My efforts have been futile because this damning report of the committee which was set up by the House of Representatives to investigate the immediate and remote causes of the crash of Nigeria’s capital market has not come out with any rational findings.
Rather it smacks of vendetta, shadow chasing and unguarded use of dirty words to condemn the nation’s capital market operators and its regulators over the actions taken by them between 2009 and 2011 in their efforts to reform the banking industry.
The report as presented by the committee clearly shows that its members were either not familiar with the issues which they were supposed to investigate or too myopic and self centered to see anything good in what the financial regulators did in protecting the interest of the depositors of the weak banks especially the nationalization of Afribank PLC, Spring Bank PLC and Bank PHB. When it became obvious to the regulatory authorities that these three banks were not likely to meet the deadline given to recapitalize on or before September 30, 2011, the Central Bank of Nigeria, (CBN) on august 5, 2011 had to apply an intervention mechanism to rescue three of the failing banks.
Bridge bank option
After serious consideration of the bad standing of the banks, the CBN and the NDIC applied the bridge bank option to protect the interest of depositors rather than shareholders, most of who were responsible for the collapse of their banks. This bridge bank option led to the acquisition of assets and assumption of liabilities of Afribank PLC, Bank PHB and Spring Bank by the bridge banks established by the NDIC: Mainstreet Bank, Keystone Bank and Enterprise Bank, respectively. The action of the regulators instead of being commended was roundly condemned by the committee in its report.
According to the report, “The nationalization of Afribank PLC, Spring Bank PLC and Bank PHB did not conform to statutory provisions related thereto were based on forgery, fraudulent misrepresentations and abuse of office by the Managing Directors of NDIC (Umaru Ibrahim), the CBN Governor, (Sanusi Lamido Sanusi),the Managing Director of AMCON (Mustafa Chike-Obi), Bello Mahmud (Corporate Affairs Commission).”
The committee also stressed that it was of the view that “due process were not followed and that investors interests were not considered in nationalizing these banks. Public officers charged with the responsibility of protecting investors and depositors did not act in good faith…….”
From the above statement, it is so obvious that the committee members have very limited understanding of the operations of the capital market and the reasons why the three banks had to lose their operating licenses. It would be recalled that before the CBN action, the nation’s financial sector was in turmoil with most banks reeling in all kinds of acts of corruption ranging from the manipulation of stock prices and bank balance sheets, insider lending which ran to billions if not trillions of naira and many other sharp practices which threatened the existence of our banks to their foundations.
A combination of all these evils created a loss of confidence in the banking system and this shot up the interbank interest rates which prompted the CBN to come to the rescue of eight of the banks through the provision of financial support in August 2009 while three of them were resolved through the bridge bank mechanism nationalized according to the enabling act which established the NDIC. The only second and easier option for the CBN would have been for it to revoke the licenses of the dying banks and allow the NDIC to liquidate them out rightly but CBN did not adopt this option because of its dire consequences on depositors.
One fact which the committee members must realize is that if the CBN and the NDIC had not come together to rescue some of the recapitalized banks with funds, a lot of them would have been dead today and billion of depositors’ funds would have gone down the drain. The decision of both the CBN and NDIC to rescue and nationalize the three banks was the most cost effective and sensible option for the nation’s financial sector considering their sizes and their very high number of employees.
Protecting depositors’ funds
Apart from protecting depositors funds, the establishment of the three bridge banks by the NDIC have saved thousands of jobs that would have been lost if the option of liquidating the banks was adopted by the NDIC. It has also ensured the continuity of banking operation through a very smooth transition of the troubled banks to the bridged banks.
These apart, the three bridged banks had attractive franchise and if their assets were allowed to deteriorate, it would have been very difficult to get investors to buy them. The bridge banking system adopted by the NDIC also provided a good platform for the three banks to meet their obligations to their depositors without any stress.
Another jaundiced part of this dishonourable report from the House of Representatives committee on the near collapse of the capital market is its damning and absolutely reckless comment on the processes which led to the nationalization of the three banks. The Ad-hoc committee pointed out that the CBN, NDIC and AMCON did not wait till the September 30, 2011 given to the banks to recapitalize.
Appearance of fraud
The Committee said in its report: “Generally, the roles of NDIC, CBN, AMCON, CAC, and the act of omission by SEC in all these are quite condemnable. There is no doubt that these nationalized banks were contrived in misrepresentations of monumental proportion. The nationalization of these banks is built on forgeries, with presentation and appearance of fraud and corruption. It makes a mockery of corporate governance lacking in due diligence, ethics, professionalism, integrity and legal compliance.”
It is pertinent for the Legislators to be educated that it would have been criminal for the CBN, NDIC and AMCON to wait till September 30, 2011 before deciding whether to save the troubled banks or liquidate them.
The truth is that the NDIC/CBN could not afford to wait for the September 30 deadline because there was a continuous deterioration in the financial conditions of the banks. Their shareholders funds were negative and they were living on life support system of the CBN. Most importantly, they were not able to attract new credible investors that would enable them meet the September 30, 2022 deadline set by the CBN.
The regulatory authorities could not fold their arms and watch helplessly while depositors, funds were being dissipated.
The Ad-hoc committee members should also be told that the NDIC and CBN consulted widely before the adoption of the bridge bank mechanism. Consultations were also held with the Minister of Finance, the Attorney-general of the federation and in fact, the President before the action was embarked upon. Insider sources revealed that other stakeholders and regulators involved in consultations include the Securities and Exchange Commission, the Corporate Affairs Commission and the Federal Inland Revenue Service. The Board of NDIC reportedly deliberated on the matter and gave its approval for the corporation to embark on the regulatory intervention of establishment of the bridge banks in compliance with section 39(i) of the NDIC act of 2006.
Thus, it is a misconception and a misrepresentation of facts for the committee to conclude that the process of nationalizing the three banks were fraught with irregularities and fraud. Instead, the House Committee should have commended the NDIC and CBN for acting promptly to safeguard the capital market by ensuring that depositors and investors interest are protected while thousands of jobs that would have been lost, if the three banks had been liquidated, were saved. The attack on the regulatory agencies was therefore absolutely unnecessary and a misfired salvo.
The committee also condemned the establishment of shelf companies namely: Shokun Chukin Limited, Klinki Osaka Custodian Limited and Michi Noku Resolution Limited which later transformed to the three bridge banks that took over the failing banks’ assets and liabilities but industry watchers believe that this was done to ensure utmost secrecy and confidentiality in order to safeguard the assets of the three affected failing banks.
In any case, all banks are incorporated and registered as companies before being granted licences by the CBN and there was nothing different in the present case other than they were not right from inception registered with the banks’ names.
Again, this was done deliberately to maintain the confidentiality and integrity of the intervention process.
The share capitals of the shelf companies were 100,000 each to ensure they would not attract any undue attention. The people who were referred to as “faceless persons” by the committee in its report were nominees of the NDIC and natural persons who were acting in their professional capacities as agents and legal advisers of the corporation. These actions according to industry watchers were taken to ensure discretion and avoid leakages which would further worsen the precarious financial situation of the intervened banks.
If this had been allowed to happen, it would have led to an unquantifiable loss of confidence in the banking sector. With the acquisition of the bridged bank by AMCON, an additional 24,999,900,000 shares were reportedly created to comply with the CBN’s minimum regulatory capital requirement of N25 billion for the deposit money banks (DMBs). AMCON subsequently bought the entire new shares that were issued along with those of the NDIC nominees who merely served as temporary directors of the shelf companies for the purpose of registration. It follows therefore that other directors whose names replaced the nominees of NDIC were AMCON’s appointees to the nationalized banks’ board.
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