VZCZCXRO0575
PP RUEHMA RUEHPA
DE RUEHOS #0473/01 3421531
ZNR UUUUU ZZH
P 081531Z DEC 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 1102
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 0657
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000473 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTDA-PAUL MARTIN, EXIM-JRICHTER AND KJACKSON 
DEPT PASS TO USTR-AGAMA 
DEPT PASS TO OGIC 
JOHANNESBURG FOR NAGY 
TREASURY FOR TONY IERONIMO AND ADAM BARCAN 
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV NI
SUBJECT: THE TRUE SCALE OF THE NIGERIAN BANKING CRISIS 
 
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SUMMARY 
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¶1.  (SBU) Former and current employees of Citibank 
participated in a November 13 discussion on the banking 
sector and ongoing reforms.  They see green shoots of 
recovery on the horizon, but banking leaders in Nigeria took 
part in outright stealing.  The end result could be 1.8 
trillion naira (USD 12 billion) to 4 trillion naira (USD 26.7 
billion) in impaired assets.  Banks cannot be allowed to fail 
as too many people would be affected without a social safety 
net.  Entrepreneurs and manufacturers see this time as an 
opportunity for change in how they do business in Nigeria. 
END SUMMARY. 
 
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DISTINGUISHED ALUMNI RETURN TO CITIBANK 
--------------------------------------- 
 
¶2.  (SBU) Former and current employees of Citibank 
participated in a on November 13 roundtable discussion at the 
bank,s Lagos headquarters entitled, &The Great 
Re-Calibration: Navigating the New Economic Landscape - 
Challenges, Realities and Opportunities.8  Panelists 
included Oceanic Bank CFO Oyinkan Adewale, Bank PHB CEO Cyril 
Chukwuma, Dangote Executive Director Uzo Nwankwo, and 
Farafina Books CEO Muhtar Bakare.  The event was sponsored by 
Citibank in honor of its twenty-fifth anniversary in Nigeria. 
 A panel discussed recent activities regarding the banking 
sector. 
 
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GREEN SHOOTS OF RECOVERY 
------------------------ 
 
¶3.  (SBU) Lagos Business School Economics Professor Doyin 
Salami in his financial reform talk referred to the "green 
shoots of recovery after the successful global attempt to 
avert a depression."  The key element in this recovery was 
the role of the financial sector in avoiding widespread 
panic.  The impact to Nigeria was delayed, according to 
Salami, in that the global events of 2007 and 2008 are still 
adversely affecting Nigeria.  There are more crises headed 
towards Nigeria since GON revenue is impaired due to falling 
oil prices and unrest in the Niger Delta remains a long-term 
threat to production.  A full GON financial accounting is not 
possible because GON spending activity is not clear.  The 
challenge is not to frighten Nigeria into a deeper recession. 
 
¶4.  (SBU) The proposed GON 2010 budget is based on the 
assumption of two million barrels of oil being produced per 
day.  This will happen as long as amnesty holds, Salami 
continued.  Local politics will increasingly focus on the 
2010 elections.  .  Where will the economy be in 2010? 
Entrepreneurs and manufacturers are in deep trouble due to 
the lack of electricity. 
 
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NIGERIAN BANKS RUN AMOK BY NON-BANKERS 
-------------------------------------- 
 
¶5.  (SBU) The world outside Citibank is very different from 
the world inside, according to Ms. Adewale.  Western banks in 
Western countries failed even though they were run by 
professional bankers; however, Nigerian banks failed because 
they were run by public relations (PR) people with no clue 
about the banking business.  The regulations in Nigeria 
allowed this to happen even after the first recapitalization 
round, where banks were required to have USD 200 million in 
capital.  The PR people were good at raising money, but 
horrible at managing it.  Managers from small banks took on 
the management of large banks without any training or 
experience.  Risk management was non-existent. 
 
¶6.  (SBU) Nigerian bank consolidation in 2004 created 
"strange bedfellows", Adewale said.  Mergers 
occurred between banks with different philosophies, no 
synergy, and no cost savings incurred.  The driving force for 
the mergers was to obtain a banking license.  The CBN thought 
that by having banks merge, they would become larger and have 
more diversified ownership.  This did not happen.  Share 
 
LAGOS 00000473  002 OF 003 
 
 
ratios upon merging were one-to-one, thereby keeping the same 
people in charge.  Banks hired lawyers to rewrite the 
accounting rules on goodwill.  Post-merger audits were 
abolished. 
 
¶7.  (SBU) The banks were encouraged to embark on a second 
recapitalization round for USD 1 billion in capital, Adewale 
continued.  This amount was required to manage Nigeria's 
foreign exchange reserves.  That Nigerian banks did not know 
how to manage foreign exchange reserves was not seen as an 
impediment.  The CBN did not verify that the money was 
actually raised.  The result of the two recapitalization 
rounds was 25 "mega banks" that were only "mega" on paper. 
 
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OUTRIGHT STEALING 
----------------- 
 
¶8.  (SBU) An unnamed bank had 400 branches but did not know 
what was happening at each location.  International branches 
opened, without planning or understanding of market risk. 
Banks knew neither the risks in Nigeria, nor abroad, stated 
Adewale.  The banks seemed solvent at their core, but their 
subsidiaries had problems.  Excessive lending concentrating 
on strange clients with no "Tier One" clients.  Adewale went 
so far as to state that such bankers  engaged in outright 
stealing. 
 
--------------------------------- 
USD 12 BILLION IN IMPAIRED ASSETS 
--------------------------------- 
 
¶9.  (SBU) Bank PHB CEO Chukwuma said that 1.8 trillion naira 
(USD 12 billion) in toxic assets exists.  Chukwuma calculated 
the total in three parts.  First, one trillion naira (USD 6.7 
billion) was claimed have been raised in the two 
recapitalization rounds when, in reality, only half of that 
amount was raised.  An estimated 500 billion naira (USD 3 
billion) existed only on paper.  Second, Banks made one 
trillion naira (USD 6.7 billion) in margin loans.  The 
Nigerian stock exchange (NSE) declined precipitously between 
March and October of 2009 which led to a 500 billion naira 
(USD 3 billion) loss in margin loans.  Third, the rapid 
expansion of credit during the two recapitalization rounds 
created 800 billion naira (USD 5.3 billion) in non-performing 
loans. 
 
¶10.  (SBU) An unidentified Citibank employee suggested that 
the amount of toxic assets could be even higher.  At the peak 
of the NSE in March 2009, the market capitalization was 13 
trillion naira (USD 8.7 billion).  The NSE is now at 5 
trillion naira (USD 33 billion) after posting an 8 trillion 
naira (USD 53 billion) loss.  Banks made up half of this loss 
or 4 trillion naira (USD 26.7 billion). 
 
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WHY NOT LET BANKS FAIL? 
----------------------- 
 
¶11.  (SBU) Citibank Corporate Financial Group Manager Carl 
Devin asked, "Why not just let the banks fail if they are in 
such a deep hole?"  The panelists answered that the cost to 
liquidate would lead to more problems.  It is easier to keep 
the banks alive.  An average of 7,000 direct and 13,000 
indirect staff work for each of the eight troubled banks, for 
a total of 160,000 workers, panel members reported. 
 
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IMPACT ON ENTREPRENEURS AND MANUFACTURING 
----------------------------------------- 
 
¶12.  (SBU) The banking reforms are an opportunity to 
re-calibrate the economy, according to Farafina Books CEO 
Muthar Bakare.  This is an ideal time to look at the 
commercial culture in Nigeria, how business is done and how 
it relates to banking reforms.  Almost 350 manufacturers have 
closed their shops in 2009 due to the credit freeze, 
according to Dangote Director Nwankwo.  Multiple and 
duplicate regulations and taxes discourage new businesses. 
Taxes must be paid before a business can be set up. 
 
¶13.  (SBU) Instead of giving 1.2 trillion naira (USD 8 
 
LAGOS 00000473  003 OF 003 
 
 
billion) to the banks, Nwankwo thought it better to give it 
directly to the entrepreneurs.  Currently an entrepreneur 
must offer a house to secure a 90-day loan.  Most businesses 
are cash-flow operations due to this lack of credit.  A 
recent trend has seen Nigerians setting up business in Ghana 
and selling back into Nigeria, according to Nwankwo. 
 
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COMMENT 
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¶14.   (U)  The true scale of the Nigerian banking problem is 
emerging as scrutiny of the sector intensifies.  The CBN,s 
initial capital injection of over 600 billion naira (USD 4 
billion) is only the beginning.  Many more resources will 
have to be devoted to have ¬ one bank fail8 as CBN 
governor Sanusi has stated.  Allocation of such resources 
will have a substantial impact on the Nigerian Federal 
budget, but not providing assistance will impact the flow of 
credit which, along with reliable electricity, is crucial to 
developing the Nigerian economy.  END COMMENT 
BLAIR