By Raymond Mordi

Additional reports by Abiola Odutola and Oluseyi Adegbola

An uneasy calm reigns in the relationship between the banks and depositors on the one hand, and with its workers on the other hand. On the surface, the situation is gradually returning back to normal, after the initial stampede by customers to take their funds away from the embattled financial institutions. For small depositors, the issue is almost settled, particularly since none of the affected banks have manifested any sign of distress; a bank is usually said to be in distress when it cannot meet up with its financial obligations. Customers who stormed the banks in the wake of the sacking of the banks’ former managing directors with withdrawal slips, cheques and automatic teller machines, ATM, cards, seeking to withdraw part of their deposits were obliged. Indeed, Francis Barde, head of corporate affairs, Union Bank, confirmed this when he noted: “We are not suffering from any liquidity problem. Our customers can walk into any of our branches to withdraw or pay into their accounts.” This trend, it is said, has stemmed the tide of customers requesting to close their accounts. A bank customer who wants to remain anonymous agrees that the disclosures concerning the affairs of the five distressed banks would not discourage customers from depositing funds in those banks. “When you visit any of the banks, you’ll find out that their operations have continued without hindrance. If that had not happened, we would have been hearing stories of banks not being able to meet their obligations to customers,”

he told the magazine.

But beneath this veneer of tranquility, lies a deep concern. For huge depositors, particularly, there is still an element of uncertainty. In spite of the assurance by the Central Bank of Nigeria, CBN, many of them are making huge withdrawals and transferring their funds from one bank to the other. This is to ensure that their deposits are not trapped or lost in the event of any untoward development. On the other hand, the struggle on the part of the various banks to adapt to the new regime of corporate governance imposed by the CBN means that they are streamlining their operations to meet up to the expectations of the apex bank. “The new management is still studying the situation on the ground, to determine what precisely has to be done to fulfil its mandate. But one thing is obvious: it will have to cut down so many expenses to succeed in its bid of repackaging the bank for new investors,” a source in one of the five bailed out banks told the magazine. This development is striking fears into the workers of the banks.  

A spectre of job losses is looming over the banking sector, in the wake of the ongoing reforms in the industry. There are reasons to believe that the new management of the five bailed out banks may embark on staff rationalisation exercises, as part of the ways to reduce cost of their operations, and adapt to the new corporate governance regime imposed by the CBN. This is coming in the wake of pronouncements by the new chief executive officers of the banks on plans for repackaging the institutions for potential investors. Most of them have expressed misgivings about expenditure patterns of their p

of their predecessors, an indication that they are likely to toe the line of their mandate of restructuring the banks at minimal cost. One of the options open to them, in the bid to reduce the cost of their operations, is staff rationalisation.

The CBN move and the spate of publicity it has received in the last couple of weeks have adversely affected the morale of banks staff. The sack fever is so palpable in some of the banks that a good number of staff are already making contingency plans so as to have something to fall back on in case they are given the boot. For instance, a source in one of the affected banks, who pleaded for anonymity, told the magazine that uncertainty and fear of impending sack has been in the air since the former managing director of the bank was sacked about five weeks ago. According to him, workers in the marketing department of the bank appear to be more vulnerable. “With the crisis of confidence currently rocking the banking sector, they can hardly convince people to come and deposit money in the bank anymore, let alone meet their targets. The rumour making the rounds is that they are going to be sacked if they consistently miss their targets,” he told the magazine. As a result, he said most of them go about with the notion that their jobs are hanging in the balance and have began submitting their curriculum vitaes, CVs, and other relevant documents to other organisations in case the fears are confirmed.

For workers of Wema Bank, the fear of job losses became a reality last Monday, when hundreds of them were sacked nationwide, including 25 top management staff. Confirming the sack, Tunde Olofintila, head, corporate

affairs, Wema Bank, revealed that “some workers have been disengaged, but up till now, letters of termination are still being dispatched.” He added: “I will, however, not be able to confirm the exact figure.” Besides, workers of the affected banks are equally apprehensive over their fate in the event of their banks being sold to new investors as being speculated. “It was a rude shock. Overnight we woke up to witness our chief executive officer being booted out, and the bank on the verge of being sold. Who would not be frightened of losing his job under this circumstance,” a staff of Union Bank who pleaded for anonymity told the magazine.

A source at Oceanic Bank, however, believes the development is not new, as there have always been fears of job losses among workers in the banking sector. “There is no fear of job loss specifically for workers of Oceanic Bank. Go to any of our branches, customers are transacting their usual business with us with ease. I don’t know about other banks, but for us at Oceanic, we are not witnessing any unusual development, and there is no fear of job losses,” he told the magazine.

Owing to the fact that the banks are now categorised into three — those that failed the CBN litmus test, those that cleared the hurdle, and others that are yet to know their fate — it is different strokes for different folks in the industry. The five banks that have been cleared are beneficiaries of the mass withdrawals from banks in the other categories. A staff of the United Bank of Africa, UBA, who wants to remain anonymous, acknowledged that the bank is a beneficiary of the crisis,

by way of increased customer patronage. “We are witnessing a marked increase in the number of new customers opening fresh accounts with us. Most of these customers will just say, ‘I don’t want to lose my money, let me bank with you, since you are not affected,” she confided in the magazine. A good number of bank customers have also not forgotten the trauma they experienced during the failed bank era. “As I am speaking to you now, I have only N12,000 left in my account. I can risk that one. This type of thing happened before in Savannah Bank, whereby several Nigerians lost millions of naira. So, many depositors died when they heard that the bank was distressed,” a customer of one of the banks that are yet to know their fate told the magazine.  

There are extreme cases where some customers have lost confidence in the banking system. For instance, Samuel Ibikunle, a pastor in one of the Pentecostal churches, believes the banks are now the most dangerous places where anybody can keep money. Ibikunle’s church has a major account with one of the affected banks and ever since the crisis in the banking industry began, there has been a hot debate among the church council members as to whether to withdraw the church fund from the bank or not. While some members believe the bank is just as good as a distressed bank and wants action to be taken before “all hope of recovering the money is lost”, others feel the crisis will not last and say withdrawing the church money may be a rash action.

Similarly, Oluwadamilare Michel, a student, who receives money regularly from his siblings abroad, has declared that he

will never leave a lump sum in his account in one of the bailed out banks. Michel, who also has shares in several Nigerian banks including Intercontinental Bank, now withdraws as much as he can as soon as money is paid into his account, leaving only the minimum balance. “I don’t want to be caught unawares, anything can happen now”, he told the magazine, adding: “I don’t want to wake up one day and realise that a fast food has taken over the bank premises.”

For Akintunde Aina and his wife, Titilayo, it is a big dilemma. Although the university don operates a current account with First Bank of Nigeria, FBN, the couple’s life’s savings are stashed away in their joint Union Bank savings account. Over the last two decades they have been putting every penny they can into that account for the rainy day, since entitlements seldom come as and when due. “I had always seen Union Bank as one of those banks that would always weather the storm, but with the recent shake-up in the industry, I am seriously considering pulling my savings out of the bank,” Aina told the magazine. The only reason why he has not done so is his growing fears that no bank is safe for depositors anymore. “You can’t blame those who keep their money under their pillow anymore,” he added.

The crisis of credibility facing the banks is not restricted to their relationships with customers, but also extends to their dealings with other banks within the industry. At the inter-bank market, for instance, not even the injection of N420 billion into the five banks is enough to convince other banks to lend money to them. “When t

the banks place order for funds to be lent to them, they are simply ignored by their counterparts,” a source at the inter-bank market disclosed. The reluctance to do business with the affected banks has to do partly with the level of insolvency of at least of the banks whose identity is yet to be disclosed by the apex bank. As Lamido Sanusi, CBN governor, puts it: “Indeed, one (of the five banks) is technically insolvent with a capital adequacy ratio, CAR, of 1.01 per cent. Thus, a minimum capital injection of N204.94 billion will be required in the five banks to meet the minimum capital adequacy ratio of 10 per cent.” With the amount classified as non-performing loans, the other banks believe that it will take more than the money so far injected into the five affected banks to restore their credibility. Thus, they do not consider it expedient to lend their safe funds to banks with a history of having non-performing loans in the range of between 19 per cent and 48 per cent of their total loans so far given out.

The recent development in the banking sector has cast a dark shadow on the already gloomy situation in the stock market. The ongoing reform in the banks has adversely affected the value of banking stocks, which usually constitute 60 per cent of all transactions in the Nigerian Stock Exchange, NSE. Banking stocks generally has slumped drastically between June 10, about the time Sanusi took over at CBN, and last Tuesday. For instance, FBN and Zenith Bank, which attracted market prices of N25 and N16.70 at the time was N13.80 and N10.50 respectively last Tuesday, while Oceanic Bank, United Bank for Africa, UBA, Access Bank and Union Bank, who

whose shares commanded a market price of N8.80, N14.93, N9.60 and N17.52 respectively had dropped to N3.84, N10.68, N5.85 and N9.29 respectively as at last Tuesday. Similarly, the value of the shares of African Petroleum, AP, which is owing the banks substantially, that of WAPIC, a subsidiary of Intercontinental Bank, that of Intercontinental Bank itself and Afribank have dropped by more than 50 per cent. 

Not less than four banks including FBN, Nigeria’s most capitalised quoted company and Zenith Bank, hit their lowest prices as at September 8, 2009 as investors opened market orders for sale of the stocks. Similarly, the average year to date return on banking stocks has worsened from -27.3 per cent on August 10 to -41.10 per cent by the end of the month. This has furthered worsened returns on the floor of the NSE with an average year to date return slipping to -40.13 per cent as at September 8.

A sectoral review of returns for the period shows that both insurance and petroleum sectors equally witnessed substantial losses above the average market loss; both recorded the highest sectoral loss of about 60 per cent. This is very instructive, since operators in the petroleum sector were fingered as some of the biggest loan defaulters. A stockbroker who prefers anonymity told the magazine that the banking crisis has triggered a massive dump of shares on the floor of the exchange. For instance, as at September 7, about 100 stocks suffered price depreciation as against six that recorded capital appreciation, reducing the value of the all share index, ASI, by 9.34 per cent by the end of the week’s trading.

Another stockbroker who equally

does not to be named told the magazine that investors opened their sale market orders with an unrestrained willingness to sell their shares at any possible price. These affected the movement of the market forces. For instance, as at September 8, 2009, the ASI fell to 21,054, while the market capitalisation fell to about N4.90 trillion, from N6.10 trillion witnessed two weeks ago. “With this, stockbrokers could cut market considerations of stocks by as much as five per cent daily. Major investors in the stock market were listed among the biggest debtors to the five banks and the CBN has reiterated that it would prosecute debtors that failed to pay up their debts while the Economic and Financial Crimes Comission has already been invited to look into the criminality of the huge bad loans. All these will scare investors from the market,” he explained.

Sunny Nwosu, national coordinator, Independent Shareholders Association of Nigeria believes the culmination of the CBN’s utterances and actions forced many investors who are beneficiaries of the loans to dump their shares on the exchange. “What happened in the market is that individuals and corporate investors are under intense pressure from the banks seeking to meet the new policy thrust of the apex bank. It is unfortunate because the gains of long-term investments in the market are gradually crowded by the combined effects of the CBN’s actions,” he explained.

To stabilise the situation in the market, Dipo Williams, president, Chartered Institute of Stockbrokers wants the CBN to allow banks to restructure all capital market related credits into a five-year capital market notes

that could be discounted through a discounting window in a bid to resolve the illiquidity in the stock market. Williams believes that such credit restructuring would give the creditors reasonable time to adjust their position and resolve the illiquidity problem in the market.

Until steps are taken to arrest the resultant illiquidity situation all these developments have foisted on the economy, Nigerian banks would not be in a position to act as an engine room for growth within the economy. Before the slump, banks were not performing this role as expected, but with the current situation of things, the issue of lending to the real sector, not to talk of small scale enterprises, is out of the question. No doubt, the current CBN measures have its positive sides, such as enthroning good corporate governance and a full disclosure regime by banks, nevertheless, the negative impact on the economy would linger for a long time.