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Tag: recapitalisation

  • Recapitalisation: Bureau De Change operators rush to beat deadline

    Recapitalisation: Bureau De Change operators rush to beat deadline

    A member of the Association of Bureau De Change Operators of Nigeria, said on Friday, that majority of the operators had complied with the N70 million capital base requirement for operators.

    The member, Mr Harrison Owoh, told reporters in Lagos that most of the operators were in Abuja to complete the formalities as directed by the CBN.

    Owoh said that though the exercise had distabilised many, most of the operators would not want their licences to be revoked after the July 31 deadline.

    He said that CBN might publish the list of the defaulting operators next week.

    “I do not know whether there were mergers or outright acquisition, but majority of our members are in Abuja to complete the CBN documentation,” he said.

    It will be recalled that the CBN, on June 23, raised the minimum capital requirement for Bureau De Change operators to N35 million from N10million.

    It also raised mandatory caution fee from 10,000 dollars to N35million, bringing the total requirement to N70 million.

    But the association protested and urged the CBN to give it members up to 40 weeks from June 23 to comply with the directive.

    Besides, the association also appealed to the CBN to reduce the N35 million caution deposit.

  • Will BDCs beat recapitalisation deadline?

    Will BDCs beat recapitalisation deadline?

    The deadline for Bureaux De Change (BDCs) to raise their capital from N10 million to N35 million expires tomorrow. The Central Bank of Nigeria (CBN) is insisting on the BDCs’ compliance. Will they scale the hurdle? COLLINS NWEZE reports.

    All his efforts came to nought after hours of trying to get the Central Bank of Nigeria (CBN) leadership to change its stand in the recapitalisation of Bureaux De Change (BDCs)

    President, Association of Bureau De Change of Nigeria (ABCON) Alhaji Aminu Gwadabe spent over two hours with CBN Governor Godwin Emefiele trying to convince him on how vital BDCs are to the economy.

    He told the CBN boss that allegations that BDC operators are involved in money laundering and terrorism financing were not correct. He urged the CBN to rescind the June 23 guidelines on the raising of the capital base of BDCs from N10 million to N35 million, a caution fee of N35 million and another N1 million registration fee, bringing the total cost of operations to N71 million. Gwadabe said the recapitalisation policy was an indirect attempt to empower few operators and force many others out of business.

     

    The guidelines

    On June 23, the CBN, among other things, raised the minimum capital requirement of BDCs to N35 million from N10million. It  raised the mandatory caution deposit to N35 million from $10,000.

    Again, on July 7, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of ABCON and both chambers of the National Assembly.

    In a circular, CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.

    But Gwadabe said the amendments were far from the recommendations made by the association at a meeting with the CBN Governor on July 1.

    “We recommended that deadline for compliance should not be less than one year as it is the tradition of the CBN in the recapitalisation exercise for other regulated entities. This is because no organisation can meet the statutory requirements for recapitalisation, either by raising fresh capital or through mergers/acquisition, within the period stipulated as deadline by the CBN for BDCs to meet the new minimum capital requirements. By asking BDCs to recapitalise within one month, the CBN is probably asking them to disregard these statutory requirements, and hence commit illegality.”

    ABCON, he said, also rejected the CBN decision to limit the weekly dollar sale to BDCs that meet the new requirements by July 31. This, he said, would bring back the activities of black market and fake currency operation, which the BDCs were able to abolish following their emergence as a monetary tool of the CBN in 2006.

    The policy, Gwadabe said, would give banks the opportunity to hijack the weekly dollar sales to BDCs. “Before CBN started selling dollars to BDCs in 2006, banks were not interested in BDC business. But as soon as the dollar sale started, they saw it as an avenue to make cheap profit, and pressurised the CBN to categorise the sub-sector into Class “A” and Class “B” BDCs.

    He said the minimum capital requirement for Class “A” BDCs, mostly owned by banks and money bags,  was set at N500 million, adding that they were allowed to buy $1 million weekly, while Class “B” BDCs  with N10 million minimum capital requirement, were allowed to buy just $50,000 per week. That was how the CBN allowed the banks and money bags to hijack the dollar sales to BDCs in 2009, he added.

    “This, we believe is what will happen once the CBN limits dollar sales to BDCs that meet the N35 million minimum capital requirement, and mandatory caution deposit.  It is an indirect way of handing over the weekly dollar sales to banks and money bags, which had no interest in BDC business until CBN started selling dollars to BDCs.”

    “The savings interest rate on caution deposit should also be reviewed to reflect market reality as the chunk of deposits to be realised by the CBN would be placed in treasury bills that attract between nine and 10 per cent per annum presently,” Gwadabe said.

    He said the CBN regulation should be in line with standard practice. “For instance, during the time of recapitalisation of banks and microfinance banks, a deadline of 102 days were extended to them. I was surprised that only 21 working days were extended to the BDCs. If this is allowed to go, it will be vindictive and will be seen as if the policy was designed to favour a kind of selected few,” he said.

    The ABCON chief said there was the need for categorisation of BDC operators and also promoting constructive engagement with the regulator. He said ABCON has met with the CBN Governor, Godwin Emefiele, to make its position known to him.

    “Some of our recommendations is extension of time. Also, N35 million should be a percentage of funding. During Prof Charles Soludo’s tenure as CBN Governor, he told us to put $200,000 in cautionary deposit, I will give you $1 million weekly. If Godwin Emefiele is saying, give us N35 million caution deposit, we expect the money to be a 20 per cent of the dollar he is going to sale to us,” he said.

     

    Way out

    ABCON has, therefore, proposed a 40-week timetable for operators to meet the new minimum capital requirements. He added that the proposal has been sent to the CBN Governor for consideration.

    He said though the apex bank has extended the deadline by three weeks to July 31st, the time was still too short to enable BDCs comply with the statutory and legal requirements of the new policy. The timetable, he said, contained actions needed to be taken to enhance the successful implementation of the policy for the subsector.

    Gwadabe said: “The timetable starts with sensitisation seminars to educate members on various options to consider in meeting the minimum capital requirement. We plan to hold these seminars in each geopolitical zone of the federation. Moreover, we would assist members scout for consultants to guide them on issues of valuation of existing companies in order to accommodate new members and or achieve harmonious merger. This is in line with what the CBN did for banks during the recapitalisation exercise of 2004”.

    The group has appealed to the CBN to allow the minimum capital base to be N35 million and the caution deposit N5 million so as to source the caution deposit from the capital base of the company and the balance of N30 million be used as working capital of the BDCs.

     

    Dollar sales to BDCs slashed

    The CBN has cut dollar sales to BDCs by 70 per cent from $50,000 per week to $15,000. This is coming ahead of tomorrow’s deadline for operators to comply with new requirements for their operation.

    The N35 million caution raused from $20,000 represents a 1000 per cent hike among other conditions set by the apex bank in its June 23 guidelines for the subsector.

    Managing Director, Kayewd Bureau De Change (BDC) Limited, Rotimi Dada, who confirmed the new dollar sales to BDCs, said the action has cut down dollar supply to the market, and reduced profit margins for operators while the overhead costs remain the same.

    On the sideline of the ABCON public hearing in Lagos, he said operators had rents to pay, adding that they are not able to meet market demands for the dollar which is bad for the market. He said there is a multiplier effect of the policy, which makes it difficult for operators to buy dollar from commercial banks.

    Dada said the CBN was acting a bit hasty by cutting the dollar sales to BDCs and that the regulator should consult with stakeholders on what needed to be done. He said the CBN should see the BDCs as macroeconomic factors that favour the economy.

     

    Alleged terrorism financing

    BDC operators have denied sponsoring terrorism. Gwadabe said this when he led members of the association to meet the Committees on Finance of both chambers of the National Assembly in Abuja.

    Gwadade urged the National Assembly to intervene in the N35 million capital base for BDCs imposed by the CBN. “Money laundering and terrorism are aspects of specialised relevant agencies. The National Financial Intelligence Unit (NFIU), the police and Customs will checkmate the activities of money launderers and terrorism financiers and bring the culprits to book. It should not be the CBN’s primary concern. Our members too have been trained by the relevant agencies and are helping them understand the consequences and implications of money laundering and terrorism financing,” he said.

     

    Foreign reserves soar

    The foreign reserves have been on the rise since the CBN cut dollar sales to BDCs from $50,000 per week to $15,000.

    CBN said the BDCs’ guidelines were modified to, among others, conserve the foreign reserves. Analyses of the reserves, based on data from the CBN, showed that they have risen by over $1.2 billion since June 24, when the CBN unfolded new requirements for BDCs operations, which also led to cut in dollar sales.

    The reserves which were $37.2 billion on June 24 rose to $38.94 billion on July 24. The rate of accretions to the reserves has been marginal but consistent since the dollar cut.

    The reserves were $37.23 billion, on June 25; $37.26 billion, June 26 and $37.31 billion, June 27. The reserves also rose to $37.54 billion on July 1 and continued the upbeat till current position.

     

    CBN’s position

    The CBN has reiterated that its modifications to the guidelines on the regulation of BDCs are aimed at conserving the country’s foreign reserves, among other objectives.

    Emefiele, who spoke during an interactive session with the House of Representatives Committee on Banking and Currency, explained that modifications had to be made on the guidelines following observations that the operations of BDCs in the country had deviated from the objectives for which they were lisensed in the first place.

    He observed that many operators were only interested in widening margins and profits from the foreign exchange market, regardless of the prevailing official and interbank rates.

    He said a cross-country survey of BDCS done by the CBN revealed that 93 per cent of them were in breach of the objectives and provisions of the guidelines. He also said many BDCs had no good accounting records, many had no adequate sales document and lacked audit trail.

     

  • Recapitalisation:MfBs urged to consider merger, acquisition

    Recapitalisation:MfBs urged to consider merger, acquisition

    Microfinance banks  (MfBs) yet to recapitalise  in line with the Central Bank of Nigeria (CBN) directive have been urged to seek local or international funding or go into mergers and acquisition.

    The National President of Nigeria Association of Microfinance Banks (NAMB), Valentine Whensu, told The Nation that the MfBs have been advised to merge or ask their directors for fresh funds.

    According to the CBN, MfBs are supposed to recapitalise into state and national categories. Those which are unable to recapitalise are to remain as units. To recapitalise, a unit MFB needs N20 million, state MfB, N100 million and national MfB, N2 billion.

    A unit MfB bank is authorised to operate in one location without branches/cash centres, while that of a state is allowed to open branches in the same state or the Federal Capital Territory (FCT). But a national MfB can operate in more than one state, including the FCT. It is allowed to open branches in the states and the FCT, though subject to the approval of the CBN.

    Whensu, who is also the Managing Director and Chief Executive Officer of Global Initiative Microfinance Bank, said: “So far, so good; we have advised our members who cannot meet up with the CBN directive to merge with other microfinance banks, or ask the directors to inject fresh funds. And again, they also need to look properly at their books, to see exactly what they needed to do to meet up the recapitalisation move.”

    The banker said by severally shifting the recapitalisation deadline, the CBN has shown that it is committed to the success of the subsector.

    “The CBN has been so kind with us. I just appeal to our members to meet up with these conditions,” he said.

    The bank chief said the association can only help in terms of capacity building, so as to enable operators improve their businesses.

    “A lot of us are here to ensure that operators in the MfB subsector do things right, since we don’t have funds for giving them. But I advise them to embrace international funding, where available,” he said.

    The CBN said many MfBs were deficient in their understanding of the microfinance concept. It said poor corporate governance and a high level of non-performing loans, among others, are also key challenges facing the subsector.

    According to CBN’s operational guidelines for the establishment of MfBs, they are not expected to engage in excessive spending.

    The CBN had shifted the recapitalisation deadline for the subsector by one year to December 31, 2013.

    In a circular to banks before the new deadline, CBN Director, Other Financial Institutions, O.A. Fabamwo, said it was exigent to remind directors and shareholders of MfBs that the deadline is sacrosanct.

    He, however, advised the banks to conduct due diligence and seek legal and financial advice. He reminded directors and shareholders of MfBs on the deadline for compliance with the Revised Microfinance Policy Framework, particularly on the capital requirements for each category of MfBs and branches/cash centres.

    He said henceforth, ‘customer interaction centres’, ‘meeting points’ and ‘customer service centres’, or similar outlets, located outside the registered business premises of a unit MfB shall be regarded as unauthorised/unapproved branches/cash centres if the deadline is not met.

    Besides, previous approvals for such outlets for unit MfBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN.

    “Also, insider-related loans shall not exceed five per cent of the shareholders’ funds unimpaired by losses. For this purpose, loans under a staff scheme shall not be taken into account. State and local government’s equity participation in MfBs is allowed under the revised guidelines to facilitate financial inclusion. However, all such investments must be gradually divested to private-sector investors within a maximum of five years.

    “In addition to the Head Office, Unit MfBs are allowed to have not more than one branch within the Local Government Area approved for their operation. This is subject to the availability of free funds (shareholders’ funds unimpaired by losses, less fixed assets and long term investments) of at least N20 million and maintenance of the prescribed minimum prudential requirements,” the CBN said in  new guidelines for the subsector.

    Many of the MfBs liquidated by the Nigeria Deposit Insurance Corporation (NDIC) ran into trouble when their debtors refused to pay back their loans, over 80 per cent of which were unsecured. Besides, some of the MfBs were taking excessive risks, and branching out too quickly without considering resources at their disposal and whether utilised funds were short or long term obligations.

  • CBN extends recapitalisation deadline for MfBs till Dec 31

    CBN extends recapitalisation deadline for MfBs till Dec 31

    The Central Bank of Nigeria (CBN) has extended the recapitalisation deadline for microfinance banks (MfBs) to December 31, 2013. The deadline expired in December, last year.

    Director, Corporate Communication, CBN, Mr Ugochukwu Okoroafor, told The Nation that the deadline was extended following the MfBs’ plea.

    Under the proposed recapitalisation, MfBs are required to have N20 million for a unit license, N100 million, state license, and N200 million, national license.

    Following the deadline’s expiration last year, the banks asked for more time to shop for funds to recapitalise.

    Okoroafor said: “We have agreed to shift the deadline given to the banks to raise their capital. I do not want to give a date that is not correct. I need to check the new date from the office next week. But the new date is this year.”

    The National Association of Microfinance Banks (NAMBs) has said it is awaiting CBN’s formal announcement of the extension. The association’s Chairman, Southwest Region, Mr Olufemi Babajide, said MfBs had received feelers that the deadline has been extended till December 31, 2013.

    He said: “Though the apex bank has not issued a circular to that effect, there is hope that the banks would get another date to recapitalise their businesses. Having realised that the banks have failed to meet the 2012 deadline, we made some recommendations to CBN.

    “Top on the list is the issue of extension of the capital base deadline. Other issues are funding of the bad debts of the banks, extension of branches, and how to ensure smooth running of the banks. We have presented our positions, they promised to review them and get back to us.”

    The formal announcement of the extension, he said, was not something the CBN could do hastily, stressing that the regulator believe in due process. He said: “We strongly believe that the shift in recapitalisation deadline would be formalised soon. He added that discussions are on-going on the release of the N220 billion Microfinance Development Fund and the N75 billion approved for the take-off of the National Incentive-Based Risk Sharing in Agricultural Lending (NIRSAL).

    Babajide said the government was interested in developing the agricultural sector, stressing that the fund would be given to the banks for distribution to farmers in the 36 states, including the Federal Capital Territory (FCT).

    He said CBN has not told the banks when the funds would be released to the beneficiaries, but MfBs are trying to make the funds available to the operators as soon as the cash is available.

    The Managing Director, LAPO Microfinance Bank Limited, Mr Godwin Ehigiamusoe, said though many banks have the capacity to raise the requisite capital, there is the need to extend the deadline in the interest of the sub-sector.

    Ehigiamouse said operators were optimistic that the deadline would be extended, advising banks to try and make funds available to the operators to enable them to develop the economy.

    He said the CBN’s reforms have engendered growth in the industry, arguing that banks are now better placed to conduct transactions hitherto beyond their reach.

    He urged operators to work harder by trying to meet standards stipulated by the CBN.

     

  • Recapitalisation: Mortgage banks in merger, acquisition talks

    Ahead of the April 31 recapitalisation deadline, Primary Mortgage Institutions (PMIs) are forming an alliance to meet the new capital base.

    Last year, the Central Bank of Nigeria (CBN) directed mortgage institutions that want to operate nationally to raise their capital from N100 million to N5 billion and their state counterparts, N2.5 billion.

    Managing Director, Skyfield Savings & Loans Limited, Mr Kola Abdul, said the alliance was formed at a stakeholders’ meeting.

    He said: “Ahead of the April 31 deadline, the Mortgage Bankers Association of Nigeria (MBAN) brought together operators to brainstorm on the issue of recapitalisation and the options to be adopted.”

    According to him, some firms have agreed to merge, while others want to grow organically to meet the deadline.

    He said negotiations had started among those planning to merge so as to get the needed capital before the deadline.

    The paramount issue facing the companies, he said, was how to meet the deadline, not the size of their businesses.

    Abdul said: “The smaller mortgage banks need to merge with the bigger ones in view of the recapitalisation deadline. The Central Bank of Nigeria (CBN) has provided a flexible recapitalisation regime by directing the firms to either play at the state or national level. Therefore, the issue of merger is a welcome development that would foster the growth of the sub-sector.

    “Given the situations on ground, the issue of mergers and acquisitions cannot be ruled out.”

    He said mortgage firms’ contributions to the Gross Domestic Product (GDP) is low, adding that it would improve after recapitalisation. The recapitalisation would make the firms more active and function well in the financial market, he said.

    MBAN Executive Secretary, Mr Kayode Omotoso, said mortgage institutions would shop for funds at the capital market.

    Besides, there would be mergers and acquisitions as well as take-overs in the sector in the coming months.

    “There would be mergers; there would be acquisitions; there would be takeovers; there would be strategic investments and there would be efforts to go to the capital market for the mortgage banks to meet up with the deadline. More mortgage banks will approach the capital market to raise equity while the sector will approach the capital market to raise equity, hybrid and long-term debt instrument to finance home ownership,” he added.

     

  • PMIs in merger bids to beat recapitalisation deadline

    Primary Mortgage Institutions (PMIs) are considering mergers and acquisitions to beat the April 2013 deadline to recapitalise their operations, The Nation has learnt.

    Other plans include approaching the capital market for funds to execute capital projects and for reca-pitalisation. The development is necessary to enable PMIs that wish to operate at the national level raise their capital base from N100 million to N5 billion; those seeking to play at the states’ level must have N2.5 billion before the deadline expires.

    According to operators, the step will enable the banks consolidate their businesses, compete favourably, and avoid being axed by CBN.

    Managing Director, Skyfield Savings & Loans Limited Mr Kola Abdul said mergers and acquisitions have become necessary to enable the PMIs get fresh capital for their operations. Abdul said mortgage banks can only work efficiently when they have enough capital at their disposal, adding that negotiations are on-going among the banks to merge their operations and get the needed capital before 2013.

    Mortgage banks, he said, are not looking at their sizes with regards to mergers and acquisitions, arguing that the ultimate is meeting the deadline.

    He said: “The smaller mortgage banks need to merge with the bigger ones, in view of the recapitalisation deadline. The CBN has provided a flexible recapitalisation regime by directing the firms to either play at the state or national level. Therefore, the issue of merger is a welcome development that would foster the growth of the sub-sector. There is no way mergers and acquisitions would not take place under the present dispensation.”

    According to him, the issue of continuous devaluation of the naira has watered down the local currency and the operational capital of the mortgage institutions.

    “The required capital to set up a mortgage firm has become low due to the instability of the foreign exchange market. What a mortgage firm is holding in its vault to meet operational demands is nothing now. N200 million is nothing when the sub-sector is expected to finance big-ticket transactions for the growth of the economy. Often times, when you finance mortgages, you get locked to bad foreign exchange regime. To finance another one becomes a problem.“

    He said mortgage banks are contributing less than one per cent to the Gross Domestic Product (GDP), adding that its contributions would increase after the banks have pooled their capital base in the name of mergers and acquisitions.

    Abdul said PMIs would become functional at the secondary market in line with the CBN’s recapitalisation order.

    The Executive Secretary of Mortgage Banking Association of Nigeria (MBAN), Mr Kayode Omotoso, said mortgage institutions would approach the capital market to source for funds. Omotoso said apart from raising funds from the capital market, there would be mergers and acquisitions as well as takeovers in the mortgage banking sector in the coming months.

    “There would be mergers, there would be acquisitions, there would be takeovers, there would be strategic investments and there would be efforts to go to the capital market for the mortgage banks to meet up with the recapitalisation deadline. More mortgage banks will approach the capital market to raise equity while the sector itself will approach the capital market to raise equity, hybrid and long term debt instrument to finance home ownership,” he added.