central Bank of Nigeria told NEXT in a telephone interview that the affected shareholders of the distressed banks may regain some of their lost investments if the banks recovered their debts.

"Technically speaking, the shareholders of these banks have lost their investments. You can see that we are making efforts to recover these loans. The more of these loans are recovered, the higher the hope of the shareholders gaining back their lost investments," he said.

Eroded funds

There appeared to be no hope for shareholders, as their banks in which they invested were bailed out after a special audit by the Central Bank, which was concluded in October. Investments by shareholders were eroded on account of the bad loans

Opeyemi Agbaje, an analyst with Resources and Trust Company Limited - a strategy, policy and business advisory group - noted that, with the Central Bank considering nationalising the banks, it meant prior investments by shareholders were vanished.

"Technically, what the CBN is saying is that their management has lost the capital to bad loans and frivolous transactions, which means that the investors have lost their money as well and because the institutions have lost their money and the institutions have no money anymore, the Central Bank has to come in and capitalise those institutions but the Central Bank should not proceed to make that permanent," Mr. Agbaje said.

Sanusi Lamido Sanusi, the Central Bank Governor, said the huge provisioning of the banks' total exposure to capital market and oil and gas, led to significant capital impairment.

"Consequently, all the banks are under-capitalised for their current levels of operations and are required to increase their provisions for loan losses which impacted negatively on their capital. Indeed one is technically insolvent with a Capital Adequacy Ratio of 1.01%," he said.

Bismarck Rewane, a renowned economist and member of the Presidential Steering Committee inaugurated in January to overlook the impact of the global recession in Nigeria, said a study of the market reactions reveal that investors are now responding more to policy statements such as "Investors in the distressed banks have lost their entire net worth" and "bank shares cannot qualify as collateral for loan", which he said, are increasingly pessimistic.

Shareholders holdings not definite

The Central Bank, the industry regulator, however, gave the assurance that, after the audit, shareholders have no need to panic over their status (not equity) in the banks.

In a statement published after the special audit of the banks, the regulator said, "In the light of the measures adopted so far by the CBN, the existing shareholders of these banks still remain intact, because the funds injected into the banks by the CBN are loans. However, the extent of their holdings will be ascertained after due diligence and re-capitalisation of the respective banks."

Nine Nigerian banks are presently seeking investors to bring in fresh funds after their managements were accused by the Central Bank of "excessively high level of non-performing loans, poor corporate governance, lax credit administration, failure to meet prudential ratios such as liquidity and capital adequacy and a high level of loan concentration to the capital market and oil and gas sectors."

The banks include Afribank, FinBank, Intercontinental Bank, Oceanic Bank and Union Bank, Wema bank, Bank PHB, Spring Bank and Equitorial Trust bank.