VZCZCXYZ0001
RR RUEHWEB

DE RUEHOS #0092/01 0610841
ZNR UUUUU ZZH
R 020841Z MAR 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0538
INFO RUEHUJA/AMEMBASSY ABUJA 0157
RUEHOR/AMEMBASSY GABORONE 0056
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS LAGOS 000092 
 
SENSITIVE 
SIPDIS 
 
FOR GABORONE PASS PDROUIN 
COMMERCE FOR KBURRESS 
TREASURY FOR DPETERS, RHALL, RABDULRAZAK 
STATE PASS USTR FOR LISER, AGAMA 
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS 
STATE PASS TDA FOR EEBONG, DSHUSTER 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR NFREEMAN, GBERTOLIN 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
USDOC FOR USPTO - PAUL SALMON 
USDOJ FOR MARIE-FLORE KOUAME 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ETRD PGOV NI
SUBJECT: NIGERIA: FINANCIAL SECTOR SLOWDOWN POSES A SECURITY RISK 
 
Ref: A) 08 Lagos 266 
B) 08 Lagos 97 
C) Abuja 263 
 
¶1. (SBU) Summary: During discussions on February 4, Professor Doyin 
Salami, Dean of the Lagos Business School told Econoffs he sees the 
downturn in the Nigerian stock market as a national security risk, 
especially as the government is preoccupied with dwindling revenues 
resulting from low oil prices.  Although the Central Bank of Nigeria 
remains defensive about the existence or amount of toxic assets 
banks currently carry on their books, Professor Salami openly 
doubted the health of Zenith, Oceanic, Intercontinental banks as 
well and the United Bank for Africa (UBA), although he had no (or 
was unwilling or unable to share)  official data to support this 
unease. Finance Minister told Ambassador on February 5 that he saw 
lots of 'red flags' in the banking sector, which he is discussing 
with the CBN and watching carefully.  Playing "spot the bad bank" is 
the latest Lagos parlor game.  It could be Nigeria's emerging middle 
class that loses that game.  End Summary. 
 
True State of Financial Sector Unknown 
-------------------------------------- 
 
¶2. (SBU) The true state of Nigeria's financial sector, particularly 
the banks and the stock market is shrouded in mystery.  Professor 
Doyin Salami, Dean of the Lagos Business School told Econoffs on 
February 4 that the Central Bank of Nigeria (CBN) continues to claim 
that Nigerian banks are healthy because it has inaccurate data.  He 
said CBN examiners posted to various banks are "compromised" and 
though they likely see problems in the banks, they do not report the 
true state of the banks to the CBN.  He said the CBN claims there 
are no problems with banks' margin loans is worrisome and many 
experts believe these assets are now non-performing (Ref A). Finance 
Minister, Mansur Muhktar told Ambassador on February 5 that there 
were a number of 'red flags' on the banking sector that he was 
concerned about. He has developed a special working group within the 
ministry to follow, including putting pressure on the CBN on 
oversight (REF C). 
 
¶3. (SBU) In separate discussions that same day, Bismarck Rewane, CEO 
of Financial Derivatives Company, said the regulatory response to 
the financial crisis is hampered by the lack of information about 
the size and nature of non-performing assets the banks currently 
carry on their books.  For this reason, the Technical Working Group 
of the National Economic Management Team (NEMT) planned to convene 
hearings on February 6 to gather information from those elements of 
the public to which the group would not ordinarily have access. 
(Note: Salami is a member of the NEMT, while Rewane is on the 
Presidential Steering Committee on the Global Economic Crisis.  NEMT 
is providing expert advice to the Steering Committee which then 
advises the President.  End note.) Despite the formation of the new 
committees, Dr. Ayo Teriba, CEO Economic Associates, said the 
Nigerian government is more preoccupied with bailing itself out of 
the financial crisis brought about by falling oil prices, than on 
the impact of the global crisis on Nigeria. 
 
Health of Some 'Big' Banks Uncertain 
------------------------------------ 
 
¶4. (SBU) When asked which Nigerian banks he believed to be "too big 
to fail", Salami said First Bank and Union Bank, two of Nigeria's 
oldest banks, fell into that category, but he saw them as safer and 
more stable the other banks.  He said he fears for the health of 
other big banks like United Bank for Africa (UBA), Zenith Bank, and 
Intercontinental Bank.  Not based on any empirical data, Salami said 
his fears are borne out of informal information gathered from 
sources within the sector. 
 
Stock Market Decline Is a Security Risk 
--------------------------------------- 
 
¶5. (SBU) Rewane told Econoffs that he saw shrinking income and a 
lack of confidence resulting from the stock market downturn as a 
"risk to Nigeria's national security."  He opined that Nigeria's 
small, but growing middle class, which had been using Nigeria's once 
booming equities market as a store of value for a rainy day, is 
faced with a double blow of falling stock prices and contractions in 
various sectors of the economy due to lower oil prices.  With few 
options to fall back on, Rewane saw this economic pressure on 
Nigeria's emerging middle class as a security risk.  (Note: In 
January 2009 alone, the Nigerian Stock Exchange lost nearly one 
third of its market capitalization to close at naira 4.9 trillion 
(USD32.7 billion). End note.)  According to Rewane, income 
inequality will rise in 2009 as the top 20 percent of Nigeria's 
population will get 50 percent of the country's income in the year. 
 
¶6. (U) Salami said lack of confidence in stock market regulators and 
their competence is of more concern than the equities price 
declines.  He opined that the inherent weakness in the banking 
sector was merely transferred to the stock market when margin loans 
were pulled and a harmonised banking year-end policy was proposed 
(Ref B). 
 
¶7. (SBU) Comment:  Trying to guess which Nigerian bank is in the 
worst financial position has become something of a sport among Lagos 
business executives, financial analysts and other industry watchers. 
 Opinions vary widely as to which bank is in the most trouble; 
Salami's views seem no more, or less, valid than others we have 
heard.  If a big name bank goes under, it could be Nigeria's middle 
class that takes the hit; the elite presumably have financial 
reserves offshore, while Nigeria's teeming poor are largely outside 
of the financial system.  End Comment. 
 
¶8. (U) This cable has been cleared by Embassy Abuja. 
 
Blair