*Obasanjo rejects bank directors's appeal on N25b capitalisation
LAGOS—THE wave of liquidity crisis occasioned by the withdrawal of N74.5 billion public sector funds from the banks’ vaults by the Central Bank of Nigeria (CBN), which began three weeks ago, has forced the banks into recalling loans from debtors. The banks, it was gathered, were recalling their overdraft loans by shortening the terms of payment with a view to meeting their liquidity requirement.
This move, it was gathered, was more prevalent among small and medium sized banks which were mostly affected by the withdrawal of public sector funds. The public sector funds accounted for between 30 to 80 per cent of the deposit base of these banks, hence the precarious condition of their liquidity.
This situation, it was further gathered, was aggravated by the apathy of the big banks to inter-bank dealings with such banks. Prior to the withdrawal, the big banks had recalled matured inter-bank placement with the small and medium sized banks and refused to roll over or grant new placements. In addition to this was the panic withdrawal of funds from the banks by the public in the wake of the N25 billion capital base policy.
According to inter-bank sources, the affected banks are now being avoided by other banks in the market as they are considered high risks. Vanguard reliably gathered that in an attempt to ameliorate their worsening liquidity position, most of the banks have resorted to shortening their overdraft loans or recalling them outright where possible. Bankers said customers on loans from banks who perhaps were paying back N1,000 were being asked to pay N2,000 to defray the loans as quickly as possible to keep the affected banks afloat.
In some of the banks, the interbank placement by the top 10 banks were also being withdrawn as the banks were applying caution in their interbank dealing with the smaller banks whose corporate continued existence is in doubt. According to First Bank officials, placement that would have naturally been rolled over by banks are now being terminated to the chagrin of the affected banks.
A top management official of one of the top three banks said the CBN guideline on raising N25 billion minimum equity base had further compounded the problems of the industry as the apex bank had insisted that the money for the beef up of banks equity base must pass through the banking system.
The problem, he said, was that at the moment no body was sure of what was going to happen as many banks were in total confusion over what to do. He said: “Forget about the noise being made in the open. In fact, nobody is doing any thing serious.” Banks are facing a serious run on deposits as most depositors are asking their bankers if they are sure they can meet the N25 billion capital base. Banks, it was gathered, were beginning to cut down on their budget and penciling down those to sack.
The CBN withdrawal of public sector funds, bankers said, had made the situation tight and if not doused could lead to banks' inability to meet their obligation of daily cash payment to the public. This, they said, might lead to queues in banking halls in the country.
Obasanjo insists on N25b capitalisation
A fresh move by commercial bank directors to persuade the Federal Government to rescind its decision on the ultimatum issued banks to raise a minimum of N25 billion capitalisation before end of 2005 for their operations hit the rocks again yesterday, with President Olusegun Obasanjo vowing: “We are not going back on this.”
The Bank Directors Association led by Alhaji Aliyu Salman (SAN) had met with the president at the State House to persuade him to have a change of mind on the N25 billion capitalisation targets. But the president explained that the decision of government was in the best interest of the nation and aimed at protecting the economy and depositors.
Reiterating his disappointment with Nigeriaalleged failure to be agents of development, he said the reforms in the banking sector would also reduce the incidence of fraud in the banks, admonishing that banks must begin to see themselves as real agents of development.
Governor of Central Bank of Nigeria (CBN), Prof. Charles Soludo, had last month shocked the commercial banks by giving them an ultimatum, directing them to re-capitalise to the tune of N25 billion; advising the banks to take the option of merging.
Since the announcement, banks have been under an uneasy feeling, fearing the possibility of not meeting up with the new challenge, hence the decision by the bank directors to visit the President yesterday, appealing to him to step down the decision.
