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 The Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi, assumed the leadership of the Nigerian apex bank at a time when much work needed to be done to get the country’s banking sector, riddled with toxic assets in excess of US$12 billion, back on track. That was in June 2009.
One year after, the inconsistencies in handling of CBN-moderated banking reforms have caused great pain to Nigerians and businesses - placing the economy on the edge of a precipice.
Over 30,000 bank workers have lost their jobs since August when the new banking reforms commenced. That may not have been an intended consequence because job losses cannot be said to be good for any economy, particularly the likes of Nigeria with a very high unemployment rate. But the arbitrary approach to implementing the reforms has thrown up a lot of negative consequences - to the detriment of the financial services sector in particular and the national economy in general.
The steps taken by Sanusi in the past few months have plunged millions of Nigerians and the economy into a financial abyss. Two weeks after resuming office as governor of the apex bank, Sanusi commenced an audit of 10 banks. He went on to sack eight bank chief executives without giving neither the boards nor the management of the indicted banks any opportunity to defend allegations of insider-loan abuse and outright fraud levelled against them. And for a government whose mantra is rule of law and due process, such an act by the apex bank’s boss is considered an aberration. The indicted bank chiefs were accused of putting their shareholders’ and depositors’ funds in jeopardy through poor corporate governance and risk management practices. According to the CBN governor, “Some of these banks are quite large institutions and they have been mismanaged, so we had to move in to send a strong signal that such recklessness would no longer be tolerated.” Consequently, Farida Waziri - chairman, Economic and Financial Crimes Commission, EFCC, whose anti-corruption war was then derided for lacking steam - suddenly sprung into action. Waziri hounded the bank executives, put them in detention and confiscated their property. The hype around the sacking of the bank executives did not go down well with critics, who knew that such brashness could lead to erosion of confidence in the sensitive banking sector.
As admitted by Leke Adebanjo, a chartered banker: “prior to the reforms, management of banks that suddenly found themselves in a money-ocean began to swim carelessly without lifejackets. They embarked on loan jamborees and miscalculated venture funding; instituted an out-of-this world salary structure; ran a regime of uncontrolled overhead expenditure; and committed outright fraud.” Stakeholders had applauded Sanusi delving into the risk management portfolio and corporate governance issues in the banks, as such actions were seen as part of the normal banking supervision task of the apex bank. But, presently, such exercises seem to have brought the economy to its knees - thus casting a shadow over the real intentions and benefits of the reforms.
So, when Aliyu Mohammed Gusau, National Security Adviser, criticised the banking reforms recently he was only stating the obvious. But his submission points to a new line of thought in government, which hitherto could not see beyond the melodrama that characterised the implementation of the reforms. Gusau, a retired general, noted that the CBN reforms “seemed to have damaged economic activities in the banking sector to the detriment of the larger society.” He was speaking at a security-awareness seminar in Abuja, April 17, and said that double standards were employed in handling the problems of the banking sector. In his words “only a few banks were penalised for what every bank seems to be doing.”
Gusau’s statement may reflect official position on the controversial reforms. Right now, intense pressure is being mounted on President Goodluck Jonathan to overturn some of the counterproductive actions so far taken by the CBN in the last year - in order to save the economy.
In regard to the “rescued” banks, the CBN is planning to sell them outright to interested parties to recoup the over-US$4 billion bailout funds it invested in them. Nigerians were alarmed that the reforms did not have any blueprint - which prompted Remi Babalola, Minister of State for Finance, at a function also attended by Sanusi to advise the CBN boss to produce a blueprint for the reforms to guide the process and prevent “as-the-spirit-directs strategy.”
The effects of Sanusi’s reforms have taken a toll on the banks, the real sector and the national economy. Boniface Okezie, President, Progressive Shareholders Association, faults Sanusi’s approach to the reforms - insisting that the CBN governor did not follow due process in their implementation. Akpan Ekpo, director-general West African Institute for Financial and Economic Management, WAIFEM, also said the CBN should have been more cautious in its approach because of the sensitive nature of the banking sector.
“The reforms have done incalculable damage to the economy and whittled down stakeholders’ confidence in the banking sector. In the fourth quarter of last year, investors were dumping their bank shares - thus causing their value, already eroded by the effect of the global financial crisis, to depreciate further,” Okezie said.
But the CBN has equally taken steps to redeem its battered image. On May 21, it took initiatives to unlock the credit market and drive real sector activities, through the introduction of the N200 billion Small Medium Enterprises Guarantee Scheme and N500 billion for financing power sector and manufacturing sector projects. The establishment of the Asset Management Company of Nigeria (AMCON) - which bill was recently passed by the National Assembly - to provide a resolution vehicle for addressing banking sector crisis is also a plus for the CBN.
Despite criticisms of Sanusi’s first year in office, he is further considering other banking sector regulation initiatives which will include the replacement of the current universal banking model with commercial, mortgage and non-interest banks, with strong emphasis on corporate governance and board performance.
PULL-QUOTE
The reforms have done incalculable damage to the economy and whittled down stakeholders’ confidence in the banking sector. In the fourth quarter of last year, investors were dumping their bank shares - thus causing their value, already eroded by the effect of the global financial crisis, to depreciate further,.
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