Banks’ recapitalisation under threat as more merger talks collapse

The recapitalisation process of Deposit Money Banks that failed the Central Bank of Nigeria’s stress test may be under threat, following the inability of some of the rescued banks to finalise their different merger deals.

Some of the banks could not conclude their merger talks due to some unfavourable clauses in the merger agreements, while the Memoranda of Understanding signed between some others were reportedly nullified by the CBN.

This, according to experts, points to a late resolution of the liquidity crisis affecting the rescued banks.

However, the CBN has said that “major pronouncements on the new banking model, operations of the Asset Management Corporation of Nigeria, mergers and acquisitions of rescued banks will be announced” at a press briefing that will hold today (Tuesday).

The Punch had exclusively reported that the CBN might have nullified the MoU recently signed by Afribank Plc and Vine Capital Partners Limited as regards the recapitalisation of the former.

Sources close to the deal told one of our correspondents that the apex bank decided to cancel the deal after scrutinising the bidder, citing the questionable profile of the acquiring firm.

Similarly, the planned merger between First Bank of Nigeria Plc and Oceanic Bank International Plc had been stalled as a result of the inability of the two banks to reach favourable agreements.

The CBN Governor, Mr. Lamido Sanusi, had, however, said at the World Economic Forum, in Cape Town, that AMCON might recapitalise Oceanic Bank and Bank PHB Plc to prepare them for sale in the near future if the two banks failed to get good recapitalisation deals.

He had said, “Four of the banks are certainly on their way to mergers, two more have suitors, very good suitors; but we couldn’t agree on commercial terms. The two banks where commercial terms for a deal could not be agreed are Oceanic Bank and Bank PHB.

“Oceanic (Bank) does have strategic assets and we feel the value being offered does not reflect that. The other (Bank PHB) is a bank where there is a suitor but we feel the amount of capital being brought in is not sufficient for the bank to stand solidly on its feet.”

The CBN governor said that the apex bank’s first option was to get private sector partners, “but in the absence of that happening, we can easily plug the hole, capitalise them, put in management, let the banks run for a year or two, and then do it (the sale) later.”

Already, Intercontinental Bank Plc has signed an MoU with Access Bank Plc, while Union Bank signed a $750m agreement with Africa Capital Alliance.

In reaction to insinuations that the various MoU announcements meant that the rescued banks involved had been acquired, the CBN had on March 28 said that there would be no recapitalisation deals unless it approved of them.

Nine banks had last year failed the special examination carried out by auditors from the CBN and the Nigerian Deposit Insurance Corporation, and were subsequently rescued by the apex bank.

Apart from the decision on mergers and acquisitions, the apex bank is also expected to announce its decision on the applications by some of the DMBs for new banking licences, based on the new banking model.

The apex bank had on September 8, 2010, repealed the universal banking model as part of strategic measures to reform the Nigerian banking sector and directed banks to divest from non-banking businesses.

Consequently, it introduced a revised banking model that required banks to apply for new licences under a new regime that would focus on their areas of strength.

The banks are expected to maintain a minimum share capital of N10bn, N25bn and N50bn for regional, national and international banking licences respectively.

The CBN had, while announcing the policy, gave the DMBs 18 months to discontinue their investments in non-core banking subsidiaries such as insurance, discount house operations and stockbrokerage, among others.

The rescued banks are Intercontinental Bank, Finbank Plc, Spring Bank Plc, Afribank, Oceanic Bank, Equatorial Trust Bank, Union Bank of Nigeria Plc, Wema Bank Plc and Bank PHB.