When on August 14 2009, Sanusi Lamido Sanusi announced his radical intervention into the banking system by removing with fanfare the executives of ailing banks, he received applause from many Nigerians who had one grouse or the other against the banks and their chief executives. One of the several issues against the banks which remains true today is the fact that they were not lending to the real sector. The expectation was that after the Sanusi tsunami, the banks will be disposed to lending. Almost two years down the line, the situation is worse than when the CBN intervened in the system. Almost all the branch managers of banks across the country have suddenly become risk managers. No one is ready to finance any project. One of the banks‚Äô branch managers last week owned up to the fact that the role of banks as financial intermediary has been put on hold in Nigeria in the last one and a half years. No bank manager is ready to stick out his neck or job in the name of granting facility. All projects have become risky and as a result, projects that should ordinarily get bank support are brushed aside thus aggravating the unemployment situation in the country.
The CBN admitted that substantial credit to the Government grew by 67.83 per cent, while
credit to the private sector fell by 4.92 per cent (annualized) in December 2010 as against the
benchmark of 31.54 per cent for 2010 thus crowding out the private sector from access to credit.
The financial health of the banks that were rescued is not in any way better than they were even with AMCON which was touted as holding the magic wand to end the banking crisis. In fact, the fate of the rescued banks still hangs in the balance. The CBN had said that its primary responsibility is to depositors and not shareholders and thus disregarded them. He lumped ownership of the banks with the management. This is where many differ from him. If the banks‚Äô boards/directors were found culpable yes, the CBN could deal with them as it deems fit. It was the CBN consolidation that made many Nigerians stake their money in the banks. Elementary economics differentiates management from shareholders. Owners of a limited liability company are the ordinary shareholders. If there is a problem of capital, it is the shareholders who reserve the right to recapitalise such companies. If shareholders of the rescued banks were given the right of first refusal to recapitalise and they failed, no single person would have raised issues with the CBN. What the CBN is doing is to discourage the spirit of entrepreneurship in the financial service sector, that is discourage local initiatives in banking and finance.
Even the proposed sale of the banks is in trouble as some of those picked as core investors have not the resources to recapitalise them. Some of the groups are going around those whom the banks were taken from to ask for funding. That being the case, why the smokescreen approach? A direct request for shareholders to step in and raise fresh funds for the affected banks is neater and more transparent than the present backdoor method if there is nothing more to it than meets the eyes.
While it is true that the law made provisions for the protection of depositors, it is also morally true that someone has to take the risk of using his resources to set up a bank before depositors can put their money into it. The CBN governor‚Äôs idea that shareholders have lost their deposit led several to go to court. The shareholders of the rescued banks are engaged in one litigation or the other against the CBN‚Äôs decision. If Nigeria were a country where there is respect for rule of law, it would have amounted to contempt of court for the CBN and its principal officers to continue with the sale of the banks.
The curious thing is that the rescued banks have a combined deposit of N3.06 trillion which is a source of worry to the CBN management that should the eight banks go under, the economy will not be able to absorb the loss nor is the Federal Government in any position to pay depositors. The Nigeria Deposit Insurance Corporation has provision for protecting small depositors and can only pay a maximum of N250,000 per depositor.
The letter which one of the rescued banks treasurer wrote to staffers of the bank with the subject Interbank/CBN dependence on bank funding draws attention to the need to look further for an alternative to the CBN path to resolving the crisis. The letter alluded to ‚Äúthe escalating level of the bank‚Äôs interbank/CBN dependence for funding operations, and the urgent need to tackle the situation with a multi-pronged solution.‚Äù The letter written by the bank‚Äôs treasurer on March 16, 2011 stated: ‚ÄúAs at mid month, interbank takings stand at N133 billion and this does not include CBN SLF (Standing lending facility) of N35 billion.‚Äù
The bank‚Äôs treasurer listed issues facing the bank to include, persistent negative clearing, loss of deposits and the fact that ‚Äú70 per cent (N187 billion) of total treasury assets (N246 billion) is held for now in an illiquid AMCON Bond.‚Äù The fact that banks are still taking facility from the CBN which is similar to the expanded discount window and the mere fact that banks are complaining that AMCON bonds are illiquid go to show that the banking sector crisis is far from being resolved.
The second issue against the banks then was that they were too flamboyant as typified by the lifestyle most exhibited. More so, a good number of them were taking awards from all comers and flashing same as a marketing tool. Why all that has stopped at individual bank level, the CBN and its Governor are inundating the nation on the pages of newspapers and the electronic media with the plethora of awards the Governor has garnered across the globe. The question is: For what purpose are the awards, especially coming from those who know next to nothing of what is happening in the economy, who base their judgement on what they hear and are not privy to facts on ground?
Many Bank Managing Directors in their private homes and discussions mule over the issue asking the difference between what the bankers were accused of and what both the CBN governor and his appointed managing directors are doing in the banks. In all of the pretences going on in the economy, Nigerians are the ones suffering the pain. Key economic indicators which are the primary responsibility of the CBN are in the red.
For instance, while employment is projected to rise, the manufacturing sector is being anticipated to remain unchanged in 2011. Inflation which should be the primary focus of the CBN is generally expected to rise; interest rate is also expected to rise further; the naira exchange rate is projected to depreciate further in the months ahead. Also input cost is expected to rise in 2011.
The CBN itself has identified the following pressure points and policy challenges: persisting fluctuations in the interbank call and OBB rates; tight credit conditions and high lending rates; depreciating naira exchange rate in the face of declining stock of external reserves.
As it stands, the CBN has run out of ideas on how to resolve the banking crisis. All it should have done in the first instance was to ask the shareholders of these banks within a given time frame to recapitalise even if those indicted for wrong doings were excluded from the exercise. The right of first refusal if given to the shareholders would have stood the CBN out as fair and just. The failure to apply this principle under the guise that banking licence is a privilege, has prolonged the resolution of the crisis. With the lesson from Savannah Bank licence revocation still fresh in the minds of Nigerians and the subsequent victory of the shareholders in court, it will be good and better for all Nigerians to sink their differences in this matter and hold a stakeholders meeting to agree on the formulae for the recapitalisation of the rescued banks. The US and most parts of Europe have resolved their financial crisis and moved on to other things while we are still here talking tough and pursuing imaginary enemies. The economy and the future of the younger generation are more important than any single individual no matter how highly placed.