BEHIND THE FIGURES BY IJEOMA NWOGWUGWU

It’s Saturday afternoon and I have just spent the first four hours of my day reading the House of Representatives’ probe report into the “near collapse of the Nigerian capital market”. Unlike some reports of the National Assembly, reading the report of the ad hoc committee set up to investigate the remote and immediate causes of the stock market’s crash was labourious. Since the report was raw and unedited, the editor in me spent time trying to edit and make sense of the message its authors were trying to convey.

Other than my irritation with the illegibility of the report, were its findings and conclusions. For instance, the use of the same unguarded utterances (in writing) that it accused the financial system regulators of making between 2008 and 2010, and which the committee said contributed to the loss of confidence and crash of the market, could have exactly the same impact on the financial system today, especially on a stock market in which foreign investors currently account for more than 75 per cent of market capitalisation. If the intention of the ad hoc committee was to induce capital flight, they certainly made an excellent job of eroding investors’ confidence in the Nigerian financial system.  

My interest, though, in the report was narrowed down to the actions taken by the financial system regulators and the Asset Management Corporation of Nigeria from August 2009 to November 2011 to reform the banking sector and its consequences on the equities market. The reason for limiting my interest to the two-year period starting from 2009 is quite simple: the circumstances that led to the collapse of the equities markets, quite frankly, have been belabored, and was repeated by all the institutions and individuals that were invited to submit memoranda during the probe. It will therefore be a waste of energy and space repeating them in this column for the umpteenth time.

Nonetheless, it was obvious that the committee, at some point, got frustrated with the Central Bank of Nigeria for not furnishing it with the information it needed to reach its conclusions. For instance, it requested the CBN to submit, among other documents, its capital verification report and post-consolidation accounts of banks in 2004-5. The committee also demanded that the central bank submit the special joint audit report of the eight troubled banks in which it injected capital in 2009, including the accompanying approvals, board resolutions, and all other relevant explanatory details. They were legitimate demands by the committee, which the central bank should have submitted, if it had nothing to hide.

Granted that the central bank, owing to issues bordering on confidentiality, might have been circumspect about submitting sensitive examination reports, which only a court of competent jurisdiction can compel it to produce, but if the same central bank could violate banker-customer confidentiality by publishing the list of bank debtors in 2009, then it should have provided the House committee with the information it required in the course of its probe. Worst case scenario, the central bank could have included a caveat that the information is highly sensitive, cannot be made public, and was only being made available to the committee to assist it with its findings.

But what I found more befuddling were the demands for information/documents made by the committee of AMCON. Information made available by the committee showed that some of the demands included, but were not limited to:

•  The capital verification fact sheets/reports and approval of post-consolidation accounts of banks;
•  Was there a post consolidation verification exercise carried out on some banks or all banks? If yes, please provide the consolidation capital verification sheet and reports.
•  Does the term ‘Bubble capital’ ring a bell to CBN? If yes what is it? Did CBN in all its post audit inspection/verification discover any issue of bubble capital? If it did, CBN should provide the committee with those discoveries and how they were treated or resolved? And if fraud was discovered in any of such cases, evidence of CBN’s sanction or recommendation for such fraudulent activity.
•  The committee needs the forensic audit report of the acquired banks to wit: Finbank, Intercontinental Bank Plc, Equitorial Trust Bank Ltd, Union Bank Plc, Oceanic Bank and the nationalized Spring Bank, Afribank, Bank PHB.
•  Management Letter/Auditors letter of Weakness of AMCON 2010,2011
•  Names and addresses of AMCON’s external auditors, Joint Auditors where applicable for the Accounting Years 2010, 2011
•  Audited accounts of AMCON for accounting years 2010, 2011 and Management Accounts of period to date.
•  Schedules showing the basis and all sums received or, and returned to the CBN since your establishment and coming into operation, to date.

Surely, it must be obvious to anyone that understands the operations of AMCON, that it is not a regulator. It was set up by an act of parliament to serve as a resolution vehicle for the banking sector by taking over the non-performing loans (NPLs) and other eligible bank assets that could pose a systemic risk in the event of default.

Secondly, a cursory glance of the committee’s documentary demands shows that the committee had AMCON and the CBN mixed up, and demanded of the former information that could only have been provided by the central bank. Thirdly, whoever authored the letter on behalf of the committee failed to take into consideration that the information/reports it demanded of AMCON related to issues that occurred long before its establishment in 2010. In other words, the committee was barking up the wrong tree and showed that it lacked an understanding AMCON’s mandate, which is quite distinct for the banking system regulator, the CBN. 

Four, it was glaring that the committee was over-reaching itself by demanding the names of the auditors, management accounts and audited reports of AMCON, as these bore no relationship whatsoever with the collapse of the capital market. Again, it might be necessary to restate that AMCON was set up as a resolution vehicle for the banking sector. In that regard, by taking over the NPLs of banks, other qualifying loans of banks, injecting capital into the five troubled banks that were recapitalised, and acquiring three others whose licences had been withdrawn and were bridged by the Nigeria Deposit Insurance Corporation, it acted in best interest of the banking sector. And the banking sector, I dare add, still accounts for 35-40 per cent of market capitalisation.

Yet, some of the most damning conclusions reached by the House committee in its report showed that it either had a limited understanding of why the defunct Afribank Plc, BankPHB Plc and Spring Bank Plc had to lose their operating licences, the process of their bridging by NDIC and their takeover by AMCON; or was playing to the gallery. In this area, the committee was scathing in its report, alleging that the process was fraught with potential forgery, unethical practices, abuse of office, and various unacceptable bad corporate governance precedents by the regulators and AMCON.

It went further to invite the Economic and Financial Crimes Commission (EFCC) and other security agencies to investigate the managing directors of NDIC and AMCON; governor of the central bank; all those who were used or offered themselves to be used in the various misrepresentations leading to the corporate registration of the nationalised banks; the registrar-general, Corporate Affairs Commission; and all the faceless lawyers as well as directors of Mainstreet Bank Ltd, Keystone Bank Ltd, Enterprise Bank Ltd, whom the committee said should be unearthed and made to face the wrath of the law.

A detailed review of the nationalisation of the three banks last year and other issues raised in report of the ad hoc committee of the House Representatives will be addressed in the concluding part of this article next week