FINANCE-NIGERIA: Major Bank Shut Down for Alleged Irregularities

By Toye Olori Reprint | | Print |

Toye Olori

LAGOS, Feb 27 2002 (IPS) - The Nigerian government has shut down a major bank for alleged irregularities.

The closure of the Savannah Bank Plc came shiftily without a warning. Workers found the bank closed when they reported to work last week.

Like the workers, depositors, who turned up to transact business, found a group of police officers guarding the building.

The police have taken over the bank after the Central Bank of Nigeria (CBN) revoked the bank’s licence and ordered a probe into the activities of its directors.

Only a notice pasted on the bank’s door alerts workers and clients of the closure.

“The bank failed to notify customers before closing. The policemen, who showed us the notice on the door, said the CBN had revoked the licence of the bank because of insolvency,” says a depositor who refused to be named.

He says: “I wanted to withdraw 10,000 Naira (100 U.S. dollars) from my bank account for the Muslim festival but met these stern-looking policemen, who said the bank had been closed.”

Another customer, a pensioner, could not believe his eyes when he saw the notice. Five days ago, he had paid a cheque into the bank and was asked to come this week to collect his money.

In Abeokuta, a town located about 100 kilometres southwest of Lagos, a man reportedly fainted on learning of the bank’s closure. He had deposited three million Naira (about 30,000 U.S. dollars) the week before.

The notice, placed by the Nigerian Deposit Insurance Corporation (NDIC), appointed as liquidator, advised all “Savannah Bank customers” to exercise patience as it was still “assessing the assets of the bank before determining the issue of compensation”.

Thirty-one banks have been liquidated in Nigeria since 1994. And the depositors have been paid only a maximum of 50,000 Naira (500 U.S. dollars) each. Others who had less than 50,000 Naira (500 U.S. dollars) in their bank accounts got less.

The bank also has laid-off more than 1,000 workers, since 1999, under its retrenchment programme.

CBN Governor, Joseph Sanusi said the apex bank’s action became necessary because “Savannah Bank plc is insolvent and has failed beyond resuscitation … (prompting) the Central Bank to revoke its licence”.

Ignatius Imala, CBN Director of Banking Supervision, said an investigation had been ordered into the records of the bank to determine the level of its indebtedness to creditors and depositors.

“The bank has consistently falsified returns on its operations to CBN and also concealed vital information from the apex bank,” he claimed.

Imala accused the International Resource Associate (IRA), which has invested in the bank, of poor judgement. “Even after IRA acquired 59.9 percent interest in Savannah Bank through the Stock Exchange and appointed a new management and board to run the bank, the bank’s financial condition continued to deteriorate,” he said.

Imala added: “CBN’s initial investigation of the bank’s books showed negative shareholders’ funds of 2.9 billion Naira (29 million U.S. dollars) as at Mar 31, 2000. The bulk of the management staff recruited by the bank had no documents in their files to indicate that they were interviewed, while there were also no references from their previous employers”.

The CBN said it discovered that the bank spent 97.5 million Naira (about 970,000 U.S. dollars) for a 30-year leasehold for a property in Onitsha, eastern Nigeria, which the owner had offered to the bank for 40 million Naira (about 400,000 U.S. dollars) as a freehold. The IRA also claimed to have spent 6.8 million U.S. dollars out of seven million U.S. dollars on computerisation.

“A check by the CBN examiners, however, showed that not only did the IT (Information Technology) equipment on the ground not justify the expenditure of 6.8 million dollars, but also such expenditure was at the expense of addressing the bank’s more pressing problems of illiquidity and insolvency,” Imala said.

Economists say the closure was expected. According to them, before the axe fell on the bank, it had gone through several crises in the past nine years culminating in the frequent changes of its board of directors and management team.

Economists fear that the collapse of Savannah Bank, one of the biggest in Nigeria, could erode confidence in the banking industry in the country.

The managers of Savannah bank have gone to court to challenge the action of the Central Bank of Nigeria.

In their suit, which comes up in Abuja, the capital of Nigeria this week, the managers are seeking a declaration that the defendants, the liquidator and the police have no legal power to seal or take-over the management and control of the bank.

They said they were given up to June by the CBN to re-capitalise and were surprised that without waiting for the deadline, the CBN had begun the process of the take-over of the management and control of the bank.