VZCZCXYZ0000
RR RUEHWEB

DE RUEHOS #0774/01 3391306
ZNR UUUUU ZZH
R 051306Z DEC 07
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9643
INFO RUEHUJA/AMEMBASSY ABUJA 9389
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHDC

UNCLAS LAGOS 000774 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR AF/W 
ENERGY FOR CGAY, GPERSON 
TREASURY FOR ASEVERENS, SRENENDER, DFIELDS, DPETERS 
DEPARTMENT PASS TO USTR (AGAMA) 
STATE PASS TRANSPORATION FOR MARAD 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR EEBONG AND PDAVIS 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
USDOC FOR 3317/ITA/OA/KBURRESS 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
USDOC FOR USPTO - PAUL SALMON 
USDOJ FOR MARIE-FLORE KOUAME 
 
E.O. 12958: N/A 
TAGS: EFIN ECON NI
SUBJECT:  Nigeria: First Bank Chief Fears Banks Over Capitalized 
 
REF: A) ABUJA 2240; B) LAGOS 654 
 
SENSITIVE BUT UNCLASSIFIED; BUSINESS PROPRIETARY INFORMATION; HANDLE 
ACCORDINGLY 
 
¶1. (SBU) Summary: Central Bank insistence that only banks with USD 1 
billion in capital will manage Nigeria's foreign reserves may have 
resulted in some banks being over-capitalized for their current 
operations and lead to bad loans.  The Managing Director (MD) of 
First Bank, Nigeria's oldest bank, called on the Central Bank of 
Nigeria (CBN) to adopt a risk-based monitoring system to avoid the 
prospect of a wave of bad loans that could result from banks 
managing huge new amounts of capital.  First Bank will merge with 
Ecobank Transnational Incorporated to extend its reach deeper in 
Africa. End Summary. 
 
CBN Requirement Leads to Over-Capitalization 
-------------------------------------------- 
 
¶2. (SBU) Jacobs Ajekigbe, Managing Director (MD) of First Bank 
Nigeria (FBN), told Econoffs that the Central Bank of Nigeria (CBN), 
by requiring banks to further increase their capital to USD 1 
billion as a prerequisite for managing Nigeria's foreign reserves, 
may have led some banks to over-capitalize.  The USD 1 billion 
requirement for managing foreign exchange reserves is a substantial 
increase over the mandatory recapitalization to 25 million naira 
(USD 192 million) required in 2005.  The over-capitalized banks, 
anxious to put their capital to work, may be prone to bad loans, he 
said.  To avoid this problem the CBN should shift gears from its 
reactionary rule/compliance-based supervision to more proactive 
risk-based monitoring. 
 
¶3. (SBU) The MD praised the CBN's recent introduction of a new 
corporate governance code for banks.  The code will help banks to 
establish strategic objectives, clear lines of responsibility and 
accountability.  The new corporate values deriving from the code 
will be essential if banks are to properly manage the huge amounts 
of capital currently at their disposal, he said. 
 
¶4. (SBU) Ajekigbe said First Bank's planned merger with Ecobank 
Transnational Incorporated (ETI) is still on.  He said the deal has 
been slowed by regulatory requirements arising from ETI's operations 
in over 13 African countries.  The banks have engaged the advisory 
services of Goldman Sachs and Merrill Lynch to move the merger plans 
forward more quickly, he said. 
 
PO Brings First Bank's Capital to USD 5 Billion 
--------------------------------------------- --- 
 
¶5. (SBU) In May, First Bank's public offering increased the bank's 
capital to 320 billion naira (USD 2 billion).  The public offering, 
originally planned to raise 100 billion naira, was hugely over 
subscribed, he said, raising 250 billion naira (USD 1.9 billion). 
First Bank assets now total more than USD 5 billion.  Following the 
merger with Ecobank, Ajekigbe anticipates the two banks will have 
more than USD 7 billion in capital. 
 
¶6. (SBU) Recently, First Bank declared 15 billion naira (USD 115 
million) as profit for the first half of 2007. Hafiz Bakare, FBN's 
Head of Corporate Planning and Group Coordination, said this result 
is attributable to the bank's management changes in retail and 
corporate banking, to optimal use of electronic banking, to returns 
from projects funded by the bank and to yields from investments in 
the bond and money markets (Note: The bank officers did not mention 
what percentage of profit was attributable to each source.  Nigerian 
banks rely less upon loans than upon investments as a source of 
profits.  End Note). 
 
FBN to Invest in Infrastructure 
------------------------------- 
 
¶7. (SBU) Ajekigbe said FBN plans to work closely with state 
 
governments to finance major infrastructure and energy projects. 
The bank was part of the group that funded construction of a new 
domestic airport terminal in Lagos and major rehabilitation on 
Lagos' Lekki-Epe expressway.  The bank will also participate in 
financing the proposed Lagos fourth mainland bridge and the coastal 
road to Port Harcourt.  The bank is currently engaged in talks 
regarding the rehabilitation though a public-private partnership 
(PPP) initiative of the Lagos-Ibadan expressway. According to 
Ajekigbe, the bank intends to play a leading role in PPP initiatives 
in housing and mortgage finance, as well.  Private sector 
involvement had made infrastructure finance attractive to the bank, 
which has declined to finance wholly government-driven projects. 
 
Economic Reforms Have Benefited Banks 
------------------------------------- 
 
¶8. (SBU) The MD said he believes Nigeria's current economic growth 
has been enabled by the "smooth" handover of presidential power in 
May.  Continuing reforms in telecommunications, power and aviation 
have created opportunities for local banks.  Local banks, once only 
agents for the International Finance Corporation (IFC) and foreign 
banks, are now able to fund big ticket transactions on their own, he 
said. 
 
¶9. (U) This cable has been coordinated with Embassy Abuja. 
 
Blair