Hope rises for SGBN, Savannah bank

Hope has risen once more for the customers and depositors of the beleaguered banks, Society Generale Bank of Nigeria (SGBN) and Savannah Bank of Nigeria (SBN)...

as foreign investors have shown interest in one of them. Contrary to the fears that (SGBN) and (SBN) may not return to operations soon, things are looking up in their favour. Just last week, according to reports, foreign investors injected N37 billion in SGBN with a plan to re-open the doors of the bank for business before year end. But not much has been heard from SBN. 
Business Hallmark learnt that the Nigerian company, North Eastern Capital (NEC), which purchased the bank from its former owners and its foreign partners, SPOT V.I Holding of Italy are fully set to recapitalize the bank and return it to the market.
SPOT Holding is a company registered in Italy with head office in Rome. It is a holding company with interest in radio and television stations. The company reportedly owns five television stations among others. The Italian company, through its subsidiary, Golden Coal Limited, is at present funding many projects in Nigeria including the seven star Marriots and the Twin Tower in Abuja, three container carrying vessels and an FPSO (floating petroleum storing vessel)
While SBN may have also started to articulate plans to bounce back to business, it plans to resume full operations on June 2011. However, no concrete strategy has come from SBN, except that Nigerian Deposit Insurance Corporation (NDIC) has fully handed it over to stakeholders and due diligence exercise has already commenced.
 The central bank of Nigeria (CBN) had restored their operating licenses after the duo had won it in protracted legal battles. Whereas the operational licence of SGBN was revoked in 2005 and restored in 2008, that of SBN which was revoked in 2002 was restored last year. Since then, stakeholders have been nervous given the unprecedented harsh economic conditions and choking on –going financial industry reforms of the CBN.
Societe Generale Bank of Nigeria 
Before now, the time allowed the bank to recapitalize elapsed a long time ago. Inside sources from the CBN told Business Hallmark that even the extension which the bank asked for also expired several times. Though the bank was doing a lot to re-launch itself to business, but the process seemed very slow. It took more than three years before its recapitalization strategy began to bear fruit. Business Hallmark recalls that its earlier effort to merge with Unity Bank or Intercontinental Bank had hit brick walls. However, its former Managing Director, Mr. Robert Mbonu, kept telling our correspondent that the bank would disclose its recapitalization strategies at the appropriate time and open its doors for business. He explained that its recent private placement did not hit target. “We were close to resolving and returning to operation when the recent CBN policies and the challenging economic environment surfaced. But we are working with the regulators to return to operations,” he said
Industry observers recall that SGBN, in which Second Republic Senate Leader, Dr. Olusola Saraki, had a controlling stake, was sent out of the clearing house in 2003 following its inability to meet primary financial obligations. SGBN was also unable to fund its CBN Account, which was overdrawn by several billions of naira.
As a result, the embattled bank was then asked to recapitalize to the tune of N4 billion by the apex bank (the stipulated capital base of banks then was N2 billion).A top official of the bank said that about N2.5 billion had already been raised. The move was geared towards diluting its ownership structure. 
The Chairman, Olusola Saraki, was said to have accepted to sell a substantial part of his holdings in the financial institution to professionals so that the bank could get back to profitability. One of the two investors that showed interest was expected to acquire 51 per cent of SGBN, which was said to be worth over N2 billion. But eventually, the deal could not sail through. Consequently, the bank's operational licence was revoked in 2005 on the order of the CBN.
SGBN instituted legal proceedings against the CBN, insisting that the revocation of its banking licence was in bad taste, alleging that the banking watchdog did not give the institution enough time to recapitalize. 
The development culminated in the ruling of a Federal High Court sitting in Abuja in 2008 to the effect that CBN had not allowed the promoters of SGBN enough time to recapitalize. A few days after the court ruling and after initially deciding to file an appeal, the apex bank made a U-turn. Its decision not to appeal the judgment was informed by the desire not to further compound the suffering of depositors of SGBN whose monies were trapped in the bank.
The court had given the SGBN 30 days to recapitalize or be acquired by another bank within the same period. Part of the conditions the promoters of SGBN was to meet within the stipulated period included offsetting about N1.6 billion debt to the apex bank. The amount represents the 80 per cent forbearance CBN granted bank during the recapitalization exercise. 
Savannah Bank of Nigeria
The operating licence which was returned to owners of Savannah Bank of Nigeria Plc (SBN) marks the beginning of its challenges. The bank was ordered to recapitalize within 18 months. It could not beat the deadline and its promoters have already shifted it to June 2011 .The bank has put its target at N500 billion to be able to open its doors for business. To many industry operators, the current economic climate is very harsh for banks generally. Even though the bank has shown optimism to re-launch and is pulling all the strings it can, industry watchers have expressed reservations saying that it is an uphill task for a bank which was comatose for about eight years to raise N500 billion to start operations again.“We have our doubts”, a senior banker chipped in. A former staff that is close to the Nwobodos was quick to claim that investors have shown interest both locally and internationally. “There is intense interest locally and abroad from those who are ready to put money in the bank. You know the bank was not distressed .We are working hard to get the bank back on its feet soon,” he added.
Flashback
When Savannah bank was sealed off, there was no visible sign of its inability to honour its obligations. However, its books were glutted with systemic rot. However, before its closure, according to the Central Bank of Nigeria,(CBN), Savannah Bank had not released its results for three years. It also had a long list of other regulatory misdemeanours in the draft accounts, which showed losses of N2.8 billion in 2000 and N694.9 million in 1999. The apex regulator enumerated other reasons for clamping down on the bank. These reasons include, deteriorating assets and management crisis, which led to the removal of three Managing Directors in rapid succession within two years. 
The then CBN governor, Mr. Joseph Sanusi, had said that the bank's insolvency prompted the withdrawal of its operational license. More so, a special examination board constituted by the CBN and NDIC accused the bank of having a credit exposure of about 74 % or N10.055 billion that was non performing while it's unaudited profit of N50.8 million as at March 31, 2001 was a mere paper profit. Its current account with the CBN was said to be overstated with non-existing assets of N1.684 billion, while its inter-branch account was alleged to be un-reconciled such that it had a net debit of N4.009 billion. These may have been the major issues that necessitated the clampdown on the bank, on February 15, 2002. On the contrary, the bank argued that the withdrawal of its license was politically motivated and claimed that it had over N1.8 billion as shareholders funds when the target stood at N2 billion. The bank, also was meeting its obligations to its numerous customers, paying staff salary and did not betray any sign of distress. But industry analysts opine that its promoters may want to play politics with the bank as earlier, instead of looking for professionals and package it to live again.
Challenges
Industry experts fear that N37 billion is still very small to revive a bank which branches have been overgrown by weeds and needs to be refurbished, a bank which requires a new information technology platform, a bank that must refurnish its offices, run two generators in every branch, recruit staff and compete with others for deposits. So where will the rest of the funds come from? Experts who estimate that it requires over N200 billion, asked. The fragile global economy, which has depleted the liquidity profile of Financial Institutions have continued to pose huge problems to many countries. Of course, Nigeria is not an exception as the domestic economy is not expecting any boom as was experienced a few years ago. The price of Crude Oil which the nations main stay, has remained volatile as it hovers between $65.00 and $70pbd. The capital market has yet to fully rebound, having lost about 45% in 2008 and 31% in 2009. And this year, even though the market is on a recovery track, its activity level is still weak. Investors appear to have lost confidence in the market and are not in a hurry to return fully. Therefore, the capital market can hardly serve the bank's purpose in the short run. “This removes the option of attempting to go to the equity market to raise money, because if it tries, it will not succeed” an analyst explained. The chilling performances of African Petroleum Plc, Horney Well Nigeria Plc and Ecobank Transnational Incorporated (ETI) which barely made up to 25% subscription in their public offers last year, are a lesson to companies that want to access cheap funds from the market. Union Bank, a leading financial institution, had to shelve its plans to do a public offering because of the uncertainty in the economy. This year, only Oando and Cadbury Nigeria have successfully raised funds through Rights Issue. All what it means is that Savannah Bank and Societe Generale Bank should look elsewhere for funds. More worrisome is that Foreign Banks which withdrew their credit facilities given the challenges of global financial crisis appear to be watching development from a far. These are pointers that raising huge funds now even by financial institutions that are already in operation, is doubtful let alone those which do not have any form of pedigree in the capital market. Aside from even raising funds, the operating environment is hardly conducive for quick business boom. The CBN's policies of full disclosure, full provisioning and stiff corporate governance, have made it difficult for banks to engage in sharp practices to survive. In fact, not less than 10 banks including Intercontinental, Oceanic, Afribank, Union Bank, Finbank, Bank PHB, Spring Bank, Unity Bank, Equitorial Trust Bank and Wema Bank are already mirred in the dip challenges for breaching regulatory rules. Their non-performing loans which hit about N1.7 trillion while their losses fall within the region of N2.1trillion, have kept them unattractive. The healthy banks are merely surviving, so to say, as many of them posted losses for the period ended December 2009. 
Besides, the likes of Wema Bank seem to have already opted for regional bank status while Unity Bank is struggling in the same market to recapitalize through Rights. 
That their branch net-work is few does not remove the fact that they will spend hugely to maintain them. For instance, it costs Access Bank about N395 million to maintain a branch annually while Zenith spent over N100 billion to run about 300 branches in 2010. That means that Savannah will spend about N42.6billion to run its 108 branches while SGBN would incur huge costs of not less than 16 billion to maintain its 40 outlets. 
How the banks are going to cope with new information technology (IT) is not very clear. Presently their old IT platform would certainly be out of use. IT experts have estimated an amount of $3 million to install a new soft-ware for each of them. Of course, the bank will be compelled to acquire the latest technology to enable it, compete more effectively.
 Another major problem that would certainly worry the banks is that customers might make panic withdrawals as soon as they open their doors for business. Many of them may even migrate to healthier banks. 
Prospects
But one advantage that the banks may have is that they do not have as much toxic assets as the rescued banks. So, they will start on a cleaner slate. They will, also not have much challenges with manpower as the numerous disengaged bank workers will provide a rich source of manpower. Prof. Herbert Orji, Chairman and Chief Executive of Summa Guaranty& Trust Co. Plc, believes that things can turn around since the economy is dynamic. “So long the banks did not lose their licences and they have willing investors who are ready to meet CBN's requirements they have a chance to return to business”, he explained. Similarly, Mazi Okechukwu Unegbu, Chief Executive of MaxiFund Investments& Securities Plc, had said that the CBN can allow the banks to operate should they meet its regulatory conditions. But he expressed doubts that the banks can raise funds in the current economic contraction. “But going by the recent circumstances, I'm not really optimistic because I don't know where they are going to get the money” he concluded. That is certainly the million naira concern agitating the minds of industry stakeholders. Indeed, where will SGBN and Savannah banks source funds to return to active duty?