CBN’s June deadline for repayment of N620bn bail out loan spurs merger talks

[bayo4luv]

The June deadline set by the Central Bank of Nigeria (CBN) for the eight banks that benefitted from the N620 billion bail-out fund to repay may have spurred fresh merger talks within the banking industry BusinessDay investigations have revealed.   Besides, it was further learnt that CBN's decision to get back the tier two financial support to the embattled banks is anchored on the establishment of the Asset Management Corporation (AMC). CBN had said recently that the banks are expected to pay back the loan by the end of the second quarter. "The request on the troubled banks by CBN to refund the loan before end of June has elicited merger discussions among some players in the industry. The issue is that there is no way the rescued banks can repay the loans which some collected N100 billion within the period. So what the other banks are envisaging now is to cash in on the spur of the moment and acquire some of these banks. "Another factor likely to hasten the development is the fact that CBN's pronouncement for repayment is based on the likely proceeds from the purchase of the toxic assets by the AMC. The extent the AMC will play these roles of freeing the troubled banks' balance sheets so as to commence lending to the real sector and at the same time pay off CBN is yet to be seen. 

"Besides, some of these banks are still indebted to others to which discussions are going on for conversion to equities," a top official of one of the second tier banks said. Although details are still sketchy as actors are still discreet on ongoing discussions, some banks, particularly, the tier-two group which are positioning for industry leadership are the major actors, with the emerging leaders treading cautiously.  Renaissance Capital, in its October 2009 industry update said: "This report sets out how we expect the structure of the Nigerian banking universe to change following the conclusion of the CBN-NDIC special audit. Rather than follow the big four, we believe tier-two banks such as Access Bank, Fidelity Bank, Diamond Bank, First City Monument Bank, (FCMB), Stanbic IBTC and Skye Bank will take advantage of the current market environment to buy scale and position their businesses for leadership status. 

"Who will be leaders? Post-audit, we expect Guaranty Trust Bank, First Bank, (UBA) and Zenith Bank (the big four) to emerge as clear system leaders with a collective equity share of 54 percent (vs 35 percent pre-audit). With a 35 percent assets share post-audit, we estimate these banks could add 19 percentage points to the asset market shares over the next couple of years, all other things remaining constant." 

The banks, it was learnt, are cashing in on the likely inability of the AMC to meet major immediate financial needs of the troubled banks to commence full scale activities when the corporation comes into being and so would likely opt for acquisition. Another source told Business Day yesterday that exposures of these banks to the troubled ones might be converted to equities to pave way for smooth transition. The thinking is that the current capital imbalance in the industry may hasten mergers and acquisition process, which the second tier banks are set to leverage on like some of the big four that benefitted from the first consolidation. 

But analysts are of the opinion that the AMC might likely be overburdened to the extent that its effectiveness might be affected. For instance, Sanusi Lamido Sanusi, CBN governor, said last year that the banks, including the rescued ones have resolved to bail out the real sector with financial assistance targeted at three major sectors in the next three years - power, transportation and agricultural sectors. He added that CBN would position financial sector operators to transform themselves into world class institutions capable of sustained intervention as enablers, catalysts and drivers of growth through the implementation of a comprehensive framework of principle and risk based policies. 

According to Sanusi, the economy has the consumptive capacity to absolve the over N1 trillion bad debts hanging on the banks, stressing that once their balance sheets are cleaned up, they should be able to perform their expected lending role. "N1 trillion is less than two percent of the nation's Gross Domestic Product (GDP) and that there is nothing to worry about. 

Our total national debt is only 11 percent of GDP. If you put the two together it will still be less than 14 per cent of total GDP compared with 70-60 percent of other countries like South Africa".

CBN's June deadline for repayment of N620bn bail out loan spurs merger talks

latest news, breaking news, business, finance analysis, comments and views from Nigeria :: Businessday

[bayo4luv]