VZCZCXRO7984
PP RUEHMA RUEHPA
DE RUEHUJA #1262/01 1690849
ZNR UUUUU ZZH
P 180849Z JUN 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 9902
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7156
RUEHWR/AMEMBASSY WARSAW 0372
RUEHCD/AMCONSUL CIUDAD JUAREZ 0373
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001262 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR AF/W (SILSKI) AND AF/EPS (POTASH) 
DEPARTMENT PASS TO USTR 
TREASURY FOR LUKAS KOHLER/DAN PETERS 
USDOC FOR 3317/ITA/OA/KBURRESS 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
 
REF: 06 LAGOS 432 
 LAGOS 32 
 
E.O. 12598: N/A 
TAGS: EFIN ECON PGOV NI
SUBJECT: NIGERIA: EX-IM BANK ABUJA VISIT 
 
 
ABUJA 00001262  001.2 OF 002 
 
 
¶1.  Summary.  ExIm Bank officials visited Abuja June 11, 2007 to 
assess the banking sector and country risk.  They visited the 
Ministry of Finance (MOF), Central Bank of Nigeria (CBN), Economic 
and Financial Crimes Commission (EFCC), and the Debt Management 
Office (DMO). They had further meetings in Lagos.    Nigeria's 
banking sector continued to witness tremendous changes after the 
regulator-induced consolidation exercise that ended on December 31, 
2005, according to CBN staff.  The number of banks fell from 89 to 
25, and a new wave of market-induced consolidation was taking place. 
 The new banking environment posed challenges to operators and the 
regulators.  The CBN introduced Risk Based Supervision (RBS) in 
place of prudential guidelines supervision that was used before the 
recapitalization/consolidation exercise.  CBN was impressed with the 
performance of the banks. The Economic and Financial Crimes 
Commission (EFCC) claimed those that had been proven to have 
committed crimes in the past would no longer be able to hold senior 
board positions because of a new mandatory vetting process.  End 
summary. 
 
¶2. United States Export Import Bank's (ExIm) Thomas Matthias and 
Cheryl Moriarty were in Abuja on June 11 to meet with working level 
staff at the Ministry of Finance (MOF), Central Bank of Nigeria 
(CBN), Economic and Financial Crimes Commission (EFCC) and the Debt 
Management Office (DMO).. Mr Matthias, a credit officer, focused on 
the banking sector because ExIm had increased the number of banks 
from 14 to 17 and its loan facility from $300 million to over $400 
million in Nigeria.  Cheryl Moriarity, an economist, was here to get 
an overview of the financial, economic, political and business 
environment to develop the country risk assessment for Nigeria. 
(Note: ExIm acts as the Secretariat of the Inter-Agency Country Risk 
Assessment (ICRAS). End Note). 
. 
Ministry of Finance 
------------------- 
. 
¶3.  Mr. C.D. Gali, Director of Expenditure at the Ministry of 
Finance explained the government budget process, the sources of 
government revenues, and how they were shared with the federal, 
state and local governments. Thirteen percent is taken off the top 
for the oil producing states in the Delta region. The National 
Planning Commission had completed a draft of the next Nigerian 
Economic Empowerment and Development Strategy (NEEDS-2) that would 
set the  medium-term strategy for 2008-2011. NEEDS-2 sets out to 
achieve employment generation, poverty reduction, wealth creation, 
and value orientation. When completed, NEEDS-2 main aim is to 
diversify the economy away from the dependence on oil by developing 
such sectors as manufacturing and agriculture that will create 2.5 
million jobs per year and new business opportunities. 
. 
Meeting with CBN 
----------------- 
. 
¶4.  Mr. O.I Imala, Director, CBN Banking Supervision Department and 
his staff confirmed that the industry ratio of delinquent loans to 
total risk assets had declined from about 30% to 8.76% as at 
end-December 2006.  The supervisors confirmed that the percentage of 
delinquent loans was high immediately after the consolidation 
exercise because of the aggregation of the loan portfolios as 
stronger banks absorbed weaker ones.  Since then the picture was 
increasingly positive.  The ratio of delinquent loans had 
consistently fallen due to several factors. The CBN introduced a new 
code of corporate governance and RBS. The new banks embarked on a 
vigorous drive to recover the loans inherited from consolidation. 
The broader ownership of the 25 consolidated banks had reduced the 
incidence of insider lending. More experienced staff now handled the 
credit process. Credit committees of banks were now allowed to work 
without undue interference. Banks had introduced a more rigorous 
credit approval and write-off process. 
 
¶5.  The CBN supervisors said implementation of the RBS had improved 
its bank supervision.  The RBS approach ensured that supervisors 
focused on the risks and on the institutions that might threaten 
supervisory objectives and devised appropriate risk mitigation 
programs to address them.  This marked a departure from the 
prudential approach which was the norm before the consolidation 
exercise.  The CBN supervisors claimed that with the RBS they were 
in a much better position to detect fraud and corporate governance 
problems early, avoiding systemic crises. As an example, they 
 
ABUJA 00001262  002.2 OF 002 
 
 
offered the recent firing of the board of Spring Bank on June 6. 
The supervisors said they had discovered problems and discussed them 
with the Spring Bank board. CBN set time lines for certain actions 
to be taken.  When the board of Spring Bank did not meet the 
timelines, the CBN sacked the bank board. 
 
¶6.  The supervisors were not concerned by the sudden increase in the 
loans granted by banks in the post-consolidation period, especially 
syndicated loans to companies in the telecom and oil and gas sector. 
They argued that since such loans are granted in growth sectors to 
companies with experienced management there was no cause for 
concern. 
 
¶7.  There was now more collaboration between the CBN and the 
Nigerian Deposit Insurance Corporation (NDIC).  Examination of banks 
was now done by teams that comprised both the CBN and NDIC.  On-site 
examination of banks was done about four times a year by the joint 
examination team, unlike in the past when each agency would conduct 
on-site examination of the banks only twice yearly. 
 
¶8.  To improve credit risk management practices in the banks, CBN 
was funding the training of credit officers at the Financial 
Institutions Training Center in Lagos.  International experts on 
risk management trained the first batch of trainees on risk 
management best practices during the first quarter of 2007, while 
another batch would be trained in June 2007. 
. 
Meeting with EFCC 
----------------- 
. 
¶9. ExIm officials met with Mr. Emmanuel Akomaye, Secretary of the 
board of the EFCC, Mr. Dapo Dolorunyomi, Chief of Staff, EFCC, and 
Mr. Modibbo Hamman Tukur, Head, International Relations and 
Strategic Partnership of the Nigeria Financial Intelligence Unit 
(NFIU) in the EFCC.  The bank recapitalization/consolidation 
exercise occurred simultaneously with the GON's effort to ensure 
that Nigeria was delisted from the Financial Action Task Force's 
(FATF) list of Non-Cooperating Countries and Territories (NCCT). 
According to the EFCC officials a joint CBN/NFIU team was 
established to investigate the sources of capital raised by the 
banks during the recapitalization exercise and to ensure that the 
banks complied strictly with the Money Laundering Act.  A new 
mechanism was established for appointing directors of banks.  The 
directors now had to be cleared by the security agencies, including 
the EFCC.  They noted the case that led to the arrest and 
prosecution of Mr. Emmanuel Nwude, a director of one of the top 
Nigerian banks, when it was discovered that he was involved in money 
laundering and had defrauded a Brazilian bank of millions of 
dollars. 
 
¶10.  The NFIU and CBN were currently working on improving the 
anti-money laundering and coombating the financing of terrorism 
(AML/CFT) processes of the banks, with emphasis on the "Know Your 
Customer" (KYC) requirement and going a step further to "Know Your 
Customer and his Business" (KYCB).  Some banks were already linked 
on-line to the NFIU for the purpose of AML/CFT reporting and 
mechanisms had been put in place to ensure that all banks would be 
linked to the NFIU in the future 
. 
Comment 
------- 
. 
¶16.  Recapitalization has brought with it new and diverse challenges 
for the management of banks.  Competition and shareholders demands 
are pushing the management of banks to seek increased revenues 
through greater lending.  Despite the confidence of bank supervisors 
credit quality remains a problematic issue. Nigeria is awash in 
petrodollars, but if and when those dry up trouble could follow. 
Further, domestic banks have made huge loans for privatized entities 
to a small number of private sector players, who do not in fact have 
strong management track records in these new sectors. For example, a 
consortium of domestic banks lent $500 million to Transcorp for its 
purchase of the state telecom provider NITEL. Since the sale, NITEL 
has gone through more than a dozen chief executives, the most recent 
of who just resigned after a mere four days. The CBN and other 
regulatory agencies must continue to build capacity both internally 
and in the banking sector.  End comment. 
CAMPBELL