|Urhobo Historical Society
Friday, September 11, 2009
Cleaning Up Nigerian Banks: Let's Do This Thing Properly
By Dr. Dele Cole
I WAS happy to read the esteemed Justice Bola Ajibola's comments in The Guardian newspaper last week on the recent actions of the Central Bank of Nigeria and the subsequent moves by the EFCC to detain both the executives of those banks that have been sacked and the debtors currently regarded as 'non-performing'. Justice Ajibola, while congratulating the Central Bank Governor for his courage, was keen to express the importance of due process and transparency in the process for those that have been accused.
The basis for the CBN's actions was that the accused executives have demonstrated a lack of transparency in their dealings and a lack of respect for the depositor's funds under their supervision, in some cases, taking their institutions to the point of insolvency. Allegations such as these are serious, and if they are proven beyond reasonable doubt in a court of law to be true, then the protagonists deserve everything that they get, but we must act in a way that provides legitimacy to the process.
It seems the EFCC has been given a mandate to detain and pass judgement on the accused before specific guilt is proven. The Attorney General himself has said that he will give the EFCC the authority to pursue criminal proceedings against both the bankers and their debtors, but the accused have already received a 'public' trial on the pages of newspapers with no recourse to defend themselves. The EFCC need to be restrained from knee jerk reactions, not encouraged in the way they have been. We have recently seen significant plaudits given to the EFCC for the amount of money they have recovered on behalf of the banks since this episode started, but what is N25 billion when compared to the N740 billion or so non-performing loans that the CBN says it has identified, or the N400 billion the CBN has injected into the system to prevent collapse?
Not only is the amount collected so far puny, compared to the total value of the non-performing loans supposedly identified, but we now have the spectre of depositors losing their money if what the NDIC has said is true. During the previous CBN Governor's tenure one of the main concerns was that he repeatedly said that no depositor would lose their money, which was patently untrue if you consider that fact that depositors in banks that did not meet the consolidation requirements are still waiting to receive their money. Mr Sanusi has maintained the same mantra, verbally reassuring depositors that their money is safe, when everything suggests that this is not true. If the money of depositors is safe then why does the CBN not guarantee deposits in the same way as governments in the U.S. and Europe do? No amount of sanitation within the banking sector will return confidence without such a guarantee.
Not only do we have no guarantee on deposits, but we have no clear proposals from government on dealing with the main causes of the financial crisis in Nigeria in the first place. The reasons for the extreme de-valuation of assets in the stock market alongside the ongoing issues in the downstream petroleum sector are not being addressed. We have no policy to guarantee deposits, no policy to return confidence to the capital market and no policy to restore confidence in the financial services sector.
The CBN needs to very careful in the way that it implements its current policies. Banks are the lifeblood of our economy and risk is an inherent part of their operations. It is vital that while ensuring increased transparency and disclosure in the system, the CBN does not stifle the credit vital to the successful operations of our economic system. Oceanic Bank, Intercontinental Bank and Union Bank took immense entrepreneurial spirit to establish, we cannot allow ourselves to destroy the entrepreneurial spirit that is the bedrock of development. We will end up with a tepid, diluted and incapacitated financial system sacrificed at the altar of egotism. We must protect the infrastructure that has been built as we institute better transparency and systems.
While I am talking about infrastructure, let's look at another fundamental issue in this story. The nature of our environment means that debtors to banks may have legitimate reasons for failure to repay obligations on time. They may not have been paid by the government on time (downstream oil & gas), their goods may have been delayed due to port congestion or corrupt customs officials. Perhaps there is no electricity supply to their factory? What authority will resolve the fundamental issues that are required to create a viable economic environment for business to thrive? The CBN should not implement policy in isolation; the issues are much wider than financial services.
It seems that in Nigeria, the only time the government functions effectively is when it acts in a paramilitary way, rather than one that follows due process and secures the legitimacy of the outcome. The CBN has quite dramatically washed its dirty laundry in public; we can only hope that the detergent they have used will not irreversibly damage the clothes they are washing.
There is another worrying element to this process that must be mentioned. Why are we in such a hurry to sell these five institutions? Only 10 of the 24 audits have been completed so far and we do not have a holistic view of the situation that would allow a sales strategy to be developed that addresses all of the issues. Let's take an example from the international community over the last two years. Lloyd's acquisition of HBOS during the height of the credit crunch was initially billed as great business, only for reality to emerge much later on with Lloyds forced to accept considerable sums of government money to cover undiscovered liabilities in HBOS that were not spotted because of the speed of the sale process. Do we want to replicate this error?
The law allows the CBN governor to proceed with these sales, but civil society should be pursuing an injunction against the sale to ensure that the process is conducted properly and at the appropriate time. Perhaps Mr. Sanusi is not confident in the calibre of the appointments he has made to take over the troubled banks? Certainly many of them have had less than illustrious banking careers and are of questionable pedigree. Are they the right people to return these banks to stability?
There are too many questions to be answered in this process at the moment. There is the perception of a political motive lurking in the background, and the perception that sectional interests are behind the move must be avoided. Issues that have not been fully explained and demonstrated to be fair should be treated carefully and I fear we are seeing the 'bull in a china shop' approach so common to our history. We look like a banana republic at the moment, when the process that is being pursued should in fact ensure an improvement in the reputation of our nation and its financial services sector. I urge all involved to resist the urge to pursue vendetta's, to avoid the sensational in favour of the practical and to work to ensure that those that are guilty are punished, but those that are innocent are not tainted by over-exuberance on behalf of the authorities. It would be interesting to know if the CBN would stand up to the level of scrutiny it is currently applying to the banks.