Nigeria c.bank says rescued lenders in dire straits

Mon Jun 13, 2011 1:38pm EDT

Related Topics

* Rescued banks running high operating losses

* Central bank blames "vested interests" for blocking deals

* Warns of dire consequences if banks fail

By Nick Tattersall and Chijioke Ohuocha

LAGOS, June 13 (Reuters) - Nigeria's central bank has warned that eight lenders rescued in a 2009 bailout are in a "grave situation" as their operating losses mount and that vested interests risk derailing plans to recapitalise them.

The central bank injected $4 billion into the lenders, found to be dangerously undercapitalised, in 2009. A state "bad bank" (AMCON) has brought them back to zero shareholders funds while new investors have been sought to recapitalise them.

Central Bank Governor Lamido Sanusi said court injunctions sought by minority shareholders risked blocking deals between four of the bailed-out lenders and new investors.

"The central bank cannot afford to keep the interbank guarantee in place indefinitely, whereas it is solely by this guarantee that the rescued banks have been able to keep going," Sanusi said in a statement issued on the central bank Website.

"The cost to the nation, if the banks continue to operate without capital, is incalculable. The risk to the financial system, if these banks fail, cannot be afforded," he said.

Sanusi said he was committed to protecting depositors and creditors, pointing out that neither had lost savings or loans so far during the bank crisis.

The central bank has given the lenders to the end of September to reach recapitalisation deals with new investors or face liquidation if they refuse to accept funds from AMCON, which would effectively mean nationalisation. [ID:nLDE74U22M]

Shareholders in several of the lenders have gone to court to try to scupper deals which they see as being forced on them on unfavourable terms without consultation. [ID:nLDE75511D]

"VESTED INTERESTS"

Four of the banks -- Afribank AFRIBAN.LG, Finbank (FIRSTIN.LG), Intercontinental Bank INTERCO.LG and Union Bank (UBN.LG) -- have already signed memoranda of understanding (MOU) with new investors.

Two more -- Bank PHB (PLATINU.LG) and Oceanic Bank OCEANIC.LG -- have held talks with potential suitors but have been unable to agree commercial terms.

Sanusi said the small number of shareholders seeking to block the process held stakes worth "just a fraction" of the banks' overall shares and that they appeared to be acting "at the instance of some vested interests".

"The central bank has been advised that four MOUs and the recapitalisation to complete the restoration of the banks ... have been effectively blocked by ex-parte orders of injunction obtained to stop the process," he said.

The central bank could file an application to set aside the injunctions enabling it to continue the process, lawyers said.

Sanusi said the eight rescued banks remained technically insolvent, with negative asset values in the hundreds of billions of naira last December, before AMCON exchanged their non-performing loans for government-backed bonds.

Intercontinental had the highest negative shareholders' funds at 330 billion naira ($2.1 billion), up from 260 billion just after the bailout in September 2009. Afribank's negative asset value widened to 260 billion naira from 107 billion.

"The situation will continue to worsen as long as the hole in the balance sheet of these banks, which was created by mismanagement and outright theft, is not filled with capital," Sanusi said.

For a Factbox, click on: [ID:LDE75C1FS] (For more Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Writing by Nick Tattersall; Editing by Louise Heavens)

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