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Published On: Mon, Sep 3rd, 2018

Banks groan under CBN’s iron fist as economy sputters

OkeyOnyenweaku

Local Nigerian banks have started to groan under the tight fist of the Central Bank of Nigeria’s (CBN’s) determination to sanitise the industry and ensure that corporate governance is strictly adhered to, especially in respect of foreign repatriation of funds by way of divided payments by foreign companies in Nigeria.

Last week the CBN imposed a stiff fine of N5.8billion on four local banks and South African-owned telecommunication giant, MTN Nigeria Communications Limited. The parties were ordered  to immediately refund to the regulator the sum of $8,134,312,397.63, being money allegedly illegally repatriated from Nigeria by MTN.

The local banks caught up in the web were named as Standard Chartered Bank, Stanbic-IBTC, Citibank and Diamond Bank Plc.

CBN alleged that the banks and MTN were collectively considered to have been  in, ‘flagrant violation of extant laws and regulations of the Federal Republic of Nigeria, including the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 of the Federal Republic of Nigeria and the Foreign Exchange Manual, 2006’’ according to the bank regulator.

The Director, Corporate Communications, CBN, Isaac Okorafor, said that the CBN took the punitive measure in response to discovered irregularities concerning foreign exchange remittances and Certificates of Capital Importation issued on behalf of some offshore investors of MTN Nigeria Communications Limited and subsequent investigations carried out by the regulator in March 2018.

“The CBN has therefore asked the managements of the banks and MTN Nigeria Communications Limited to immediately refund the sum of $8,134,312,397.63, illegally repatriated by the company to the coffers of the Central Bank of Nigeria,” he stated.

Details of the punishment by the Central Bank show that, the highest fine of N2.47bn was meted to Standard Chartered Bank, while Stanbic IBTC Nigeria was fined N1.885bn.

Citibank Nigeria was penalised to the tune of N1.265bn, just as Diamond Bank was directed to pay a fine ofN250m for violating CBN rules.

Giving further details, the CBN said it discovered that the sum of $3.448bn was repatriated by Standard Chartered Bank on the basis of the illegally issued CCIs.

It added that the sums of $2.632bn, $1.766bn and $348.914m were repatriated by Stanbic IBTC Nigeria, Citibank Nigeria and Diamond Bank Plc, respectively between 2007 and 2015.

“The CBN’s investigation further revealed that on account of illegal conversion of MTN shareholders’ loan to preference shares (interest free loan) of $399,594,146.00, the sum of $8,134,312,397.63 was illegally repatriated by the company,” the statement said.

CBN’s letter to Standard Chartered Bank states, “Our investigation also revealed the following, among others:  i. The shareholders of MTN Nigeria Communications Limited invested the sum of $402,590,261.03 in the company from 2001 to 2006;

  1. The investment was carried out through the inflow of foreign currency cash transfers and equipment importation, which was evidenced by the CCIs issued by your bank, Citi Bank (CB) and Diamond Bank (DB) at the initial stage of the investment.

iii. The CCIs issued at the time of investment by your bank along with the other banks in respect of the $402,590,261.03 showed that $59,436,923.44 was recorded/invested as shareholders’ loan and $343,153,339.56 as equity. This position was, however, contrary to the position in the financial statements of MTN Nigeria Communications Limited for the year ended December 31, 2007, which revealed that $399,594,146.00 was invested as shareholders’ loan and $2,996,117.00 as equity investment, in accordance with the shareholder’s agreement but contrary to the CCIs issued by your bank, Citi Bank (CB) and Diamond Bank (DB). Your action in this regard constituted a rendition of false returns to the Central Bank of Nigeria.”

CBN’s letter to Stanbic-IBTC states, “Our investigation also revealed the following, among others:

i, The shareholders of MTN Nigeria Communications Limited invested the sum of $402,590,261.03 in the company from 2001 to 2006;

  1. The investment was carried out through the inflow of foreign currency cash transfers and equipment importation, which was evidenced by the CCIs issued by Standard Chartered Bank, Diamond Bank and Citibank, out of which eight of the CCIs totalling $377,216,508.30 were transferred to your bank by Standard Chartered Bank. Consequently, your bank repatriated the sum of $929,051,331.83 as proceeds of divestment from the CCIs valued at $42,704,408.61.

iii. On account of the illegal conversion of the shareholders loan to preference shares (interest free loan) of $399,594,146.00, the sum of $8,134,312,397.63 was illegally repatriated by your bank and the other banks on behalf of MTN Nigeria Communications Limited between 2007 and 2015.”

CBN’s letter to CitiBank says, “Our investigation also revealed the following, among others:

  1. The shareholders of MTN Nigeria Communications Limited invested the sum of $402,590,261.03 in the company from 2001 to 2006;
  2. The investment was carried out through the inflow of foreign currency cash transfer and equipment importation evidenced by the CCIs issued by your bank, Standard Chartered Bank and Diamond Bank;

iii. The CCIs issued by your bank along with the other banks in respect of the $402,590,261.03 showed that $59,436,923.44 was recorded/invested as shareholders’ loan and $343,153,339.56 as equity at the time of the investment. This position was, however, contrary to the position in the financial statements of MTN Nigeria Communications Limited for the year ended December 31, 2007, which showed that $399,594,146.00 was invested as shareholders’ loan and $2,996,117.00 as equity investment, in accordance with the shareholder’s agreement but contrary to the CCIs issued by your bank, Standard Chartered Bank (SCB) and Diamond Bank (DB). Your action in this regard constituted a rendition of false returns to the Central Bank of Nigeria…

“Your bank failed to comply with extant regulations on the issuance of letter of indemnity to the CBN in addition to forwarding the transaction history of the CCIs to the CBN, as provided in Memorandum 24(5)(ii)(b) of the Foreign Exchange Manual in respect of the CCIs received by your bank from Standard Chartered Bank.”

CBN’s letter to Diamond Bank says, “Our investigation also revealed the following, among others:

 

  1. The shareholders of MTN Nigeria Communications Limited invested the sum of $402,590,261.03 in the company from 2011 to 2006;
  2. The investment was carried out through the inflow of foreign currency cash transfer and equipment importation, which was evidenced by the CCIs issued by your bank, Citi Bank and Standard Chartered Bank;

III. The CCIs issued illegally by your bank along with the other banks in respect of the $402,590,261.03 showed that $59,436,923.44 was recorded/invested as shareholders’ loan and $343,153,339.56 as equity. This position was, however, contrary to the position in the financial statements of MTN Nigeria Communications Limited for the year ended December 31, 2007, which showed that $399,594,146.00 was invested as shareholders’ loan and $2,996,117.00 as equity investment, in accordance with the shareholder’s agreement but contrary to the CCIs issued by your bank, Citi Bank (CB) and Standard Chartered Bank (SCB). Your action in this regard constituted a rendition of false returns to the Central Bank of Nigeria.” This action appears to have unsettled the lenders who will have to cough out the fines and also return the monies they have illegally repatriated.

The banks have already not been too comfortable with the harsh macro -economic and tight regulatory environment which has made the industry’s profit much slimmer. Among the banks that have been slammed by the apex bank, Business Hallmark could only lay hands on the financials of Diamond Bank and Stanbic IBTC. Citi Bank and Standard Chartered are not listed on the NSE.

Nevertheless, while it appears that Stanbic IBTC is impressing its shareholders with its half year performance for the period ended June 30, 2018, in which it posted 79 per cent and 17 per cent growth in Profit After Tax (PAT) and gross earnings respectively, Diamond Bank’s shareholders seem to be taking a flight to more viable stocks since they have not been paid dividend for some time now.

On the CBN fine, however, Head Corporate communications of Diamond Bank, Mrs. ChiomaAfe had referred Business Hallmark to the Nigerian Stock Exchange website for the bank’s response saying she did not have any thing to add to the press statement.

‘’We wish to notify the Nigerian Stock Exchange (NSE) and the public of a fine of N250,000,000.00 (Two Hundredand Fifty Million Naira Only), imposed on Diamond Bank by the Central Bank of Nigeria (CBN), following itsinvestigation on foreign exchange remittances on behalf of MTN Communications Nigeria Limited. This followsyesterday’s (Wednesday 29th August) announcement by the CBN on the matter.

We note that these foreign exchange transactions occurred between 2001 and 2006 and currently, we are cooperatingwith the apex regulator to ensure that this matter is resolved. This development does not impact yourability to continue to do business with the Bank. Updates on any new development will be made available to allstakeholders.

We want to assure all stakeholders that the Bank complies with all regulatory policies issued.’’ Diamond Bank had stated in a Press Statement.

‘’The Bank is holding further engagements with the CBN, in relation to theissues it has raised. Please be assured that the above does not impact onyour ability to continue to conduct your various business and corporatetransactions with Stanbic IBTC Holdings or any of its subsidiaries, including

the Bank’’ , Stanbic IBTC had also said in a Press statement.

Analysts believe that the huge fines, if paid by the banks, will have deeper implications on their bottom line at the end of the year.’’ It, according to observers, will be directly charged to their ‘’Profit and loss (P&L) account’’, says a senior banker who pleaded anonymity.

Managing Director/CEO of Enterprise Stockbrokers Limited, Rotimi Fakayode, said the banks will bear the brunt of engaging in such illegal remittances and that their shareholders were already reacting to the incident. Whereas according to him, they lenders will be affected, he emphasised that Diamond Bank which has not paid dividend for some time may be affected more. He added that Diamond bank shareholders were already selling off.

Already, shares of Stanbic/Ibtc and Diamond Banks are taking a hit as their stocks plunged on Thursday in reaction to the fine Central Bank of Nigeria has placed on them. Diamond Bank stock price dropped- 9.3 per cent on Thursday August 30, 2018 from N1.39 per share to N1.26 per share.

Similarly, StanbicIBTC’ s shares also fell, though marginally by -2.58 per cent from N48.50 to 47.35 per share on Thursday 30, 2018. StanbicIBTC and Diamond Bank which are the only two banks that are listed on the Nigerian Stock Exchange in addition to Standard Chartered and CITI bank are included in the four financial institutionsthe CBN imposed a fine of N5.8billion for alleged illegal funds repatriation.

 

 

 

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