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What are the specific objectives of the new microfinance policy?
  The specific objectives of the microfinance policy are to: (a) Make financial services accessible to a large segment of the potentially productive Nigerian population which would otherwise have little or no access to financial services. (b) Provide synergy and mainstreaming of the informal sub-sector into the national financial system. (c) Enhance service delivery by microfinance institutions to micro, small and medium entrepreneurs (MSMEs). (d) Contribute to rural transformation by mobilizing savings. (e) Promote linkage programme between microfinance institutions (MFIs), Deposit Money Banks (DMBs), Development Finance Institutions (DFIs), specialized Funding institutions. (f) Create employment opportunities and increase the productivity and household income of the economically active poor in the country, thus enhancing their standard of living. (g) Promote a platform for microfinance service providers to network, exchange view and share experience.
 

Who are the target clients of Microfinance Banks?
  Microfinance Banks target client includes the following group of persons: (a) The economically active poor. (b) Low-income households (c) The un-banked and underserved people, particularly vulnerable groups such as women, youths and the physically challenged. (d) Informal sector operators, micro-entrepreneurs and subsistence farmers.
 

What steps is the CBN taking to support the banks in their recovery efforts?
  The CBN will cooperate with the management teams in the banks and all relevant government agencies including the EFCC, Police and the Judiciary to support recovery efforts of the banks. As a first step, the major debtors (including officers and directors) who have failed to liquidate their indebtedness have been named through publication in National Newspapers. This effort shall be sustained.
 

Why does the CBN have to undertake the audit of deposit money banks?
  One of the core mandates of the CBN as contained in section 2 of the CBN Act 2007 is to promote a sound financial system in Nigeria. This function is carried out through the supervision and regulation of financial institutions including Deposit Money Banks (DMBs). In carrying out this function, the CBN relies on the provisions of sections 30-32 of the Banks and Other Financial Institutions Act (BOFIA) which empowers it to carry out routine examination of banks, other financial Institutions and specialized banks. The audit of DMBs is therefore in consonance with the responsibilities of the CBN under its enabling Laws. As a result of the global financial crisis which adversely affected the Nigerian economy, in particular the capital market and oil and gas sectors, it was observed by the regulators that some Nigerian banks had huge concentration of exposure to these two sectors, in addition to general weaknesses in risk management practices, poor corporate governance practices and signs of illiquidity as confirmed by the regular visits of the affected banks at our Expanded Discount Window (EDW) and the Standing Lending Facility (SLF) window from October 2008. It therefore became compelling to ascertain the true financial health of the Nigerian banks in the public interest.
 

What is the status of the shareholders of the five banks?
  In the light of the measures adopted so far by the CBN, the existing shareholders of these banks still remain intact, because the funds injected into the banks by the CBN are loans. However, the extent of their holdings will be ascertained after due diligence and recapitalization of the respective banks.
 

What other steps is the CBN taking to ensure the safety of depositors’ funds?
  In the short-term, the CBN would continuously enlighten the public on the actions that have been taken and the basis for those actions. In addition the CBN has instituted independent and competent management to run the affairs of the affected banks as going concerns. Furthermore, for the long-term, the CBN has put in place new supervisory techniques such as risk-based supervision, with special emphasis on macro-prudential regulation and sound stress testing practices, consolidated supervision, deployment of resident examiners in deposit money banks and the strengthening of the supervisory process. The CBN has also appointed local and international financial experts to advise the banks on their recapitalization plans, risk management systems, setting minimum disclosure and reporting requirements and standards and identifying potential investors among others. The CBN has assured the general public that no bank would be allowed to fail. Indeed, the Federal Government of Nigeria (FGN) has reassured that no bank would be allowed to go under.
 

What will happen to the staff of the affected banks?
  The staff of the five banks are still bonafide employees of their banks. They are therefore required to cooperate with the reconstituted management teams, discharge their obligations professionally and with the utmost commitment and loyalty. However those that have abused their positions or are found to be involved in the mismanagement of any institution will be dealt with in accordance to the laws of the Federation.
 

What would happen to the banks after the exit of the CBN?
  Since the CBN investment in these banks is temporary, it is expected that the respective management teams of the banks would nurture them to health for possible recapitalization by the shareholders.
 

Why take action on these five banks now rather than wait for the completion of the audit of all the banks?
  CBN has a responsibility to act in a timely manner to secure the financial health of banks and to protect all depositors and creditors. The five institutions concerned were in a grave situation and their management had acted in a manner detrimental to the interest of their depositors and creditors, hence the need for CBN’s timely intervention.
 

Will the full result of the audit be made public?
  The CBN carries out its supervisory duties in respect of banks, Other Financial Institutions (OFIs) and specialized banks under conditions of confidentiality as contained in section 30 of the BOFI Act. In this regard, details of the audit as it affects individual institutions cannot be made public. Individual banks are however expected to make appropriate disclosure including full disclosure of loan provision in financial statements in line with international standards not later than September 2009. However, the broad findings as they affect the financial system have been made public and are well documented in the press.
 

With the removal of CEOs and executive management in the five banks, what is the status of the respective boards of the banks?
  The boards of the affected banks remain intact as the newly appointed CEOs and the Executive Directors to be appointed by the CBN, shall continue with non-executive directors to give board oversight as newly constituted members of the board. The non-executive directors are expected to remain on the boards of the affected banks except in cases where an individual board member is found culpable; such a person shall be removed.
 

Would the CBN adopt similar measures after the conclusion of the Special Examination of the other banks?
  The current measures adopted by the CBN are part of further reforms to build confidence in the banking system. The ongoing special examination would cover all the other banks as well. Where necessary, similar measures would be applied to any bank found to be saddled with the same protracted problems as in the case of the five banks.
 

What form will the capital injection by the CBN take and at what price is the CBN granting banks such capital?
  Section 42 (2) of CBN Act provides that the Bank may grant loans and other accommodation facilities at such rates of interest and terms to any bank which may be having liquidity problems. This funding is in the form of a long term loan which forms part of the Tier-2 Capital of the affected banks. Under the current arrangement, the loan has a tenor of 7 years but is non-callable for 5 years and is priced at MPR + 500 basis points i.e. a total of 11% p.a.
 

What happens if any of the five affected banks fails to recapitalize within the shortest possible time?
  The CBN has assured that no bank will be allowed to fail. Indeed, the Federal Government of Nigeria has also reiterated this fact. However, should any of the affected banks fail to recapitalize within the shortest possible time, the CBN may consider a merger or acquisition option in resolving the problem.
 

In specific terms, are the five banks authorized to participate in the Wholesale Dutch Auction System (WDAS)?
  The foreign exchange dealership licenses of the five banks have not been revoked by the CBN; therefore as going concerns, they are considered as authorized dealers in the foreign exchange market. Consequently, the affected banks would not be barred from further participation in the WDAS.
 

In summary, what were the findings of the audit?
  • Excessively high level of non-performing loans • Poor corporate governance • Lax credit administration • Failure to meet prudential ratios such as liquidity and capital adequacy • High level of loan concentration to the capital market and oil and gas sectors
 

To what extent is the interest of all creditors protected under the new arrangement?
  With the injection of the sum of =N=420bn into the five banks which are now managed by independent and competent management teams, the creditors are reassured of the commitment of these banks to their obligations. In addition, the CBN has guaranteed all foreign loans and correspondent banking lines of the five banks.
 

Was the intervention by the CBN necessary to save the five banks?
  The intervention of the CBN to save the five banks was necessary because the banks were systemically important to the banking industry in terms of assets and deposits. For example, the five banks accounted for 39.93% of loans, 29.99% of deposits and 31.47% of total assets as at May 31, 2009 in the banking system. The CBN therefore, believes that the successful resolution of the five banks would address the systemic pressures that the industry was experiencing.
 

Are the five affected banks allowed to render normal banking services to customers?
  The affected banks are expected to continue to render normal banking services to their customers in line with the provisions of all relevant laws and regulations governing banking business in Nigeria.
 

Does CBN have the power to remove CEOs and Executive Management of Banks?
  Upon examination of a bank, where the CBN is satisfied that the bank is in a grave situation, with respect to matters set out in Section 33 (2) (c) of the BOFIA, the Governor may by order in writing remove for reasons to be recorded in writing with effect from such date as may be set out in the order, any manager or officer of the bank, notwithstanding anything in any written law or limitations contained in the memorandum and articles of the association of the bank. Also this power is exercisable under the CBN Act 2007 section 42 (1) (b) which mandates the CBN to ensure high standards of conduct and management throughout the banking system.
 

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Facts : 1/1/1900
Structural Adjustment Programme (S.A.P.):Introduced in June 1986, the Structural Adjustment Programme was introduced after a public debate on IMF loan conditionalities. It was aimed at re-structuring the productive base of the ecnonomy and promoting non-inflationary economic growth.
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