Nigeria Stock Exchange suspends trade in five banks

Nigeria’s stock exchange suspended trade in five banks’ shares after their chief executive officers were fired, a move that Central Bank of Nigeria Governor Lamido Sanusi said was aimed at preventing a “freefall” in the value of the stocks.

The affected banks are Afribank Nigeria Plc, Intercontinental Bank Plc, Oceanic Bank International Plc, Union Bank Nigeria Plc and Finbank Plc. The decision to suspend the stocks will be reviewed in two weeks, Ndi Okereke-Onyiuke, director-general of the bourse, told reporters today in Lagos, the commercial capital.

Sanusi fired the CEOs on Aug. 14 after a central bank audit found the lenders were in a “grave situation” and their management had acted in a manner “detrimental to the interests of depositors and creditors.” Sanusi also announced that 400 billion naira ($2.55 billion) would be injected into the lenders to ensure they meet minimum capital requirements.

“What we’ve done is the beginning of a process of restoration of confidence,” Sanusi said in an interview broadcast on CNBC Africa, a Johannesburg-based broadcaster, today.

Eurasia Group, a New York-based research company, said in May that banks in Nigeria, Africa’s second-biggest oil producer, may have as much as $10 billion of toxic assets. The bad debt is partly the result of at least 1 trillion naira of margin loans used to buy shares as equities plunged after soaring almost 13- fold since 2000, according to Bank of America Corp.

‘Systemically Important’

Three of the five banks whose heads were dismissed are “systemically important,” because they account for more than 5 percent of assets and deposits in the Nigerian banking system, Renaissance Capital said in an e-mailed research note today. The five were the “weakest banks” in the system, it said.

“Although more banks could fail the central bank’s audit, we believe that the potential systemic risks have been addressed,” Renaissance said.

Nigerian President Umaru Yar’Adua endorsed the removal of the chief executives, which was aimed at preventing “fresh bank failures,” according to a statement published on the Web site of the Nigerian presidency yesterday.

The president “wishes to assure all Nigerians that their deposits in Nigerian banks are safe as the federal government will continue to act in concert with the CBN to ensure that no bank is allowed to fail or become distressed,” Yar’Adua’s spokesman, Olusegun Adeniyi, said.

Foreign Investors

The Guardian, a Lagos-based newspaper, reported today that eight foreign investors are ready to take control of the five banks. It didn’t provide further details.

“We do hope to get other investors to come in and help restore shareholder value” in the lenders, Sanusi said today, without elaborating.

The central bank’s audit of Nigerian lenders is expected to end in mid-September. Five banks other banks have already passed the audit, according to Renaissance Capital. They include First Bank of Nigeria Plc, the nation’s largest lender, Diamond Bank Plc, Guaranty Trust Bank Plc, Sterling Bank Plc and United Bank for Africa Plc.

Fourteen banks remain to be audited, including Zenith Bank Plc, the nation’s second-biggest lender by market value.

“With regard to the remaining 14 banks in the system that are yet to be audited, we note that the risk of a repeat of Friday’s dismissals is unlikely,” Renaissance said.

The fired chief executives may face prosecution if they are found to have committed any offence while running the lenders, Tunde Lemo, a deputy governor of the central bank said today in an interview on Africa Independent Television, an Abuja-based broadcaster.

Source: Bloomberg