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Wednesday, July 22, 2009

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Banks groan under N1.25tr loans to 'big five' Website Search

Metro z CBN may opt for full disclosure soon
Africa By Ade Ogidan (Business Editor) and Taiwo Hassan
AN air of discomfort enveloped Nigeria's banking industry
OPINION following disclosures that about five companies and their
Editorial directors have literarily compromised funds of shareholders and
Columnists customers of the financial institutions.
Cartoons Already, the Central Bank of Nigeria (CBN) has opted for a full
Discussions disclosure strategy to stem the tide of anxiety faced by the
Outlook lending banks.
As at yesterday, over N1.25 trillion was being owed the banks
Abroad by the high profile individuals and their companies, with a
Golf Weekly significant percentage of the debt stock in foreign currencies.

But the debtors have seemingly kept the banks on tenterhooks,
forcing them to categorise the liabilities as bad debts that are
Policy & Politics
being written off to cleanse the financial institutions' books.
Media Indeed, two of the companies and their directors have a debt
Science overhang of $3.75 billion (N550 billion), with a further N280
Natural Health
billion representing the local currency component of their
collective liabilities.
Friday Review Another well-known group of companies, with an equally visible
Executive Briefs entrepreneur as its majority stakeholder, is allegedly owing
$400 million (N58 billion).
Food & Drink
Auto Wheels
Friday Worship Although some of the alleged debtors have denied that they
Saturday Magazine owe the banks, hopes of the affected institutions to recover the
Sunday Magazine loans are fading.
Ibru Ecumenical
Agro Care A survey by The Guardian indicated that objectives for which
the loans were collected remained largely unachieved, with
BUSINESS some of the banks strategising on how to present acceptable
financials to their respective shareholders.
Money Watch Some of the financial institutions, reeling under the pangs of
Market Report the high bad debt stocks, have even been postponing dates of
Capital Market shareholders' meetings, while about two have decided to hold
Business Travels the mandatory forum in locations far away from Lagos, to
Maritime Watch prevent attendance by critical stakeholders.
Industry Watch
Energy Report
Insurance Already, three banks have written off over N76 billion in loans,
Compulife thereby assailing profitability and dividend payouts.
The CBN is flooded with petitions from some of the banks, over
difficulties in debt recovery, especially from the major five

Some analysts, who spoke to The Guardian yesterday,

expressed optimism that the banks could eventually recover
some of the debts, going by the CBN's current disposition,
which favours full disclosure of transactions.

A former Managing Director of one of the defunct banks said in

Lagos yesterday that chieftains of the financial institutions
should discard alleged blackmails from the debtors and expose
them in the interest of their respective shareholders and

"The recent exposure of directors of failed banks and their

debts was a step in the right direction. From the feelers I am
getting from the banks, many of them are mere hollow shells
as these big five debtors have literarily crippled them," he said.

The full disclosure option appeared to have got the CBN's nod.
Recently, it sent a circular to all banks, demanding that they
"submit to the acting Director of Banking Supervision details of
their total exposures to the companies in the energy sector,
namely upstream, downstream and oil service companies, as at
May 31, 2009."

CBN's governor, Lamido Sanusi, in his first official speech on

assumption of office on July 7, 2009 said: "The CBN
surveillance activities will receive new impetus to ensure
efficient management and good corporate governance."

In stating the Central Bank's view that the Nigerian banking

sector does not face a systemic risk, he said "our view is that
there are stress points in banks' balance sheets (margin loans,
proprietary positions, oil marketing names, unsecured large
exposures) and these are being dimensioned."

The on-going court case involving Access Bank Plc and AP Plc
has thrown up one such "stress points," and stakeholders await
today's judgment, which coincides with AP's yearly general

Specifically, the two companies were at each other's neck over,

which would be responsible for the shortfall of the exchange
rate of Naira against the dollar.

According to Access Bank, AP has refused to pay the $35.1

million loan facility it granted it to import PMS into the country
last year July.

The bank claimed that it entered into an agreement with the oil
company in a transaction deal with the option that AP agreed
to pay the loan within one year, but the company refused to
honour the contract due to the shortfall of the dollar at the
international market.

The bank said on July 18, 2008 it granted a letter of credit in

form of a trade finance line to AP to facilitate the importation of
petroleum products into the country, but the bank was stunned
to hear that AP declined to fulfil the obligation, stating that it
would not pay the difference in the dollar rate.
While reacting to this allegation in an interview with The
Guardian in Lagos yesterday, the Chief Operating Officer of AP,
Mr. Tunde Falasinnu, said that Access Bank's position against
the oil company was in contrast to the agreement the two
parties entered, relating to the importation of the petroleum
products deal.

According to Falasinnu, AP has never in any way declined to

pay the $35.1 million for the cargo that brought the petroleum
products into the country, but what the bank was asking them
to pay was not in line with the nation's official rate.

He said that the bank is one of the bankers that the oil
company transacts business with, but relating to the specified
oil contract, Access Bank was compelling the oil firm to pay the
$35.1 million at $127 per dollar when the exchange rate as at
when the oil business deal was transacted was $116.

Falasinnu explained that after series of meetings with the

management of the bank over the matter to show
understanding and the implication of the exchange rate, the
bank decided that it would take a legal action against AP.

He, however, stated that in order not to go against the laws of

the country and the wrath of CBN, the oil company decided to
wait for the outcome of an investigation by CBN.

He went on: "Access Bank is a banker to AP Plc, one of our

bankers, and we do transactions with them. On the 25th of July
2008 to be precised, they granted us a Letter of Credit for a
cargo of PMS which worth $35.1 million.

"This, according to the transaction terms and regulation, was to

be reopened after one year, which was opened as form M, and
the form M was duly submitted to the CBN pending the time
the exchange rate AP would pay to Access Bank when the
obligation crystallises.

"As at the time the obligation crystallised, they debited us with

N127 per litre of PMS that was N127.00 to a dollar. And as at
that time, the official exchange rate was N116.82. So, when
this letter came, we wrote a letter immediately, we protested
that the rate they used was not the official rate and it was not
acceptable except they want to tell us they have used the black
market rate, even black market rate was lower as at then.

"Since that period, we have been exchanging letters between

each other. In fact, I can tell you that I have exchanged more
than 10 different letters within us. They were insisting that the
rate they used for us was the correct rate as at that time. And
now even as at today, or as at the time we were talking, the
exchange rate has not gone beyond N127 they were claiming."

But Access Bank, in a statement yesterday, said the offer letter

to AP stated that the "facility is subject to possible exchange
rate risk and this risk remains the primary obligation of the
customer and that there is no obligation on the part of the
bank to provide the customer with funds (either in local or
foreign currency) to repay any exposure from the utilisation of
the facility."

Indeed, according to information, Access Bank offered AP the

chance to cut its losses on the facility in dispute when the
exchange rate started fluctuating and naira was falling fast,
and offer which AP reportedly rejected.


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