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Battle for the Soul of Nigerian Banks.

By Emmanuel Jakpa
Published August 21st, 2009

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?

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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 )

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

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