Nigeria’s Central Bank Says Bailed Out Banks In Worse State, Sets Maximun Limit On Cheque Payments

Abuja (THEWILL) - The Central Bank of Nigeria has said the nine banks it rescued in a N600 billion naira ($4 billion dollar) bailout were discovered to be in worse state by their new management.

The regulator said the new executives discovered ‘a number of issues,’ after the audit exercise because they had access ‘to greater and more up to date information’, according to its spokesman, M.M Abdullahi.

Twenty four Nigerian banks were audited last quarter and nine of them were determined to be in ‘grave situation’ having granted loans that went bad without collaterals to oil traders and stock speculators in Nigeria.

The third quarter earnings of some of the banks, which reported last week, showed a record amount of losses due to provisions made for the loans.

“As expected, the third quarter earnings announcements for a number of banks have included a level of provisions that have led to reported losses, reflecting the true position of the lending portfolios. This has been particularly evident in the nine banks assessed to be in a grave situation.”

CBN maintained that the Tier 2 capital injected in the banks in August and October to help improve their liquidity would remain in place saying it would also stand by its inter-bank rate guarantee issued in July 2009.

In the aspect of loan recovery, the CBN reassured of its commitment to assist the new management in the recovery of outstanding loans and improve governance in their respective financial institutions, while the upcoming Asset Management Company (AMC) in conjunction with the ministry of finance will take impaired assets off the banks’ balance sheets replacing them with government guaranteed bonds.

In another development, the CBN said it has set a maximum limit on cheque payments at N10 million naira with effect from January 1, 2010 as a further step in its efforts at enhancing the efficiency of the country’s payment system.

It said any payment value exceeding N10 million should be made through the e-payment mode such as the Central Bank Inter-Bank Funds Transfer System and Nigerian Inter-Bank Settlement System Electronic Funds Transfer.

The new directive serves as a risk reduction measure in the clearing and settlement arrangement imploring banks to support the move and educate their customers properly, while announcing that the foreign exchange market will be closed from Friday, December 18 and re-open on Monday, January 4, 2011 because of the Christmas and New Year holidays.