How CBN saved commercial banks and the electricity sector from collapse

Following the takeover of five Electricity Distribution Companies (DisCos) by banks, stakeholders supported the Central Bank of Nigeria (CBN) support for the move.

This was even as they said the move would ensure the shares were successfully transferred to new investors, as it remained room for maneuver for the country’s financial and energy sector.

According to industry experts, without this action, the indebtedness of DisCos would have led to the total collapse of some banks as well as the electricity sector.

Supported by the apex bank, depository banks (DMB) had taken over five DisCos due to their poor performance and inability to repay loans.

The development was already putting some banks on the brink of collapse.

In what has been described as poor financial performance, Abuja, Ibadan, Kano, Kaduna and Benin DisCos have been at odds with banks in a takeover backed by the CBN, the Nigerian Financial Regulatory Commission. Electricity (NERC) and the Bureau of Public Enterprises (BPE).

This comes amid a new $500m loan from the apex bank to improve the capacity of distribution companies and also at a time when FG’s intervention in the sector currently stands at $2.9tn. of naira.

Power sector analyst Adetayo Adegbemle noted that the CBN’s roles were imperative, pointing out that the power sector’s indebtedness to the bank would have led to the banks’ collapse.

“I like that CBN entered the electricity sector, not just to save the electricity sector, remember that even though they have a role to play in the sector, they came to save their own banking sector.

“The loans that the power sector has taken out with the banks have gone bad and if you don’t do anything it will be on the banks’ books. So CBN backing banks to take back stocks is a good thing for CBN,” he said.

Similarly, a report by CSL Stockbrokers Limited, (CSLS) titled; “Continued increase in bank lending to the power sector,” it said last week that the power sector owed N836.08 billion to depository banks (DMBs).

He said the DisCos are heavily indebted despite huge stimuli from the FG and interventions from the CBN.

Prior to the takeover, the CBN had ordered depository banks to take over the collection of electricity bill payments.

In a circular signed by Hassan Bello, Director of Banking Supervision, he said the decision was based on the recommendation of the Power Sector Coordination Task Force aimed at improving payment discipline in the Nigerian industry. electricity supply (NESI).

In addition, BPE chief executive Alex Okoh had revealed last week that he was working with CBN to ensure that the banks, which resumed the exit of DisCos in six months, as they were not to hold the shares for life.

“In fact, together with the CBN, we have given them a six month deadline to sell these shares to credible operators approved by the BPE and the NERC and if they are unable to meet this deadline, they can be granted a maximum extension of another six months, so within a year maximum they should be out of DISCOs.

That said, the Chairman of the Nigerian Consumer Protection Network, Kunle Olubiyo, in his contribution, said the takeover helped avert massive job losses and prevent the impending collapse of the banking sector due to what he described as toxic loans.

According to him, the pioneer investors in DisCos are Nigerians, who had good intentions but lacked the required technical requirements of the original financial auction benchmarks and technical auction benchmarks originally set as financial due diligence thresholds. .

“What is most important is our ability as a nation to rally around Indigenous investors with the right financial muscles, who in turn can bring together an assemblage of individual professionals with related collective experiences of working in the sector. power generation, transmission and generation management distribution value chain to apply and support.

“I’m quite sure that in the next, the current generation of receiver managers would have learned a lot from the multi-faceted learning curves industry-wide,” he said.

Furthermore, a partner, Nextier Power, Emeka Okpukpara, noted that the initiatives of the apex bank reduce financial liquidity in the sector, thus introducing transparency, which has enabled players in the sector to have access to information. .

According to him, in addition to providing visibility into the finances of the sector, the efforts ensured the payment of debts as frontline charges.

Okpukpara said, “Financial discipline allows visibility into what DisCos are collecting. It allows liabilities such as production, services and other charges to be settled before operating expenses.

“Transparency, in most cases, increases trust in a system. Therefore, I would recommend that collection figures be made public since DisCos are the depositories of market funds, rather than the owners.

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