Banks’ Liquidation: N5tr Deposits Threatened
Depositors money would be lost in the seven troubled banks if no respite comes the way of the banks by September 30, this year.
This figure is authentic as it is made up of all the deposit liabilities of the troubled banks as at December 2010 which have been made available to the Central Bank of Nigeria (CBN). There are also strong indications that not much in terms of reduction has taken place in the last five months.
Based on the volume of deposits involved, if a liquidation occurs, it will be the biggest in terms of losses to the economy since 1998 when as many as 24 banks collapsed in one day.
Our investigations reveal that the total deposits are made up of the retail banking savings of customers, money at call and takings as well as interbank deposit transactions. Out of the N11 trillion total deposits recorded by the 24 banks at the close of books in December 2010, the seven troubled banks have a share of about N3 trillion, about 32 per cent of the total industry deposit. The share of deposits by the troubled banks in other deposit segments such as call deposits were even higher, totalling some N750 billion out of the recorded N900 billion. They also have a larger dose from deposits due to other banks.
Last week, the CBN had revisited the recapitalisation challenges facing the banks but insisted that the issue of liquidation would be a last resort should they fail to recapitalise by September 2011. It would be recalled that a good number of the merger and acquisition plans and agreements by the banks are not getting any where, fuelling speculations that there may not be any real investor for the banks in the remaining part of the year.
The development may have triggered some run in the deposits of the seven troubled banks, but our investigations reveal that the volume of money which switched volts may have been insignificant based on the thinking by the customers that the MOUs and MOAs are being firmed up, even though most of them crashed some few hours after the meetings. This belief by the customers has been identified as the major reason for the huge deposits that are still in the volts of the troubled banks.
Further investigations reveal that leading the huge deposit cache are Oceanic Bank, Intercontinental Bank, Union Bank, Bank PHB, Afribank, Finbank and Spring bank, in that order. There are also indications while corporate deposits owned by private sector operators are gradually being moved away, government deposits are finding their way back through some parastatals and commissions, making governments the probable greatest losers in case a liquidation occurs in September.
The highpoint of the deposit saga is the exposure of other healthy banks to the seven banks. With a very high dose of both call deposit and interbank exposures, the banking industry is seen to be sitting on the precipice because the ripple effect would be disastrous, according to the reports.