US embassy cable - 04ABUJA2103

UNCLAS ABUJA 002103 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
ALSO FOR EXIM - THOMAS MATTHIAS AND BERT UBAMADU 
 
E.O. 12958: N/A 
TAGS: EFIN, ETRD, NI 
SUBJECT: CENTRAL BANK POSITION ON RECAPITALIZATION 
 
REF: (A) LAGOS 1936, (B) EXIM MCADAMS-SALUDO LETTER OF 
 
SEPTEMBER 8,2004 
1. (SBU) Summary.  Central Bank of Nigeria (CBN) deputy 
governor Tunde Lemo told us December 20 that banks that do 
not meet the naira 25 billion capitalization requirement by 
December 2005 will not be allowed to engage in banking 
business.  The top thirty banks in the country will meet the 
new capitalization requirement, he said.  He also said the 
December 2005 deadline will be unaffected by the proposed 
amendment of the Banks and Other Financial Institutions Act 
since the National Assembly is unlikely to pass the bill. 
End summary. 
 
2. (SBU) Econoff and Econ Specialist met with Tunde Lemo, 
Deputy Governor of the Central Bank of Nigeria (CBN) in 
charge of Financial Sector Surveillance, on December 20. 
Lemo said the banks the Export-Import Bank of the United 
States habitually deals with are likely to recapitalize 
successfully.  EXIM deals mostly with the top 30 banks in 
Nigeria.  Lemo is confident that these banks will 
recapitalize without difficulty.  The paid-in capital of 
some of them already exceeds naira 25 billion. 
 
3. (SBU) Lemo said the banks are heavily engaged in merger 
talks, except those known to be "comatose."  Many banks have 
signed MOUs and are along in the due diligence process.  The 
big banks are acquiring, and the smaller banks are 
attractive.  Lemo suggested that whether the banks acquire 
capital through mergers or IPOs is not little concern to the 
CBN, even if shareholders might prefer that banks merge 
before engaging in IPOs so as not to dilute investors' 
equity positions. 
 
4. (SBU) Lemo said the CBN will look at the preliminary 
results of recapitalization in March 2005.  The banks that 
will fail to meet the new capitalization requirement by the 
end of the year will not be allowed to operate.  The 
December 2005 deadline will not be extended, he said.  Lemo 
dismissed the proposed legislation in the National Assembly 
to compel the CBN to categorize banks according to three or 
more levels of capitalization.  He acknowledged that the 
Senate is considering the bill, but noted that the Senate is 
divided. Lemo expects the bill to die in the House of 
Representatives since it supports the CBN's position. 
 
5. (SBU) Lemo commented on the list of 27 Nigerian banks 
that EXIM has been doing business with (ref B).  He 
expressed reservations about two or three of the banks, but 
declined to identify them by name. Lemo opined that EXIM's 
loans to these banks would not be jeopardized if the banks 
were to fail to meet the new capital requirement, because 
the loans have financed projects viable from the onset. If 
the guarantor banks were to become insolvent, he said, the 
obligors could easily negotiate with other banks to act as 
guarantors. 
 
6. (SBU) Lemo requested that EXIM send CBN another list 
showing the exposure EXIM has with each bank.  He would then 
be willing to discuss individual banks in more detail. 
 
FUREY