VZCZCXRO6955
PP RUEHMA RUEHPA
DE RUEHUJA #1497/01 2301628
ZNR UUUUU ZZH
P 181628Z AUG 09 ZDK
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 6809
INFO RUEHOS/AMCONSUL LAGOS 1814
RUEHJO/AMCONSUL JOHANNESBURG 0079
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001497 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS AID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF 
DEPT PASS TO USTDA-PAUL MARIN, EXIM-JRICHTER AND KJACKSON 
DEPT PASS TO USTR-AGAMA 
JOHANNESBURG FOR NAGY 
USDOE FOR GEORGE PERSON 
TREASURY FOR PETERS AND IERONIMO 
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ENRG PGOV ELAB EPET NI
SUBJECT: NIGERIA:  THE GON TEMPORARILY TAKES OVER FIVE BANKS 
 
ABUJA 00001497  001.6 OF 002 
 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY. 
¶1. (SBU) Summary:  The Central Bank of Nigeria fired the senior 
management of five banks following a financial viability audit that 
indicated the banks faced collapse due to excessive non-performing 
loans and over-exposure to capital markets and the downstream oil 
and gas sector.  The CBN injected 400 billion Naira ($2.5 billion) 
into the banks to ensure their liquidity.  Fourteen other banks are 
undergoing similar audits.  Banking and finance contacts, along with 
politicians and civil society groups like the Nigerian Bar 
Association, largely hailed the CBN action as a blow against 
corruption and opaque bank lending practices.  End Summary. 
¶2. (SBU) On August 14, Central Bank of Nigeria (CBN) Governor Lamido 
Sanusi summoned the managing directors of the Nigeria's private 
banks to discuss the CBN's ongoing bank audits and concerns over the 
health of the Nigerian banking sector.  Afterwards, he met 
individually with and fired the Managing and Executive Directors of 
Afribank, Finbank, Intercontinental Bank, Oceanic International 
Bank, and Union Bank.  (Note:  Sanusi, formerly the MD of First Bank 
and an expert in risk management, was recently appointed by 
President Yar'Adua with the mandate to examine the health of the 
banking sector.  End Note). 
 
¶3. (SBU) At a subsequent press conference, Sanusi stated that of the 
ten banks audited so far, the following were judged to be sound: 
Diamond Bank, First Bank, United Bank of Africa, Guaranty Trust 
Bank, and Sterling Bank.  Fourteen other banks remain under 
examination and their financial health should be known by 
mid-September. 
 
¶4. (SBU) According to the CBN, the audits discovered that the five 
sanctioned banks have non-performing loans (NPL) ranging from 19 to 
48 percent, which was attributed to poor corporate governance, lack 
of good credit risk management, and excessive exposures to the 
capital and the downstream oil and gas markets.  The CBN also found 
these banks to be undercapitalized for their current levels of 
operation.  As of May 31, the banks' liquidity ratio was 17 to 24 
percent, while the minimum regulatory requirement is 25 percent. 
Together, the five banks account for 39.93 percent of loans, 29.99 
percent of deposits, and 31.47 percent of total assets.  These banks 
were also regular beneficiaries of inter-bank market funds and 
liquidity support from the CBN, which the CBN took as evidence of 
illiquidity. 
 
¶5. (SBU) The CBN Governor, invoking his authority under the Banks 
and Other Financial Institutions Act of 1991, appointed the 
following as interim Managing Directors: 
 
--John Aboh, MD/CEO Oceanic International Bank Plc (replacing 
Cecilia Ibru); 
--Mahmud L. Alabi, MD/CEO Intercontinental Bank Plc (replacing 
Erastus Akingbola); 
--Nebolisa Arah, MD/CEO Afribank Plc (replacing Sebastian Adigwe); 
--Suzanne Iroche, MD/CEO Finbank Plc (replacing Okey Nwosu); and 
--Funke Osibodu, MD/CEO Union Bank Plc (replacing Berth Ebong). 
 
¶6. (SBU) The CBN Governor, saying that changing management alone 
would not solve the problems, also injected 400 billion naira ($2.5 
billion) into the five banks to stabilize them.  He emphasized that 
three of the five banks are systemically important to the overall 
economy as they hold significant assets and deposits in the banking 
sector.  He stressed that this is a temporary measure, and that the 
GON does not intend to hold shares in the banks for long and will 
divest its holdings as soon as new investors recapitalize them.  He 
added that the names of bank debtors will be published in the 
newspapers and that he will ask law enforcement to help recover 
funds. 
 
¶7. (SBU) Olusegun Adeniyi, spokesman for President Yar'Adua, assured 
the public on August 16 that the GON will guarantee the safety of 
bank deposits and will continue to demand best corporate practices 
and better credit administration from bank management.  As part of 
this effort, President Yar'Adua over the weekend nominated Kingsley 
Chiedu Moghalu, a former senior United Nations official, to be the 
new CBN Deputy Governor to oversee bank governance issues. 
 
¶8. (SBU) As a confidence building measure, newly appointed MD/CEO of 
Oceanic International Bank Plc John Aboh on August 16 assured a 
press conference that his bank's depositors are safe and that the 
CBN had pumped 100 billion naira ($632 million)into his bank's 
coffers.  On August 17, the Nigerian Stock Exchange announced that 
 
ABUJA 00001497  002.4 OF 002 
 
 
the shares of the five banks had been suspended for two weeks to 
protect investors from capital erosion. 
 
¶9. (SBU) Cecelia Ibru, the former Managing Director of Oceanic 
International Bank, complained to the media that the CBN had neither 
shared the results of its audits nor consulted with her before 
taking its decision.  The International Monetary Fund (IMF) Country 
Director told us that though they appreciate the CBN's intentions, 
they were concerned by dissolution of bank management via the media 
since it could have triggered widespread panic in the banking and 
financial sector.  The IMF had presented to the CBN in late July the 
results of its stress tests on Nigerian banks, which showed that 
some banks could experience liquidity challenges but the overall 
banking system was resilient. 
 
¶10. (SBU) Comment:  Reaction to the CBN action has been generally 
positive.  Business contacts noted that the new management teams at 
the five banks are well and favorably known as bankers, while 
politicians and civil society groups like the Nigerian Bar 
Association hailed the action as a blow against corruption since 
many of the non-performing loans are assumed to reflect unsound or 
even fraudulent activity. 
 
¶11. (U) This cable was coordinated with Consulate Lagos. 
 
MCCULLOUGH