NIGERIA: NAMES OF DEFAULTERS PUBLISHED; INDUSTRY SUPPORTS

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001520

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E.O. 12958: DECL: 08/19/2019
TAGS: EFIN ECON PGOV ELAB ETRD NI
SUBJECT: NIGERIA: NAMES OF DEFAULTERS PUBLISHED; INDUSTRY SUPPORTS
GOVERNOR'S ACTIONS

REF: A. ABUJA 1497

B. ABUJA 1290

C. ABUJA 1190

Classified By: Charge de Affairs Dundas C. McCullough for reasons
1.4. (b & d).


1. (C) Summary: Banking contacts say CBN Governor Sanusi's firing of
five bank heads has made the banking sector stronger, more
transparent, and indicates that the sector is open for new domestic
and international investors, including foreign banks. The public
naming of defaulters like Aliko Dangote, a political ally of
President Yar'Adua and one of Africa's richest businessmen, is a
hopeful sign that the CBN has the commitment and latitude to push on
with its transparency drive. Whether other key players in the
Nigerian financial sector, like the Nigerian Stock Exchange, will
support the CBN's effort remains to be seen. Contrary to press
reports, Zenith Bank MD Jim Ovia has not been fired. End Summary

Industry Views
--------------

2.(C) Financial observers continue to praise the CBN's firing of five
Nigerian bank heads (ref A). Dr. Doyin Salami of the Lagos Business
School told Econoff that the CBN actions were long overdue. He
called the actions a review of the 2005 bank consolidation exercise
when many banks raised bubble capital, although it is unclear if real
capital had been squandered by the CEOs or if it is the hole created
by their bubble capital that is showing up on the books.

3.(C) Razia Khan, an analyst for Standard Chartered Bank, called the
CBN actions overwhelmingly positive. The CBN, she said, acted
against the banks because of their activities at the Expanded
Discount Window (EDW) where their borrowings accounted for 90% of the
total sector borrowing under the EDW. Subsequent audits of these
banks showed that, in some instances, up to 50% of the troubled banks
total loan portfolios were non-performing. With huge loan exposure
to high-risk areas like the stock market and oil and gas sector,
their liquidity ratios at the end of May ranged from 17.65% to 24%
compared to the regulatory minimum of 25%. Khan said that there are
fears of a "Northern agenda" to dominate the banking sector, given
that most of the affected banks are southern owned.

4.(C) Lloyd Onaghinon, an executive of Stanbic IBTC Bank, dismissed
any suggestion of a "Northern agenda," saying the CBN actions were
expected given Sanusi's reputation in risk management. Ayo Teriba,
CEO of Economic Associates, expects the CBN to go further by
prosecuting the former CEOs to serve as a deterrent to others.
Jeffery Spears of Standard Chartered was "spooked, but applauded the
actions of the CBN." Emeka Emuwa from Citibank saw the measures as
largely positive, especially since they increased liquidity in the
financial system. Joseph Nanna, former CBN Research Director and
member of President Yar'Adua's Vision 20-20 Committee, asserted to us
that the CBN actions were necessary to put financial operators on
notice that they now have to do things "the right way."


5. SBU) Chris Knight, CEO of Standard Chartered, stated that the CBN
actions accelerate the consideration of Nigeria as an
investment/acquisition opportunity for foreign banks. He said that
Sanusi is positive to having foreign banks enter the market, and that
the scrubbed balance sheets will lower the net worth of the banks,
thereby lowering the price for interested buyers.

Zenith Bank Head Hangs On
--------------


6. (C) On August 19, the CBN's bank supervision director told Econoff
that Zenith Bank MD Jim Ovia had not, as local press reported, become
the sixth bank head to lose his job. Observers have speculated that
Zenith and Access Bank might be next in line, though Kato Mukuru of
Renaissance capital expects them, along with First City Monument Bank
and Skype, to slide by because the CBN's focus seems to be on
liquidity, solvency, and transparency.

CBN Realignment
--------------

7.(SBU) Dr. Salami, of the Lagos Business School, noted the
rearrangement of CBN deputy governors' portfolios puts the systems
surveillance unit directly under Sanusi's supervision, and concluded

ABUJA 00001520 002 OF 002


this shows CBN's intent is to strengthen further its regulatory
capacity.

EFCC Orders Arrests and Gives a Deadline for Repayment
-------------- --------------

8.(SBU) On August 18, the Economic and Financial Crimes Commission
(EFCC) confirmed the arrests of three bank chiefs (Barth Ebong from
Union Bank; Okey Nwosu from FinBank and Sebastian Adigwe from
Afribank) as well as the former managing directors of Falcon
Securities, Intercontinental Securities, First Inland Securities,
Oceanic Trustees, International Capital, Intercontinental Finance and
Investment, and others. State Security Service (SSS) agents
apparently stopped Cecilia Ibru, the former MD of Oceanic bank, as
she attempted to leave Nigeria on a private jet. The EFCC is still
reportedly looking for Erastus Akingbola, the former MD/CEO of
Intercontinental Bank. It has given defaulting debtors one week to
make payment arrangements or risk prosecution and seizer of assets.


CBN Published Names of Defaulters
--------------

9.(SBU) On August 18, the CBN released as promised the details of the
first five banks' non-performing loans as of May 31:

--Afribank had 28 non-performing accounts with a balance of $945
million (141.86 billion naira).
--Intercontinental Bank had 35 non-performing accounts with a balance
of $1.33 billion (210,903,162,331.07 naira).
--Oceanic Bank had 32 non-performing accounts with a balance of $1.76
billion (278,204,460,000.00 naira).
--Union Bank had 22 non-performing accounts with a balance of $465
million (73,582,073,213.00 naira).
--FinBank had 104 non-performing accounts with a balance of $268
million (42,445,227,400.33 naira).

10.(SBU) Some prominent politicians and business executives are among
the defaulters, including Aliko Dangote, Chairman of Dangote Group
and the recently elected chairman of the Nigerian Stock Exchange,
Ndidi Okereke-Onyiuke, Director-General of the Nigeria Stock
Exchange, Femi Otedola, Chairman of Africa Petroleum, former Rivers
State Governor Peter Odili, and Johnson Arumeie-Ikhide, Chairman of
Arik Air. The Nigerian Deposit Insurance Corporation (NDIC) is set
to work with the debtors to set up repayment schedules.

IMF Concern
--------------


11. (C) The International Monetary Fund (IMF) has yet to comment
publicly on the CBN actions, but local IMF officials expressed
concern to us that its publicly naming of debtors, instead of simply
referring them to credit agencies, was "unconventional" and exposed
them and the banks to unnecessary risk.

Comment
--------------


12. (C) Sanusi's actions should help make the Nigerian banking sector
stronger, more successful, and, critically, more transparent. The
public naming of several of President Yar'Adua's key political and
business associates, such as Aliko Dangote, one of Africa's richest
businessmen, is a hopeful sign that the CBN has the commitment and
latitude to push on with its transparency drive. The CBN has
promised to name other defaulters, and warned debtors to pay up or
risk liquidation. Whether other key players in the Nigerian
financial sector, like the Nigerian Stock Exchange, will join the
transparency and accountability campaign remains to be seen.


13. (U) This cable was coordinated with Consulate Lagos.

MCCULLOUGH