For those who know him, activism is his life. Whatever he does, he does with passion.
He may not be tiny but describing him as being on the skinny side would be more appropriate Рhis shirt size would be 15 and a half. I’m talking about Mallam Sanusi Lamido Sanusi, Governor of the Central Bank (CBN). Sanusi’s belief in the Nigerian state is unbelievable. He proved that much when he visited Vanguard’s corporate headquarters in Lagos last Thursday.
Speaking on the rot in Nigeria and, specifically the banking sector, Sanusi’s illustration was: “If my sons friends ask him what can a rich man do in Nigeria and which would make him go to jail what would he say in response: Is it to kill? No, he would walk free. Is it to steal money? No, nothing would happen to him. I want my son to be able to say something worth while, like, if you steal money in the banks, my father will put you in jail. We can start from there. Our children must have values. I’m not a saint and I have never claimed to be one and I am not looking for saints to run the banks.
From the reasons why the CBN struck, to putting a lie to some of the claims being made by bank executives who are facing the law for acts committed while they were in charge to Islamic banking, possible takeover of Nigerians banks by foreign banking interests, the laws guiding the actions of the CBN governor, the powers at his own disposal to ensure that the banking sector is put right, and many other burning issues, Sanusi demonstrated his superb understanding of the issues at stake.
For effects, every response Sanusi provided during the about three-hour session he had with Vanguard editors, he never consulted any book or dairy. Every response he gave was extempore. He did not consult any manual nor did he resort to whispering with the two staff he brought on his entourage. For good measure, Sanusi would throw banters, occasionally making light of otherwise very serious national issues – but he could be excused because there were times when the tension in the conference room of Vanguard became very palpable.
This is a three part interview and this is just the first in the series. Excerpts:
My views, my world
I have never defined myself by my job and I have also believed that this country will not change unless each and every Nigerian commits himself wherever he finds himself to the general good of the people. Whatever you are when you are outside government, unfortunately, when you get into government it gets magnified. The good things that we do in government has a very wide impact on the generality of the people of this country and the bad things that we do in government also has a very wide impact on the generality of the people of this country as well and, therefore, our actions have to be subjected to scrutiny and criticisms of Nigerians and this is the way I see it.
There is nothing that I am doing now that will surprise anybody in the industry. Anybody who has followed my career as a credit officer, as a risk manager and anybody who has followed my comments when this global meltdown started and what I said the Central bank should be doing, everybody knows what my views have always been.
What are the lessons that I learnt from the collapse of Lehman Brothers?
I learnt three lessons.
The first lesson was that we should never let a big bank fail. The US had the option of spending $700 billion to save Lehman Brothers; they said they did not have $700billion. Since the collapse of Lehman Brothers, the US government has spent $16trillion. They have found that money from somewhere. Over 700 banks have collapsed, they have had to pay and they are still paying. You can ask the question about why we are spending public money to bail out private banks but let me tell you that should I allow Intercontinental Bank to fail and should I allow Oceanic Bank to fail, it would not be a matter of if but a matter of when First Bank or GT Bank would follow and fail. I think that point is very important for us to understand. The day the nation and the international community believe that the CBN governor can not save Oceanic of Intercontinental, they would never believe that we can save First Bank or any other bank. So, a decision had to be made to save the institutions and then we can begin to deal with the fallout.
The second lesson is – and this is very ironic – that after the collapse of Lehman Brothers, we then realized that there were hundreds of financial institutions that appeared extremely okay from outside but which were actually walking corpses and it took just a little trigger to make us realize that. The second lesson for the regulator is that you should know what the problem is before it strikes. So, what we did with the 24 banks was to go into those banks and identify what the problems really are and to look at ways of solving those problems to the best of our abilities.
The third lesson which we learnt is that if you look at the United Kingdom and the US, trillions and trillions have been lost and yet nobody has been held accountable for the banking collapse. Now, for me, the lesson was that people must be held accountable.
We can not just lose billions or trillions and then no one is held accountable especially if you can trace that loss to errors of omission or commission on the part of those who are supposed to be accountable.
How did we become affected by the meltdown?
We were faced with a financial system that was rocked by crisis but you know people can say anything and we all knew that as at May this year, some people had knowledge that all was not well, that something was wrong somewhere, somehow, they may not be able to place their fingers on the problem but people knew and each time the government came out to say all was well, people would simply say to government: “LIAR” – that is the truth.
It was impossible for us not to be affected. You have a mono-cultural economy based on oil; a growth had been predicated on oil prices of $147 per barrel; oil prices had crashed to under $40; output had almost halved as a result internal issues and external issues and you had a stock market that was wired and engineered to fail. 70% of the funding of that market was not private sector saving but leveraging. It was a market driven by margin trading and margin loans were not regulated – in the US margin loans were handled by something called Regulation T. We had no regulation. Anybody could borrow anything and even the stock brokers had turned themselves into banks. They borrowed from banks on margin loans and they would take the money and lend to their customers and nobody was looking at the rules and the guidelines around those margins. It was a stock market that was headed for failure. All it needed was a small trigger.
The stock market itself everywhere in the world is correlated with prices of commodities in commodity-exporting countries. In Nigeria for instance, when oil revenue grows, you have liquidity in the system and the first place it flows to is the stock market and after some people have made money, they then take it to real estate or manufactruring but the first thing they do is when they make money they buy shares. So, not only did you have an economy that was made up of two channels – commodities channel and asset price channel, you also had a problem that both channels were highly correlated. Which means if a bank decides to expose itself to the oil market and the stock market based on commodity prices and asset prices, it has already set itself up for a highly correlated default situation. And this was precisely what happened.
We had banks that were carried away by the euphoria of the stock market; exposed themselves in two or three different areas in the capital market and in some cases it had excessive margin lending. You could charge any rate of interest and atimes they charged as much as 35% because he knew he’ll make that 35% in two or three weeks. And he assumed that the market would continue going up. It was so sweet that they decided they they could even begin to trade on their own accounts – so, why lend to a stock broker and make 35% per annum when you can make the same yourself per quarter by trading. They took shares on their books. Sometimes they took their own shares.
I can tell you for a fact that the latest numbers we have today, 65% of the shares of Afribank is owned by its subsidiaries – 65%, in addition to owning 18% of AP and 12% of Spring Bank. Is that banking? Total mark to market loss! These shares were bought at N25 to N30, they’re now worth N3. Total mark to market loss is now over N120 billion. These are depositors funds, burnt away. This is the kind of thing that has brought banks to their knees. The others were involved in oil marketing and we are not talking about people who lent to TOTAL, or NNPC or Trafigura or Glemco – non of those loans were bad.
We’re talking about people who took money and lent billions to fly by night oil marketers who just appeared from nowhere, who did not have orders; there was no hedge to the price. These banks were not lending money to oil marketers; they were banks who had huge exposure to oil marketing that was totally hedged. If you had an order receivable, you took the loans in naira; if you take in dollars, you have a dollar receivable. You are taking a risk so if you had an order from PPMC and an order from Mobil and that order says I will pay you three days’ flat stuff plus 3%. By the time the bank established the letter of credit he knows exactly how much you are getting. It had a domiciliation, a clear receivable and its exposure was fully covered and it got paid. On the other hand, if someone just goes to establish and LP because oil prices were going up and going up and they were riding in the market and look, people made a lot of money that way.
You buy petrol for instance at $80, by the time it lands here it is $92. You get PPMC to issue an invoice and you sell at the $92 because that is the current price. The problem, however, is that it also works the other way. You go and buy at $80 and by the time the ship comes it is $50 and that was exactly what happened. By the time the ship came, oil prices had crashed because of the impact on government oil revenues, the CBN overnight devalued the naira and people were in for a double warming. They had borrowed to purchase a commodity in dollars, oil prices had crashed, the exchange rate had also crashed it moved against them and businesses were whipped out.
Is anybody to be blamed for that, may be not, except maybe for exposing yourself to the risks in the business. But it is not a crime to make a bad loan, nobody has said it is a crime. But what the problem was, was taking your shareholders fund, a huge chunk of it and exposing it in one or two markets without giving thought to the possibility of an eventuality. What was the next offence was to fail to acknowledge that you had a problem. Once the stock market crash happened, people should have known that they had lost money and the solution was not just a liquidity problem.
It’s like a boy running a temperature and you keep giving panadol. At some point you would have to realize that maybe the boy’s problem is not just headache, but that the temperature is a symptom of something much more serious.
I came to CBN in June and before then my views were known. Being a risk manager, my attitude to a problem is to take the bad news, don’t hide it.
If people give loans and there is a problem I would want to know what the problem is so we can fix it. Before I came in, CBN had put some measures in place like the discount window, it had reduced cash reserve requirement.
As at June when I came in and as I’ve made known before that addressing the liquidity issue was merely addressing the symptom and not the real problem. My views were well known on that. I looked at the records of the amount of money giving to banks in liquidity support and I saw that five of the 24 banks in the country had taken 90% of the money in the discount window and the banks were Oceanic, Intercontinental, Afribank, FinBank and Union Bank.
The next point which I’ve never mentioned to anybody before was that we called the International Monetary Fund, IMF, and we gave them the financials of the 24 banks in Nigeria as at March and we did not give them the names, it was just serial numbers and we requested that they run a stress test on the banks and you know what, these five banks came up – they didn’t have the names of these banks we just gave them the information about the books of the banks without names but these five banks came up as the weakest banks in the industry.
I looked at the trend.
As at June, Oceanic Bank had a request and wanted to pay dividends even though they were exposed to the tune of N90billion at the discount window and I refused. How can you pay dividend when you can not meet your obligation to your customers without CBN support to preserve your capital. And the compromise we reached was that you take provision up to the limit that your earnings would allow until we finish the audit. This was the agreement I reached with Mrs. Ibru. You had discount window exposure and you had the IMF stress test. To be honest, I did not need anyone to tell me that if I dealt with the problems in those five banks I wouldn have gone a long way in solving the problem in the system. But we said we know that this is where the problem is and until we actually look at the books, we can’t assume that our hypothesis was right and so we sent in examiners. We could do only 10 banks because we had limited resources.
We sent in 10 examiners because people just talk about due process. We had five examiners from CBN and five examiners from the Nigeria Deposit Insurance Cooperation, NDIC. They came with their reports and the reports were examined by the CBN Director of Banking Supervision and the Director of Bank Examination at NDIC and at that stage, for most of the banks had the opportunity to come and defend their banks. Some bank MDs spent the entire day or two days at our office. I hadn’t seen the reports but I was aware they were coming. And discussing with them does not mean they had the veto and the examiners would say to them, this account is sub-standard, this account is doubtful and so on and the guidelines were there. Up to this point nobody beyond the level of a director has seen the report. For me, if in the course of examination, and they felt I should know, they would point them out but none of us in the committee of governors saw that report until the exercise was completed and the quality control completed. The report went to a deputy and some MDs called the deputy governor if they had disagreements with the directors and from there the report and its summary went to every member of the committee of governors and every member of the executive committee of the NDIC and then we started a meeting and this was the CBN governor as chairman, all the deputy governors of CBN, the MD of NDIC, every executive director in NDIC, the two directors that I’ve talked about. This was the committee and we looked at all the reports. It was a decision we reached at that meeting on what to do so it was not the CBN governor who decided. It was a decision taken by all the people who had anything to do with regulating the industry. And we took decisions on each bank. There are minutes of the meeting; there are decisions of the meeting, what we rejected and what we added.
Under the CBN Act, if the CBN governor is satisfied that a bank is in a grave situation, he is allowed to take a number of steps and that judgment is mine to be taken. If a bank is failing, I have the option of handing that bank to NDIC for liquidation and I have said I would not allow a bank to fail. I did not believe, I may be proven wrong but I did not believe that the industry would be better served if I allowed Oceanic or Intercontinental to go into liquidation. I did not believe that and I still do not believe that.
I had ruled out having a failed bank, and having ruled that out, I had to face a reality. We have published names. Everything people talk about – process, fair hearing or that what we did was dramatic and all that – have you ever heard anybody talk about the fact that there was N300 billion bad loans? No one has said that. We published the names. Nobody has said that Ascot does not owe Intercontinental N45 billion or that Ascot has paid. Nobody has said that Rockson does not owe N30 billion or that Rockson has paid. The records are there. So, if Intercontinental Bank has bad loans of N333 billion, how much capital does the bank have. And if it is true, should that bank be allowed to continue standing and, can that bank in fact be said to be standing? That is the fundamental question; everything else is irrelevant. They have come to say they were helping businessmen but if it is true that they had that quantum of non-performing loans in the capital, then is it not true that that bank is in a grave situation? And if it is in a grave situation, gentlemen, it is the governor of the CBN that is in the best position to take certain steps to save it and the steps are that one, we put in money to make sure that depositors and creditors do not lose anything. And that, two, we would remove the management because we felt the management has brought the institution to that state. Some times you take a decision and you go to bed and for the next two weeks you keep asking yourself: Was I too harsh? Was I too precipitate in my actions? Could I have done it in any other way? I tell you, with every passing day, having entered those institutions, with the other information that came out after entering those institutions since August 14 and taking the decisions that we have taken, God would not have forgiven me. We looked at the institutions and saw on their books huge non-performing loans and when we entered the institutions we discovered that 75% of the non-performing loans were given to the companies directly related to the CEOs of those institutions. We didn’t know that from outside. Is that why a bank is set up? Is that why we raise capital?
We raise those deposits so that we can give the money to our own companies. You can blame Soludo any which way you want but I can tell you that there was no way Soludo would have known that. We didn’t know until we went inside that company X was actually not different from the CEO of the bank. It was not until we had our people in the bank and we said let’s talk to the management of this company and you discover that they are nowhere to be found. It’s when you have an MD in the bank that you know this. How did you give a company N5 billion and you don’t know where the company is, that is when you discover, and things start coming out and that this company really was not different from the person approving the loans.
So, have I gone beyond my brief as governor of the CBN? Possibly. I’m a Nigerian and I believe that we have been living in a country where people believe that there is no line that cannot be crossed. In this country the chief law officer, the attorney general was killed and nobody has been held responsible for it.
If my sons friends ask him what can a rich man do in Nigeria and which would make him go to jail what would he say in response. Is it to kill, no, he would walk free. Is it to steal money, no, nothing would happen to him. I want my son to be able to say something worth while, like, for instance, if you steal money in the banks, my father will put you in jail. We can start from there. Our children must have values. I’m not a saint and I have never claimed to be one and I am not looking for saints to run the banks.
There were some things that we saw in the banks that we have not talked about.
There were some that we saw and I would call the MD and say this is not good, don’t let it happen again and it ends there. There were things we saw but which I can not just in good conscience close my eyes to.
The other ones we have sorted out and I will never tell anyone except the MDs go and tell people.
There were some that our examiners wanted us to take up but I would say let that pass because these were mere human errors.
Foreign Investors
There are some things I have seen like foreign investors. The law of the Federal republic of Nigeria does not place any limit on the shareholding of foreign banks in Nigerian financial institutions, that is the law, it was not a law written by Sanusi. It would please you to know that a former CBN governor had said foreigners would not own up to 10% of the top 10 banks in Nigeria. There was no circular to that effect because such a circular would be illegal. That is why you have Stanbic, Citibank, Standard Chartered.
My attitude to banking is that it is not a life and death matter but a privilege. The license serves the purpose of you and I having the confidence to put our money in the bank knowing that it is safe. Then the bank is also a transmission channel, taking the money and lending to those who need it for industry growth and mortgages among others. It is not to go and buy shares.
For me, far more important than who owns the bank is that a bank performs its function and performs the functions well.
If a Nigerian is going to own a bank and at the end of the day your money is not safe or if he is going to take your money and deploy that money to areas that would not benefit the economy, I would rather have a foreigner who would build the economy. Look, this banking problem may cost us as much as N500 billion or N700 billion I don’t know. Am I going to allow institutions to continue and three years from now we are still digging and pumping money without the ability to bring back the assets – some may come back but not much. For me if there’s a foreign institution that is determined to set up shop and promote economic development in Nigeria, I would support it, that was the essence of amending the law to allow for foreign ownership. That is very different from saying I have gone to look for foreigners to come and buy the banks.
When I went to London, I went there to brief creditors. My responsibilities include to protect depositors and creditors and among the creditors of those banks were foreign banks and they had a right to know that their money was safe with Nigerian banks. I never met foreign investors but I met regulators. I also heard that government on the basis of that had told those banks not to invest.
I went to China for the World Economic Forum, I had attended every year from my days in First Bank and when I became the governor of the CBN they wrote back to me not to disappoint since I had committed to presenting a paper there. I cam back and heard that I went to China to look for investors, nothing like that.
2nd round of audit
We went through the second round of audit and found out that what we discovered was not as terrible as the first round and therefore, we decided to issue a statement and again, what did I hear? They said that the government had set up a committee to look into our activities and government then called me to say that I should change my approach. Nothing like that ever happened.
Northern Agenda
Then there was the issue of northern agenda. The issue of ethnicity for me is something very alien and I do not like defending myself against such things. Kano for a long time was one of the most cosmopolitan cities in the North. My grandfather was an Emir and we grew up knowing that you have to love all. My father was a federal civil servant, he was a career diplomat. At the age of eight I went to a boarding Catholic School in Kaduna. At the age of 10 I came to Kings College in Lagos and I have worked all my life in Lagos. There is no tribal organization that I have not fought in this country. I have fought Arewa Consultative Forum, ACF, I have fought Afenifere, I have fought MASSOB. I have been called a non-Muslim because of my disagreement with the politicization of religion.
And then to find people who are in journalism and who I know are familiar with my background and debate and choose to ignore 20 years of intellectual work and brand me as one pursuing northern agenda. Yes I was born in Kano 48 years ago on July 31; that was just a historical event. That is not my life, and after that day that I was born, a lot of water has passed under the bridge. I have made friends, I have my views.
If you read well, having written over 100 articles if you read well you are likely to find a debate between may be me and Ike Okonta where I made some arguments about the Fulani supremacist issue but look at the context of the debate because Okonta blamed the Fulani for all the problems that has confronted Nigeria and that was the context in which that debate came about. Or you might find me in a debate with Frederick Fasheun, or G G Darah or Reuben Abatti. When we were in the university, my intellectual mentor was Bala Usman. The reason we were unpopular was that we insisted that this was a nation and that it was about a small group of Nigerians who were using their network to enrich themselves under the guise of religion and ethnicity and that was the basis of the Zaria group. I would not allow office to change me.
I am committed to bringing down real interest rate.
Islamic banking.
That is very interesting. BOFIA was amended in 1991 to allow for a non-interest banking. The CBN gave the first approval in principle for an Islamic Bank in 1992. When I became the governor of the CBN, a bank had already been giving a license. Governor Soludo had drafted a framework for Islamic banking which was being implemented. He had applied and paid subscription so that Nigeria would become a member of the Islamic Financial Sector Regulatory Authority, all these before I became the governor of CBN. You have Islamic bank in the US, UK, the UAE.
The progress that was being made for Islamic Bank under Soludo has been slowed down since I became governor.
May be we should talk about an Islamic bank because I have a degree in Islamic law.
In Islam, lending is not a business, that is a fundamental point. If you take a loan by definition, it is only when you are in need – for shelter, for feeding, for school fees – you come and borrow because I am not allowed to exploit you in your time of need
If you want to borrow money to do business, in Islamic law you are looking for a business partner – which means we share the profit if it succeeds and if it fails, we share the loss; it is just non-interest yielding as in conventional banking. That is all that is Islamic banking. In fact, my argument is that why should we call it Islamic banking because there is nothing Islamic about it, it is not unique to Islam.
The governor of the Bank of England, Eddy George was the first to amend the law for the setting up of Islamic banking. It is not religion, it is a product but I don’t know why there is this fixation about it. HSBC has a bank, Amana which does Islamic banking.
Now would I promote it because I am a Muslim? No. But I would deepen the process and system because people need to have options. Would I say I won’t do Islamic banking because they will say I am Islamising Nigeria, I would not. The Islamic Sukuk is now becoming the best form of raising money in the world. American companies are going to Malaysia to issue Sukuk – these are bonds. There is nothing about it.
We owe it as regulators and operators and intellectuals, giving the environment in which we are, we should educate people and I can understand within Nigeria in the context of Sharia and all that. A man in England reading that we in Nigeria are fretting because of Islamic banking, he would just laugh because we have them in England and that did not make people say Tony Blair wanted to Islamise Nigeria. We often ridicule ourselves.
For those who talk about a northern agenda I just laugh. Go and ask Akin Osuntokun, I was a member of the Progressive Advance Movement, PAM. I started with the Kudirat Foundation. There were some northerners who saw any fight against the military or Abacha then, as a fight against the north as if military dictatorship or its phenomenon is a creation of the north. They just deceived people and it’s the same thing that is now playing out again regarding this issue of northern agenda.
Well, if you say money-laundering is a southern phenomenon, then fine. If you say insider trading is a southern phenomenon, then fine. People just like hiding under these guises. Was the money given to southerners? How many factories would have been set up otherwise with the money? If it was invested into factories, how many people would have had jobs?
What’s the effect of your action on the banking industry and the economy because banks are no longer lending money. Nobody even wants to borrow because of the shame game?
People have been saying that credit squeeze is one of the unanticipated consequences of what we did. But no, what you are seeing are not the consequences of the CBN action. They are the consequences of the actions of those management and the bad loans. We say that banks must recognize the losses made, the capital of the bank is automatically impared and by definition once you have an impaired capital, your ability to lend is impaired. I told the National Economic Council, NEC, that we’re auditing banks and that when we do, there would be a liquidity squeeze.
After consolidation, credit growth in the banking industry was at an average of about 69% to 70%. This was unsustainable, year on year. And we have now discovered that the bulk of that growth is either capital-market related or simply just non-performing loans. So, if you go to the United Kingdom today, the chancellor of the Exchequer is always complaining that the banks are not lending to the SMEs. There is a credit squeeze in the United Kingdom, there is a credit squeeze in the United States of America, USA. Even yesterday, there was a story on CNN about a credit in the USA. So, gentlemen, let us understand that a credit squeeze is not a uniquely Nigerian phenomenon. It is all over dispensations where the financial system has taking a hit as a result of coming face to face with the consequences of their own decisions, whether it is sub-prime mortgages, toxic assets or stock exchange margin lending in Nigeria, it is facing the realities of the implications of those decisions that have led to these things.
Now, what can we do?
Some banks can not grow because of liquidity constraints. We’re trying to address that through the asset management company by trying to unlock some of the funds that are currently locked up in the stock market. That should, hopefully, provide liquidity on bank guarantee, reduce the non-performing on bank’s balance sheet because we’re now moving from loan into cash. It should, hopefully give some form of practical recovery, depending on what price we pay for the shares, and, hopefully, stimulate recovery in the stock market because the asset management company can then negotiate payment terms with operators and stock brokers and their profits will not immediately go back to payment of debts.
We then have to follow that up to fast track the resolution process for the banks. We have 10 banks that we have said are under capitalised. They either raise capital or go into some merger and acquisition, local or foreign but we have to get these banks out of limbo. When people say I am in a hurry it is because I understand the consequences of vascilating. When we put these banks on life support, we can then move to rescue it fully. The shareholders need to understand what we are doing and we are merely being charitable when we talk about shareholders. Look you’ve lost your money. If your capital is zero or negative you no longer have a bank. That is the truth people do not want to hear. Somebody says he’s speaking on behalf of shareholders if we publish what we have they will see; there is no capital, it’s been gambled away – that is the truth. But we’re trying to have discussions so that the shareholders would still have something.
People are complaining that we’re causing some rich people discomfort. These are people who believe in their mind that they are rich. What I get is not so much the rectitude of it but people feel scandalized ‘how dare you publish my name; how dare you say I should come and pay’. They must pay. People have gotten used to this mentality of when a bank is destroyed they go to NDIC but this time it is different. People in the street must know that their banks have been badly managed, that this bank doesn’t have capital adequacy ratio. The Act even says nobody who is not licensed by CBN should operate a bank. Where are the people who took away the money, they come back and contest elections. We’ll ensure that the common man on the street gets protection, but you the big man who is trying to cause people pain, you will pay.
Look, let me tell you, the same people whose name you see on the list of bad debtors are the same people messing up the polity, messing up the petroleum sector, messing up the power situation in the country, they are the same people who are going to rig elections so we have to deal with them. That is true.
Is that the mandate of the CBN governor, it is not. But it is the mandate of Nigeria and I am a Nigerian
Filename: SANUSI LAMIDO SANUSI, October 23, 2009
