In a long time to come, Lamido Sanusi will be remembered as governor of the Central Bank of Nigeria, CBN, who carried out a reform that inflicted excruciating pains on the banking sector, the economy and the people. At the pre-convocation lecture, which he delivered at the Bayero University, Kano recently, the flaws that characterise his reform became more glaring. Sanusi released what was tagged the four pillars of the reform namely: “Enhancing the Quality of Banks; Establishing Financial Stability; Enabling Healthy Financial Sector Evolution; and Ensuring that the Financial Sector Contributes to the Real Economy”.
Not long ago, it was Remi Babalola, minister of state for finance, who raised the red flag over Sanusi’s arbitrary approach to the reform. Largely considered to be a collection of vague words, not a few people have wondered why the CBN governor found the convocation ground of Bayero University the most convenient forum to announce such a crucial public policy, ignoring stakeholders in the troubled banking sector.
Nelson Ireoba, an investment analyst, is of the view that the fact that the CBN is coming up with what it calls a blueprint for the transformation of the banking sector, six months after it started the reform, is clear enough indication that even the regulator does not have a clear direction of where the reform is heading to.
Aside from the fact that the CBN is selling what seems to be a belated blueprint to the country, concerned operators in the banking sector are also worried that a copy of the document cannot be seen anywhere. Renaissance Professionals, a team of aggrieved stakeholders had argued severally in newspaper advertorials that a document of such national importance should serve as a guide to members of the business community who may find the entire process of the banking sector reform difficult to understand. That cannot be contested.
Sanusi had also been confronted with questions as to why he is releasing the blueprint in piecemeal. Obviously, what should have been the content of the blueprint may have been exhausted over time but without a clear focus on how to regulate the banking sector.
“The inconsistencies in the whole process is becoming nauseating”, a banker told the magazine last week. After its last Monetary Policy Committee meeting, the CBN announced a reduction in lending rate on its standard lending facility from two per cent to one per cent. Sanusi had expressed worry that banks have kept about N600 billion with the apex bank without lending.
But the concerns raised by stakeholders in the financial sector is whether any bank managing director, would begin to grant loans under the Sanusi regime given what happened to bank chiefs who were sacked by the CBN governor; arrested, detained and are being prosecuted by the Economic and Financial Crimes Commission, EFCC, accused of granting unsecured loans.
Observers are also watching to see the response of the business community from where several top executives were thoroughly embarrassed having had their names published in national newspapers and given the image of dubious businessmen and women who took loans from banks and never wanted to pay back. The greatest concern is that normal business transactions between banks and their customers were given the face of cr criminality. “Was it not the same CBN that embarrassed banks’ chief executives; was it not the same CBN that published the names of entrepreneurs in newspapers as loan defaulters?”, Ireoba queried.
As fallout of the reform, job losses in the banking sector have assumed a worrying dimension. Industry experts estimate that no fewer than 23, 000 bank jobs have been lost in the last six months. Up until last week, some of the banks that were negatively affected by the reform were still sacking workers. Aside from the banking sector, the manufacturing sector has also suffered a major setback since the reform began. In the last six months, the situation in the manufacturing sector has worsened, leading to massive job losses and closure of companies.
Worse still, capacity utilisation in the industry which hovered between 35 per cent and 40 per cent in the last quarter of 2009, further dropped to 27 per cent within the first quarter of 2010. Paul Oduloye, a manufacturer of beverages, predicts that the collapse of the manufacturing industry may soon lead to dumping of inferior and substandard products in the country. Even as the CBN says it would work towards ensuring that banks resume granting loans, Oduloye thinks that the step is being taken long after a great damage had been caused.
The woes of the manufacturing sector were indeed, compounded by an avoidable credit squeeze that came with the reform. A top bank executive told the magazine last week that there is a huge lull in the credit department of almost all the banks because new credits are not being processed. “All we do these days is get to the office, while away time a and leave the office at the close of work”, she explained.
The reform in itself has been described as one that is full of sound and sensation but achieving nothing. After what seemed to be a genuine step to recover loans from bank debtors through the EFCC, many of the banks, reports say, have not moved away substantially from where they were as at the time they were taken over by the CBN. For instance, out of about N1.5 trillion which the CBN said it saw in the books of the banks as bad loans for which it enlisted the services of the EFCC in a celebrated manner, only about N200 billion representing about 13 per cent, has been recovered by the banks. Concerned stakeholders in the banking sector have therefore, wondered what impact that has made on the financial system and the economy given the premium which the CBN attached to the recovery.
For the CBN, recovery of the loan may no longer be the issue. All efforts are now being directed towards selling off the banks. Sadly, these are areas where the apex bank had expended so much energy and resources before coming up with a blueprint. But as arrangements to sell off the banks began to attract condemnation mainly because the shareholders were totally left out and ignored by the CBN, the Senate suspended debate on the establishment of the Asset Management Company, AMC.
- The company was intended to buy-off all the toxic loans of the troubled banks when it comes on stream. That, according to the CBN, would then make the banks attractive to new investors. But existing shareholders insist that the CBN does not own the banks even with its N620 billion intervention fund and therefore, does not ha
have the right to sell them.
By Sanusi’s agenda, the AMC would have come on stream by the end of February. He also projected that sale of the banks would commence by April and end by June 2010. That has been stalled.
No doubt, Sanusi is desperate to sell the banks. If he succeeds, the CBN may witness an unprecedented number of litigations challenging the sales. Industry analysts are of the view that recent developments relating to litigations in the banking sector have emboldened the victims of Sanusi’s unregulated reform. For instance, on March 5, 2010, the Supreme Court voided the sacking of Bernard Alonge, former managing director of First Bank of Nigeria, FBN.
Alonge was sacked in 2002 following allegations of misconduct bordering on granting of loan to International Investors Limited London, IILL, in respect of acquisition of telecommunications licence in Nigeria. Interestingly, nine years after, the apex court ruled that Alonge’s sack did not follow due process. Labour activists suggest that this could very well serve as a lesson to Sanusi, who last year, sacked managing directors of eight banks and their boards.
The sack gale, which also affected several top executive management staff in the affected banks came in two batches following a controversial audit carried out by the CBN. The apex bank had concluded that the affected banks had liquidity problems arising from their huge exposure to the capital market, petroleum marketing companies, specific large ticket transactions and what it also called massive non-performing loans. It then went further to classify the banks as technically insolvent and undercapitalised.
What irked many observers was the fact that no top bank executive was given the opportunity to defend the findings of the CBN. Not a few people also wondered how the same auditors and examiners drawn from the CBN and the Nigeria Deposit Insurance Corporation, NDIC, who have been examining the banks for long, suddenly came up with ground-breaking revelations on rot in the banks.
To add to the confusion, Sanusi explained that he ordered the investigation when he discovered the frequency with which some banks were accessing the Extended Discount Window of the CBN. Sanusi also gave a hint that suggests he was spying on the banks even before he became governor of CBN. This is considered to be unethical and interpreted by bankers to mean that there must be some measure of personal vendetta in his words and actions.
Similarly, a federal high court sitting in Abuja, last year, nullified the revocation of the banking licence of Savanna Bank, which was carried out by the CBN seven years ago. The same goes for Societe Generale Bank of Nigeria, SGBN, whose promoters headed for the courts to challenge their closure. A similar reversal also took place in the forceful acquisition of Spring Bank by Platinum Habib Bank.
For both local and foreign investors who are currently positioning themselves to take over the troubled banks, this could very well serve as a danger signal as the process by which the CBN is trying to sell the banks leaves much to be desired.
Some economists have argued that banking licences granted operators in the system should not be perpetual. This, they claim, will act as a deterrent to bank executives who h who have penchant for violating corporate governance code. But how the CBN goes about this remains a fundamental issue. In like manner, the view has been canvassed that what the consolidation exercise of the previous regime at the CBN failed to do was to allow for stratification of the banking industry such that small, medium and big players will operate according to their strength. Conversely, another group of opinion leaders believe that the pegging of minimum capital base for banks at N25 billion was enough stratification for any set of bank promoters. They contend that the CBN expected those that could not fit into the system to play at the level of the microfinance banks. “The new move to further stratify the industry may just be aimed at extending favour to friends of the CBN governor”, one of the opinion leaders said.
As the reform continues to drift, there is persistent call on the federal government to intervene and demand a clear and workable blueprint on how to turn the fortunes of the banking sector around and save the economy from total collapse.
Sanusi: His banking reform characterised by flaws
Babalola: Raises alarm on Sanusi’s reform
Ireoba: Worried about CBN’s belated blueprint on reform
Oduloye: Predicts collapse of manufacturing industry
Sanusi: Desperate to sell off banks? |
