The Troubled Bank Debtors’ List

LEADERSHIP – The list of bad debtors of the five troubled banks looks more like a Who-is-Who in Nigeria. The names of just about all the high and mighty in commerce and industry could be found there. The governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi,

deserves commendation for opening the can of worms that his predecessor had allowed to fester with the potential of taking down the nation’s money market. The unparalleled embarrassment that the bank debtors’ list constitutes is a clear manifestation of phenomenal regulatory failure in the capital and money markets respectively. It is now clear that banks were lending money to speculators to trade on their own shares and push up the share prices to levels that could not be justified by their fundamentals.

One such obvious manipulation is at the root of the dispute between the management of Dansa Oil and Gas Limited and Intercontinental Bank. Ordinarily an oil company has no business speculating in the capital market. But the banks in their unfettered greed had turned the Nigerian Stock Exchange (NSE) to something of a casino for high stake gambling. Intercontinental advanced a facility amounting to billions of naira to the oil company, apparently to trade on its (Intercontinental) shares.

The debtor’s side of the story is that Intercontinental was asked to sell the shares once the price drops below 120 per cent of the value of the facility. From all indications the bank probably ignored the initial warning of a meltdown in the market with the hope that things would soon look up.

The market however continued the downward journey and depleted about 70 per cent of the value of the facility. When the CBN came calling, the bank hurriedly sold the shares, allegedly without the knowledge of the debtor. The rest is now history. Dansa is heavily indebted to Intercontinental and if Farida Waziri of the Economic and Financial Crimes Commission (EFCC) is to be taken by her words, the directors of the company have one week to pay up or face prosecution.

Dansa’s story is a tip of the iceberg in a banking system with a twisted sense of priority. The five troubled banks doled out N500 billion to speculators in the name of margin facility while people with bankable ventures that could create jobs in the economy were deliberately starved of funds. At least 80 per cent of those loans are now doubtful.

Besides, the five banks tragically funded the nation’s shameful dependence on imported fuel to the tune of N500 billion, even as Nigeria remains the world’s sixth largest exporter of crude oil.

Towards the end of 2008, the price of crude oil came crashing and took along with it the value of imported refined petroleum products, while the exchange rate of the naira plummeted with tumbling crude oil proceeds.

That resulted in a sharp differential in the dollar-denominated-loans the fuel marketers raised. Those who raised the loans at the exchange rate of N116 to the dollar were asked to pay back at N140 to the dollar. The depreciation of the naira along with the sudden plunge in the price of imported fuel resulted in massive losses to the marketers. Most of the fuel import loans are now non-performing.

The turmoil in the money and capital markets emanates from unpardonable regulatory fiasco.

The immediate past management of the apex bank knew that banks were cooking up their books by concealing their non-performing facilities, but could not compel them to paint a clear picture of their balance sheets.

Last year, an aggrieved former staff of one of the five distressed banks presented to the CBN documented evidence of how the bank used him to defraud its customer. The CBN callously dumped its avowed policy of encouraging whistle blowing in the industry and ordered the complainant to reconcile with the managing director of the dubious bank.

The Securities and Exchange Commission (SEC) knew that the NSE was neck-deep in scandalous insider trading, but folded its arms and watched the blatant breach of its regulation until the lawlessness consumed the market and depleted banks’ facilities used for the illegal deals.

At a certain point the SEC was worried enough to raise an alarm about insider trading in the NSE, but quickly curled up when the market it was supposed to regulate barked in protest against the accusation from the regulator.

I am surprised that the SEC has eventually queried the director-general of the NSE, Ndi Okereke-Onyiuke, for allowing her name to appear in the list of banks’ debtors. Where was SEC when the director-general signed up as chairman of a company quoted in her market?

One school of thought believes that the banks were intimidated into granting N36 billion to Transcorp for the purchase of NITEL, apparently because the chairman of the company was the director-general of the NSE.

Any bank that was planning to raise more funds from the market to strengthen its capital base at a time when the CBN set $1 billion as the minimum capital for banks willing to participate in the management of the nation’s robust foreign reserves, would have had no option than to rescue the tottering Transcorp, having in mind what happened to Hallmark Bank’s attempt to raise capital from the market after a dispute with the NSE over the sale of Daily Times shares in the Stock Exchange building.

It was obvious that a company that just managed to slap together two year-audited report was the least qualified to manage a high-tech company like Nitel. The banks probably held this view too, but they were too timid to canvass it before the director- general of the exchange they would soon enter to raise capital.

Now N36 billion is hanging precariously on the balance. Ndi Okereke- Onyiuke as director-general of the NSE and chairman of the company is, by Nigerian standard, untouchable.

The federal government on its part has revoked the sale of NITEL to Transcorp. Feelers from the company are that the CBN has no business parading the director-general of the NSE as a debtor because the debt could only be repaid when the federal government refunds the money it collected for the sale of NITEL to Transcorp.

The CBN, EFCC and the banks themselves must be gearing up for a long-drawn battle for the N36 billion the apex bank prefers to put on the neck of the director-general of the NSE.

Besides the regulatory failure that allowed the banking system to sail perilously close to systemic failure, the culture of impunity in the land is a major contributor to the festering financial conundrum. Some of the loans were used to grease the palms of those who rigged elections for the ruling party.

Many of the banks’ debtors actually raised the loans with the conviction that no one would have the effrontery to ask them to pay back.

That apparently would have been the situation if Sanusi was not called in to clear the stable. Some of those behind the non-performing loans are chronic debtors who move from one bank to the other.

When the creditors threaten to sell the collateral used for a non-performing loan, the debtor rushes to court and procures a cash-and-carry injunction baring the creditor from moving against the property.

The banks which have over the years complained about the lack of a credit bureau where they could verify the credit worthiness of their clients, have done little or nothing about trading information among themselves especially on the so-called high net worth clients. The craze to sign up new big customers often crowd out the critical need to peruse a potential creditor’s pedigree.

As the CBN commences what promises to be the mother-of-all-debt recovery in the land, there is need to seek the unalloyed corporation of the judiciary. The idea of setting up a special court for the speedy trial of banks’ debtors would obviously run into insurmountable constitutional hurdles.

Under that circumstance, a unit of the federal high court could be set aside to handle the matter speedily.

Finally, my humble opinion is that given the fact that 40 per cent of the current rumblings in the nation’s money and capital markets could be traced to regulatory ineptitude or outright collaboration with criminals, no one should be allowed to run more than one term as governor of the CBN or director-general of SEC.

With Nigeria still contesting for the top 10 position in Transparency International’s corruption list, there is the tendency for the heads of the two key regulatory agencies to put in their best at the beginning only to be compromised towards the end.

I look up to the time when someone would call Charles Chukwuma Soludo to tell Nigerians what he knew about the current turmoil in a system he superintended in the last five years.