Nigeria’s central bank Governor Lamido Sanusi fired the chief executive officers of five banks over a mounting debt crisis in the industry and said he would inject 400 billion naira ($2.6 billion) into the companies.
The financial system remains “safe and sound,” Sanusi told the press today in the commercial capital, Lagos, after announcing the dismissals, adding that he had obtained the approval of President Umaru Yar’Adua for the firings.
Eurasia Group, a New York-based research company, said in May that banks in Nigeria, Africa’s second-biggest oil producer, may have as much as $10 billion of toxic assets. The bad debt is partly the result of at least 1 trillion naira of margin loans used to buy shares as equities soared almost 13-fold since 2000, according to Bank of America Corp. Nigeria’s All Share Index tumbled 43 percent in the nine months through June.
“I am satisfied that these five institutions are in a grave situation and their management have acted in a manner detrimental to the interest of their depositors and creditors,” Sanusi said.
The dismissals come two days after U.S. Secretary of State Hillary Clinton visited Nigeria, saying the fifth largest supplier of oil to the U.S. “faces a range of tough challenges.”
Those dismissed are Erastus Akingbola of Intercontinental Bank Plc, Cecilia Ibru of Oceanic Bank Plc, Bart Ebong of Union Bank Plc, Okey Nwosu of FinBank Plc and Sebastian Adigwe of Afribank Plc, Sanusi said.
Four of the five banks were permanently locked in as borrowers from the central bank, Sanusi said. The fifth was a frequent borrower, he added, without giving names.
The banks had pushed up interest rates on the interbank market and were the principle reason why the central bank guaranteed loans between lenders on July 7, Sanusi said.
“Without that guarantee, most of our banks would not have been able to borrow in the interbank market and would probably have collapsed,” he said.
The bad debts in Nigeria’s banking system compare with deposits of 5.06 trillion naira in July, down from 5.16 trillion in May, according to the Web site of the central bank.
Sanusi made the following appointments: John Aboh becomes CEO of Oceanic, Mahmud Alabi will take the helm at Intercontinental, Nebolisah Arah will head Afribank, Suzanne Iroche is the new chief executive officer of Finbank and Funke Osibodu takes over at Union Bank.
“Frankly, I’m not surprised,” said Rose Umoren, head of the Abuja-based research company, Global Money Ltd. “I don’t think it’s limited to just five banks. If the governor wants to have credibility, he needs to look at the assets of every Nigerian bank.”
The 400 billion naira would be injected into the five banks “with immediate effect,” Sanusi said. The money will be repaid from the “proceeds of capitalization in the near future,” he added, without giving details.
The cash injection was enough to stabilize the businesses and enable them to continue their normal business, he said.
The measure will help to ensure “systemic stability,” Bismarck Rewane, chief executive officer of Lagos-based Financial Derivatives Co. Ltd., a fund manager, said in a phone interview.
Last month, First Bank of Nigeria Plc, the West African nation’s largest lender, said annual profit slumped by two- thirds as the global economic crisis reduced the value of its investments.
Banks and insurers worldwide have been forced to raise $1.3 trillion of capital after reporting $1.6 trillion of credit- related losses and asset writedowns since the beginning of the financial crisis.
Sanusi, 47, who became the governor of the Central Bank of Nigeria on June 3, promised during his confirmation hearing at the Nigerian Senate to ensure “closer supervision” of the lenders to prevent their collapse.
The central bank can “suspend, fire and assume direct control” of any bank provided it has evidence, Umoren said.
Sanusi replaced Chukwuma Soludo whose changes helped to reduce the number of banks to 24 last year from 89 in 2004. Soludo had said in May that Nigeria could not afford to bail out its banks.
“If our banks were to falter, as a country we can’t even afford a bailout,” he said. “That’s part of the unfairness of the global system.”