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Battle for the Soul of Nigerian Banks.
By Emmanuel Jakpa
 Published
August 21st, 2009
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Malam Sanusi is a man of convictions, no
doubt. We are living with those convictions at the
moment. His draconian demarche of Friday 14th August
will live in memory for a long time to come.
At this junction it may be pertinent to note that I do
not know the CBN Governor or any of the sacked bank CEOs
personally. However their actions and that of the CBN
Governor affect us all and it therefore behoves us to
interrogate those actions.
Some have hailed the bank action of Friday as timely
intervention. Reuben Abati, former Chairman of Guardian
Newspapers editorial board hailed it as assertive and
courageous. He did not stop there but lampooned those
who read sectional or religious under/over tones into
the action as intellectually lazy. But others insist
that the action seems premature and that only a
premeditated intent could have led to such haste. For
them that intent must be sectional. They point to the
considerable bellyaching of some northern power brokers
who complained of the north’s disenfranchisement in the
consolidation exercise. For example Vanguard of Monday
March 23, 2009 screamed group plots takeover of five
banks and said text messages were being sent to
customers of some of these bank to de-market the banks.
At the same time the Secretary of Arewa Consultative
Forum in a press release complained of illiquidity in
the banking system which he said was due to over
exposure to margin loans and the oil and gas sectors.
Most commentators are not swayed by either the audacity
of the CBN helmsman or the swirling allegations of
sectional interest, what matters is the facts of the
matter.
Reading through Mallam Sanusi Lamido Ahmed Sanusi’s
statement on Friday leaves no one in any doubt as to why
he struck: to contain the possible spread of financial
contagion. He said these five banks posed a risk to the
financial system. The evidence was that they were
indebted to the CBN and to other banks. No one wanted to
borrow them any more money unless CBN would guarantee
such borrowings, meanwhile the same CEOs remained in
place perhaps making the same reckless decisions which
put their banks in danger in the first place. This
situation had become intolerable, coupled with the fact
that their delinquent behaviour was driving up inter
bank rates as well as deposit rates. And as any knows
deposit rates determine credit rates. So far, so good.
For me however, there are any number of questions raised
by the procedure adopted in dealing with what is
obviously a serious problem, the question is will this
action not lead to even more serious problems?
First of all, why the Gestapo tactics adopted by the CBN
Governor? In the course of his interview granted the
Financial Times of London on the 18th of June 2009,
barely two weeks after taking office as Governor, Malam
Sanusi stated emphatically that a situation where the
board of a bank would be forced out and government money
and government appointed directors take their place was
only contemplable as a last resort and going by our past
experiences of government takeover of financial
institutions and it would not augur well for these
institutions. For avoidance of doubt, the relevant
sections of the interview is reproduced verbatim FT:
Could you envisage a situation where there would be
government-appointed boards having to run some of these
banks?
Lamido Sanusi: I would not like to have that. It would
be a last resort. They’ve got boards. If you need to
have a transition in the institution, the boards can
appoint a new CEO. I don’t think there is compelling
evidence that in the past having government officials
managing financial institutions has worked. My
preference is to get private capital.
Why did he invert the self proclaimed order of things
and do the last thing first? How could the CBN Governor
stoop so low as to order the takeover of bank boards
with armed mobile policemen. That’s Gestapo. It will not
take a prophet to say that much legal wrangling will
follow from that singular action and the true intentions
may never be realized.
Moreover on Monday 10th of August 2009, Ijeoma Nwogwugwu
a columnist with Thisday Newspaper had lampooned the
newspapers which had gone to town with the ‘rumour’ that
CBN was about to dispatch four bank boards, she said
they did not pass the litmus test of responsible
investigative journalism. Unlike them she had called to
verify the rumours and managed to get the CBN Governor
at an ungodly hour in faraway Nairobi who reassured her
that the board of CBN was intending no such thing. In
every government there are bound to be policy statement
leaks, when that occurs the preferred way of dealing
with it by evasion and spin not brazen denial with
intent. The joke is on Ijeoma, she will have to add lie
detector testing to her repertoire of investigative
skills. Poor Ijeoma, she was up against Gestapo tactics.
Now considering these factors, one possible conclusion
is that CBN policy is not being driven by the CBN
Governor, because repeatedly he says one thing and does
another. Hands of Esau, but voice of Jacob?
Now the next question, is why the haste? Malam Sanusi
assumed office June 6th 2009. As at 14th August he had
been in office for over two months. When he gave his
London FT interview he estimated six to eight weeks for
the audit process to be completed, they ought to have
been completed by 1st week of August. We understand if
things take a little bit more than anticipated to be
completed. But what most people are asking is why
undertake such far reaching action at this point in
time. The audit is a preliminary process. So why take an
action which you earlier declared you will not take
unless all else fail, before you try any thing at all.
This is where a lot of people get their notion of bias.
The haste suggests a pre-determined outcome. In fact a
post-prandial statement credited to the CBN Governor
quoted in Guardian of 17th August seems to suggest that
the process is not likely to yield any further outcomes
of this severity. This, at a time when 14 banks are yet
to be fully audited. So, timing was definitely wrong, it
smacks too much of desperation. There was even no time
to confer with the Stock Exchange to perhaps place a
technical suspension on trading of the shares of the
affected banks.
From accounts in the public domain the management of
these banks got hauled before the CBN hours before their
sack, how much defence can they muster in the hours they
have to prepare. I seek lawyers licking their chops and
reviewing Savannah Bank vs CBN. They never learn, if you
ask me.
Now that raises a third question, what other measures
could have been taken other than the draconian measures
of management sack? The answer lies in Malam Sanusi’s FT
interview. I think Malam Sanusi’s comment as to what he
would do when the audit is completed is quite revealing
FT: Are there steps that you might take that would
encourage it? (Infusion of private capital)(
interpolation mine).
Lamido Sanusi: I would send the signals that I would try
to create as much as possible an environment that would
make it possible — if it means showing some flexibility,
if it means giving some forbearance, if it means
providing some incentives. On a net cost- benefit basis,
if it is seen that those incentives, or those
forbearances, would cost the Nigerian people much, much
less than having to put in capital in those banks and
then manage them, then I would make the recommendations.
Ultimately, the decision as to how far the government
will go is that of the president, and I will have to
discuss with him. ( Interview available at
www.chairmanking.com )
He said he would consider releasing the findings of the
report to the public, which by the way was what the ACF
had called for in their communiqué, then he would give
them the option of mergers or any other method of
infusing cash to meet adequacy ratios. He considered
imposing new disclosure rules similar to IFRS, sending
signals to the owners of the banks to consider merger
with healthier banks or to bring their own money or go
into partnerships with foreign banks, etc. He even
considered an Asset Management Company as far resort on
condition that the ailing banks write down such toxic
assets. The most important element in all of these
possible solutions is to let the private sector take the
lead in restructuring. Why then did the CBN Governor go
off the far end so fast? Did he give the private sector
all these opportunities before bringing Government money
into the matter?
Somewhere in the interview Malam Sanusi made it clear he
would not shy away from sacking bank CEOs, but my
understanding of what he said was that if they were
involved in cooking the books. Were they?
Still does that justify government intervention when
private capital has not been tried? Are we witnessing
the second coming of big government and the commanding
heights theories?
These actions by the CBN Governor with the full backing
of the President might be an early sign of Government’s
disillusionment with a market led economy. In the name
of regulation we will witness more intervention
There isn’t more to say that once upon a time there was
one other malam who tried to do the right thing the
wrong way but in the end, had to run away the wrong way.
Emmanuel Jakpa, a lawyer wrote in from Warri, Delta
State
Want to Submit an Article?
Send it to
Chris@focusnigeria.com
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