US embassy cable - 03LAGOS2140

UNCLAS SECTION 01 OF 02 LAGOS 002140 
 
SIPDIS 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
 
STATE PASS TO EX-IM FOR CHERYL MORIARTY, RITA MURRELL, 
PAMELA ROSS, MAUREEN SCURRY AND ANITA TURI-WRIGHT 
 
 
E.O. 12958: N/A 
TAGS: EFIN, EINV, ECON, PINR, NI, EXIM 
SUBJECT: NIGERIA: RESPONSE TO EX-IM QUERIES ON NIGERIAN 
BANKING SECTOR 
 
REF: (A) STATE 287449, (B) MORIARTY-FULLER EMAIL OF 
08222003/0737, (C) MURRELL-KRZYWDA EMAIL OF 
08252003/0228 
 
 
1. (U) Rumors of distress in the Nigerian banking 
sector have raised doubts about the industry's health 
and prompted questions about certain banks' stability. 
Post's response follows. 
 
 
2. (U) Rumors of a list of distressed banks first 
surfaced in mid-August.  Central Bank of Nigeria (CBN) 
and Nigeria Deposit Insurance Corporation (NDIC) 
contacts deny the existence of an explicit list of 
troubled banks but inicate that ten or twelve may be 
facing temporaryliquidity problems; these may undergo 
special CBNor NDIC examinations.  Extremely unhealthy 
bankscould eventually be liquidated, but troubled 
insittions ill more likely be asked to restructure, 
re-capitalize or improve corporate governance 
ractices.  Flagrant violations of CBN regulations 
could result in fine 
or sanctions, but most of thse 
can eventually be overcome. 
 
 
3. (SBU) The Central Bank of Nigeria (CBN) suspended 
two banks, Societe Generale Bank of Nigeria and African 
International Bank, from its clearinghouse in mid- 
August for consistently overdrawing their CBN accounts. 
Both banks had long been suspected of having serious 
capitalization or liquidity problems, and both are now 
attempting to re-capitalize and re-enter the 
clearinghouse.  Societe Generale's troubles gained 
notoriety when the Nigerian press reported that a 
number of prominent figures (national lawmakers among 
them) had rather large accounts at the bank.  Industry 
insiders not only confirm these reports but whisper of 
additional irregularities.  A senior official of the 
Nigeria Inter-Bank Settlement System told us, in fact, 
that one of Societe Generale's directors, Dr. Sola 
Saraki of Kwara State, secured large loans for his 
son's (ultimately successful) gubernatorial campaign 
without providing repayment.  He argues that the bank's 
failure to recover these and other loans played a major 
role in weakening its books, but with fresh injections 
of funds (more than $15 million landed in the bank's 
accounts a few days ago), the bank may eventually 
recover. 
 
 
4. (U) The Bank of the North has equally poor loan 
recovery rates, but its problems have not been severe 
enough to warrant suspension from the industry's 
clearinghouse.  The CBN replaced the bank's board of 
governors in mid-August (the new board is charged with 
restructuring and re-capitalizing the bank), and the 19 
northern states that own the bank have since committed 
to fresh injections of funds.  CBN contacts indicate 
that future loans to northern state governments will be 
severely limited; if this is true, the bank's liquidity 
profile will likely improve.  Given the bank's 
ownership structure and the political ramifications of 
failure, the bank will likely remain operational. 
 
 
5. (U) CBN and NDIC contacts indicate that Reliance 
Bank and Platinum Bank are generally healthy, but the 
banks' published accounts are more than a year old. 
The CBN completed its examination of Reliance Bank in 
late September but has yet to prepare a final report. 
While the deputy director of the CBN's bank examination 
department in Lagos said he knew of no specific 
irregularities or negative practices, he did mention 
that three of the bank's owners, the Vaswani brothers, 
had been deported after allegations of widespread 
economic and financial crimes; their misdeeds may or 
may not indicate gaps in the bank's corporate 
governance practices.  The NDIC, meanwhile, has yet to 
begin its examination of Platinum Bank.  According to 
NDIC contacts, Platinum emerged three years ago from 
the liquidation of Nationwide Merchant Bank, one of 
nearly thirty institutions liquidated by the CBN in the 
late 1990s.  A well and favorably known professor at 
the Lagos Business School, Pat Utomi, is one of 
Platinum Bank's directors (and chairman of Business 
Day, Nigeria's leading daily business newspaper). 
 
 
6. (SBU) Two other banks, NAL Merchant Bank and 
Cooperative Development Bank, also appear relatively 
healthy.  CBN contacts indicate that the banks are 
sound, but the deputy managing director of Financial 
Derivatives Company Limited, a Lagos-based economic 
think tank, suggested that he would be reluctant to 
enter into anything other than short- to medium-term 
transactions with either bank. 
 
 
7. (U) In general, the CBN's supervisory oversight 
appears sufficient.  The institution's regular 
examinations of Nigerian banks have resulted in the 
closure or liquidation of 35 banks since 1994 and the 
mid-2002 sanctioning of approximately twenty others for 
foreign exchange violations; these have largely stopped 
since then, and respect for the CBN has increased.  The 
institution supports Nigerian banks' links with foreign 
counterparts and generally does all it can to ensure a 
stable financial system.  The CBN has largely been 
successful: in general, the Nigerian banking sector is 
healthy, and industry insiders insist that the sector 
is set for continued growth. 
 
 
GREGOIRE