By Bashir Ibrahim Hassan
The bailout measures were not arbitrary, but rather preceded by Special Audit of the DMBs to ascertain the extent to which they were affected by the financial crisis that engulfed the world in 2008. The special audit report revealed that banks were afflicted by large volumes of non-performing loans (heavily exposed to Oil & Gas, Margin Lending), capital erosion, poor risk management, illiquidity and poor corporate governance practices, amongst others. It further revealed that ten (10) out of the 24 DMBs needed close supervisory monitoring out of which eight (8) were in precarious financial condition which required serious supervisory intervention.
The audit result showed the market shares of the 8 banks in precarious financial condition in terms of Total Assets, Deposits, Credits and Branch network were 30.08%, 30.72%, 52.70% and 40.32%, respectively. The Supervisory Authorities therefore intervened in eight (8) of the banks with precarious financial condition by sacking their managements and appointing new ones.To complete the resolution of the situation of the 8 most affected banks, the CBN, injected N620 billion into them as loan capital and liquidity support. The apex bank, working with the NDIC, also gave guarantees for all the affected banks’ interbank takings and foreign credit obligations. In the end the eight banks were bailed out and their depositors and shareholder were saved from the deadly depression that such loss causes.
When it became clear that the three (3) banks (AfribankPlc, Spring Bank Pc and Bank PHB Plc) out of the 10 found to be in grave financial condition in 2009 could not recapitalize, merge nor find an acquirer before a deadline, the bridge bank option had to be adopted by NDIC to address their problems as provided for in Section 39(1) of NDIC Act, 2006. The NDIC adopted the bridge bank option because the three affected banks had attractive franchise, and deterioration in their assets would hamper their sale.
Yet another original idea seen for the first time in Nigeria’s banking history was the establishment of Asset Management Corporation of Nigeria (AMCON) in 2010 by an Act for the purpose of efficiently resolving the non-performing loans assets of banks in Nigeria and to recapitalize the technically insolvent ones and enhance the availability of credit to the critical sectors of the economy. Consequently, AMCON acquired the three (3) bridge banks from NDIC and injected the sum of N1.012 trillion (U$6.98 billion) into them as capital injection. AMCON also injected the sum of N1.379 trillion into five (5) of the intervened banks (Intercontinental, Oceanic, Finbank, ETB, Union) with a view to facilitating their merger and/or acquisition.
The innovative approaches of NDIC are lessons the world has been eager to learn. Last year the NDIC Managing Director, Umaru Ibrahim, went to Switzerland to showcase these novel approaches that steered the Nigerian banks away from the precipice of systemic collapse to buoyancy. No doubt many of the participants at the International Association of Deposit Insurance (IADI) forum would have found these Nigeria’s experience at banking failure resolution far enriching and at home. It is therefore difficult to resist the temptation to salute the courage of its leadership for sticking to the path of innovation. It has been 25 years of modernization, improvement and originality. Concluded
Bashir Hassan wrote from Abuja and can be reached on firstname.lastname@example.org