Published: August 17, 2009
Nigeria’s central bank has sacked the heads of five of the country’s banks after an investigation revealed that poor corporate governance practices and risk management had led one into insolvency and the other four to the brink.
On Friday 14 August, Lamido Sanusi, governor of the Central Bank of Nigeria (CBN), confirmed that the executive directors of Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank had been fired following an audit investigation. The CBN also injected N400bn (US$2.5bn) into the banks to stabilise their balance sheets.
The investigation was prompted by the banks continuing to rely on financial support from the CBN via its expanded discount window credit facilities. By June 4, most of the N256.6bn outstanding was owed by the five banks. “The persistence and frequency of their demand pointed to a deeper problem, and the CBN identified them as a probable source of financial instability, most likely suffering from deeper problems due to non-performing loans,” Sanusi told reporters on Friday. In turn, this was de-stabilising the inter-bank market.
The investigation found that the five banks had an “excessively high level of non-performing loans,” Sanusi added, with the percentage of non-performing loans to total loans ranging from 19% to 48% due to poor credit administration and non-adherence to their own risk-management practices. With the banks needing to make additional provisions of N539bn to cover this, all were undercapitalised. One was technically insolvent.
The CBN has appointed a new managing director/CEO to each of the five banks: John Aboh at Oceanic, Mahmud Alabi at Intercontinental, Nebolisa Arah at Afribank, Suzanne Iroche at Finbank and Funke Osibodu at Union. The CBN will also appoint executive directors and chief financial officers.
Sanusi said that the CBN “will not allow any bank to fail,” but sees its injection of new capital as a temporary measure. It plans to divest its holdings in the banks as soon as new investors are found.
The central bank has now audited ten of the country’s banks, including the five rescued. Another 14 have yet to be investigated.
Michael Hugman, an emerging-markets strategist at Standard Bank in London, said the events are likely to see only a short-term negative impact on the Nigerian currency or equity markets. In the longer-term, he added that the move is “definitely positive,” and that once the remaining banks have been audited, “the process of developing a banking sector geared towards financial intermediation can again be the focus of the CBN.”