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Lamido Sanusi’s First Year in Office
- By Simeon Ogoegbulem
- Published June 7th, 2010
- MoneyWorld
- Unrated
Last Friday, June 4, 2010, marked one year that Mallam Sanusi Lamido Sanusi assumed office as governor of the Central Bank of Nigeria (CBN). Sanusi succeeded Professor Chukwuma Soludo who held sway as the apex bank governor between 2004 and 2009. He has brought in a lot of sweeping changes amidst a high level of discontent even as the economy has smoothly responded to them. A thorough-bred risk management expert, Sanusi could be described as a dogged banker whose knack for corporate governance knows no boundaries. For him, the project is in progress and nothing will hold it back, SIMEON OGOEGBULEM reports;
THE outcry that greeted the appointment of Sanusi was based mainly on the fact that the late President had concentrated appointments into the commanding heights of the public sector of the economy in one section of the country. For instance, under the late President, ministers of finance, national planning, chief economic adviser to the President as well as the group managing director of the Nigeria National Petroleum Corporation (NNPC) were all from the same part of the country.
Kano state in North Western Nigeria had the highest concentration, producing the current CBN governor and National Planning minister and the immediate past finance minister. However, against all protestations by different stakeholders in the economy, Sanusi Lamido Sanusi was confirmed by the Senate of the federal Republic as the governor of the CBN.
Sanusi did not waste time in telling whoever cared to listen that all was not well with the nation’s banking industry. After the completion of first batch of an Audit Report of licensed banks, Sanusi announced what could be described as a major earthquake in the banking industry-the sacking of about eight banks’ managing directors and chief executives. The banks include Intercontinental Bank Plc, Oceanic Bank Plc, Union Bank Plc and Afribank Plc. Others are FinBank Plc Bank PHB, Spring Bank Plc and Equatorial Trust Bank (ETB).
This was followed by the injection of Bail-out funds to the tune of over N600 billion into the intervened banks to enable them meet their obligations to their customers. The capital injection was followed with aggressive debt recovery by the banks. In order to make debtors to pay, the Economic and Financial Crimes Commission (EFCC) was drafted to make debtors especially those who felt that depositors’ funds were theirs for asking to pay. It is also worthy to note that in the process of debt recovery, it was discovered that the book keeping records of some banks was faulty as many borrowers who have already liquidated their loans still had their names in the debtors list of the banks.
The action of the apex bank under Sanusi was greeted with mixed feelings. While a section of the stakeholders believe that the action of the CBN was timely and in order, another section of the stakeholders believe that the apex bank would still have achieved the same purpose of sanitizing the banks through a more subtle manner devoid of any razzmatazz.
While some section of the stakeholders accuse Sanusi of implementing an agenda aimed at taking the financial institutions from their chief executive officers who in most cases nurtured the banks into big players in the financial landscape, others were of the opinion that it would have been the height of regulatory irresponsibility for the apex bank to sit back and do nothing in the face of what they described as tragedy waiting to happen.
The apex bank made frantic efforts to reassure Nigerians in general and the banking public that it carried out its action in the affected banks without any mindset or hidden agenda. Every fora was an opportunity for the apex bank to explain its actions in the banking industry. Saunsi stated severally that the intervention of the CBN was in response to the obvious general weakness in risk management and corporate governance coupled with huge concentration in exposure of the Deposit Money Banks (DMBs) in some sectors.
Such sectors according to Sanusi include capital market and oil and gas sectors of the economy. The CBN governor stated in very clear terms that the measures taken by the apex bank were aimed at among other things; engendering discipline in corporate governance, prevent systemic distress and ensure financial system stability. He noted that unless these critical elements are put in place, an efficient payment system which will thrive on a sustainable basis would be a scarce commodity in the nation’s march to being one of the 20 top economies of the world by the year 2020.
According to the governor, “It is no longer news that the world economy had been hit by the repercussion of the financial meltdown that started with the sub-prime mortgage crisis in the United States of America and one that has spread to Europe and other parts of the world.” He warned failure to learn the, necessary lessons now may bring with it a worse gravity, stressing that its negative impact may even assume greater proportion than what the country has so far experienced.. Sanusi restated the apex bank is more than ever committed the restoration and sustenance of public confidence in the banking sector.
However, whatever position that was adopted by the different stakeholders, there seems to be an agreement that something needed to be done and urgently too in the banking sector as all that glitters in the banking sector of the economy may not be gold after all. This is buttressed by the fact that in the last one year, banking business is gradually shifting back to its conservative nature rather than tilting towards the antics of Show Business.
The apex bank did not just stop at firing the bank chief executives that were found wanting but also rolled out what is today easily referred to as the Four-Pillars of the second phase of the Banking sector reforms. The Four-Pillars of the Banking sector reforms are Strengthening the quality of banks, Establishing financial Sector Stability, Enabling healthy financial sector as well as Ensuring the financial sector contributes to the real economy.
As part of efforts aimed at rebuilding confidence in the banking sector, the apex bank pursued with vigour the establishment of the Assets Management Corporation of Nigeria (Amcon). Amcon according to CBN would serve as an exit or resolution vehicle to assist in the recapitalization of the CBN intervened banks. The proposed Amcon would be floated with a capital base of N250 billion. The equity which would be held between the CBN and the federal ministry of finance Incorporated (Mofi), in the ratio of 60 and 40 percent respectively, would enable the Amcon to buy up some of tCommercial Rabbit Farming he bad loans from the banks.
Another measure adopted by the Sanusi-led CBN in the last one year is the planned phasing out the Universal banking model. The proposed model will unbundle the present structure whereby one bank is in itself a financial supermarket, engaging in all manner of business. According to the apex bank, the on-going banking reforms had necessitated a holistic review of the entire banking system with a view to instituting changes that would ensure the development of a banking system that is healthy, stable and sound as enunciated under the four pillars of the on-going reforms by the bank.
The apex bank had noted that the universal banking model as practiced in the recent past led to a lot of abuses. As a one-stop financial supermarket, the model provided the platform for the many insider related abuses that were discovered by the CBN and the Nigeria Deposit Insurance Corporation (NDIC) examiners. The Universal Banking model with foray into insurance, stock broking, property development became the vehicle for diverting depositors’ funds from the banks as equities into many of these subsidiaries that were used as conduits for siphoning funds that were never meant to be repaid. In essence, a substantial chunk of the non- performing loans that wiped out the capital of some of these banks were incurred through these set ups.
Some analysts have argued that the planned phasing out of the universal banking model is more of policy summersault and is out of tune with the current banking reforms. The apex bank is however quick to respond that the phasing out of the universal model is never a policy summersault. According to the bank, the essence of the four pillars of the reforms is the emergence of a new banking system that is vibrant and alive to its responsibilities. In this regard, the phasing out of the model is a direct corollary and a deliberate policy measure in line with the raison d’etre of the pillars to prevent the massive unethical abuses witnessed in the recent past from repeating itself, thereby preventing the untoward consequences to the banking sector in particular and the financial system in general.
In the final analysis, the last one year has been an eventful one for the nation’s banking industry. No doubt the changes that have occurred in the last one year with Sanusi in charge as the number one banker have redefined banking business in the country. Changes have taken place, some palatable while some are not so palatable. However, one thing remains and that thing is that the banking industry have not remained the same in the last one year. And it it is more likely not to remain the same again.
Sanusi: Still Fighting One Year After
Signs of what to expect started when he granted his first interview to the Financial Times of London. In the interview Sanusi said he was going to audit three speed sectors of the economy-the margin loan, which refers to the capital market itself; oil and gas, which of course is where a lot of banks are exposed and the communication sectors. He then ordered a special audit of banks which was executed by a team of auditors from both CBN and the Nigerian Deposit Insurance Corporation (NDIC).The result of this audit prompted a declaration of hostilities which has remained unabated even as the banking industry has recorded a good turnaround over time. His tenure so far has enhanced perception, and the banks are taking precaution, writes OKEY NWANKWO;
A number of experts have argued that the audit was actually ordered by Soludo. The state of the banks who failed the audit test informed the opening of the expanded discount window. Banks that were having liquidity problems in the short run had access to facilities from the window which helped to stabilize their operations and sustained depositors’ confidence.
On coming to office, Sanusi monitored the expanded discount window and observed some banks were always accessing the window. He then sacked the executive managements of eight banks which he said failed the liquidity test. These banks are Afribank Nigeria, Bank PHB, Equatorial Trust Bank, Finbank, Intercontinental Bank, Oceanic Bank International, Spring Bank and Union Bank of Nigeria.
According to Sanusi, The eight failed the audit on three counts of liquidity, capital adequacy and corporate Governance. However Wema Bank and Unity Bank were spared. Wema Bank was spared as it just changed ownership while Unity Bank which failed capital adequacy test was directed to recapitalise before June 30, 2010. Prior to ousting the banks’ CEOs, he said “A few Nigerian banks mainly due to the high concentration in their exposure to certain sectors (capital market and oil and gas being the prominent ones), but due to a general weakness in risk management, have continued to display signs of failure.”
Having sacked the management of the eight banks, the apex bank injected N620 billion fresh capital into the banks while guaranteeing inter-bank lending and foreign credit lines. It followed with a haste publication of chronic bank debtors’ names in the media. The publication was greeted by a barrage of protests as many people whose names were published either denied owing banks or proved that the facilities are not bad loans. The banks’ chief executive officers were handed over to the Economic and Financial Crimes Commission (EFCC) for interrogation and subsequent prosecution. Reacting to strident claims that the reforms are not well articulated, Sanusi then announced the second phase of his reforms based on what he called the ‘4-pillars’.
The four pillars are strengthening the quality of banks, establishing financial sector stability, enabling healthy financial sector and ensuring the financial sector contributes to the real economy.
Following the change in management and subsequent injection of fresh capita, shareholders began to express worries as to what have become of their shareholding in the affected institutions. To add to their dismay, Sanusi declared that shareholders have lost their investments in the banks.
Impact of Sansui’s reforms on the economy One of the first victims of Sanusi’s reform was the downward spiral in economic activities. Credit was no longer available as banks were busy calling in facilities that re not even due. Major importers of petroleum products were hard hit as they could not secure necessary funds to continue. Many enterprises closed shop or sold off in order to repay facilities.
In an interview with a national magazine, Mike Obadan, professor of economics, University of Benin argued that the gains of the current banking reforms would be appreciated if Nigerians could recall the abyss into which some bank owners and their managers have plunged the banks. “Therefore, one major gain from the reforms is the prevention of mass failure of otherwise well-capitalised banks and in the process saving depositors and shareholders from shedding tears if the banks had collapsed.”
Nevertheless, Obadan observed that it is regrettable that the reform is being used as an excuse to throw hapless workers into the labour market to face an uncertain future. “The CBN should have not allowed the retrenchments. It should have directed banks to rationalise costs at the management by drastically cutting the emolument and allowances as well as overheads at the top level.
The CBN governor beating his chest said that when he became the apex bank governor, the rate of inflation was 15 percent but came down to 11.8 percent as at March 2010. The differential between the official rate and the parallel market rate was about 25 percent; the naira was trading at 189/190 in the black market.
It’s been down to about 150/152 for a year now the gap between official and parallel market rate is less than to percent. Inter-bank rates were at 22 percent and have now been down to about two percent (seven percent last week) for a long time, the stock market has gone up 30 percent since January (2010) so all the indicators of market confidence have gone up.
THE outcry that greeted the appointment of Sanusi was based mainly on the fact that the late President had concentrated appointments into the commanding heights of the public sector of the economy in one section of the country. For instance, under the late President, ministers of finance, national planning, chief economic adviser to the President as well as the group managing director of the Nigeria National Petroleum Corporation (NNPC) were all from the same part of the country.
Kano state in North Western Nigeria had the highest concentration, producing the current CBN governor and National Planning minister and the immediate past finance minister. However, against all protestations by different stakeholders in the economy, Sanusi Lamido Sanusi was confirmed by the Senate of the federal Republic as the governor of the CBN.
Sanusi did not waste time in telling whoever cared to listen that all was not well with the nation’s banking industry. After the completion of first batch of an Audit Report of licensed banks, Sanusi announced what could be described as a major earthquake in the banking industry-the sacking of about eight banks’ managing directors and chief executives. The banks include Intercontinental Bank Plc, Oceanic Bank Plc, Union Bank Plc and Afribank Plc. Others are FinBank Plc Bank PHB, Spring Bank Plc and Equatorial Trust Bank (ETB).
This was followed by the injection of Bail-out funds to the tune of over N600 billion into the intervened banks to enable them meet their obligations to their customers. The capital injection was followed with aggressive debt recovery by the banks. In order to make debtors to pay, the Economic and Financial Crimes Commission (EFCC) was drafted to make debtors especially those who felt that depositors’ funds were theirs for asking to pay. It is also worthy to note that in the process of debt recovery, it was discovered that the book keeping records of some banks was faulty as many borrowers who have already liquidated their loans still had their names in the debtors list of the banks.
The action of the apex bank under Sanusi was greeted with mixed feelings. While a section of the stakeholders believe that the action of the CBN was timely and in order, another section of the stakeholders believe that the apex bank would still have achieved the same purpose of sanitizing the banks through a more subtle manner devoid of any razzmatazz.
While some section of the stakeholders accuse Sanusi of implementing an agenda aimed at taking the financial institutions from their chief executive officers who in most cases nurtured the banks into big players in the financial landscape, others were of the opinion that it would have been the height of regulatory irresponsibility for the apex bank to sit back and do nothing in the face of what they described as tragedy waiting to happen.
The apex bank made frantic efforts to reassure Nigerians in general and the banking public that it carried out its action in the affected banks without any mindset or hidden agenda. Every fora was an opportunity for the apex bank to explain its actions in the banking industry. Saunsi stated severally that the intervention of the CBN was in response to the obvious general weakness in risk management and corporate governance coupled with huge concentration in exposure of the Deposit Money Banks (DMBs) in some sectors.
Such sectors according to Sanusi include capital market and oil and gas sectors of the economy. The CBN governor stated in very clear terms that the measures taken by the apex bank were aimed at among other things; engendering discipline in corporate governance, prevent systemic distress and ensure financial system stability. He noted that unless these critical elements are put in place, an efficient payment system which will thrive on a sustainable basis would be a scarce commodity in the nation’s march to being one of the 20 top economies of the world by the year 2020.
According to the governor, “It is no longer news that the world economy had been hit by the repercussion of the financial meltdown that started with the sub-prime mortgage crisis in the United States of America and one that has spread to Europe and other parts of the world.” He warned failure to learn the, necessary lessons now may bring with it a worse gravity, stressing that its negative impact may even assume greater proportion than what the country has so far experienced.. Sanusi restated the apex bank is more than ever committed the restoration and sustenance of public confidence in the banking sector.
However, whatever position that was adopted by the different stakeholders, there seems to be an agreement that something needed to be done and urgently too in the banking sector as all that glitters in the banking sector of the economy may not be gold after all. This is buttressed by the fact that in the last one year, banking business is gradually shifting back to its conservative nature rather than tilting towards the antics of Show Business.
The apex bank did not just stop at firing the bank chief executives that were found wanting but also rolled out what is today easily referred to as the Four-Pillars of the second phase of the Banking sector reforms. The Four-Pillars of the Banking sector reforms are Strengthening the quality of banks, Establishing financial Sector Stability, Enabling healthy financial sector as well as Ensuring the financial sector contributes to the real economy.
As part of efforts aimed at rebuilding confidence in the banking sector, the apex bank pursued with vigour the establishment of the Assets Management Corporation of Nigeria (Amcon). Amcon according to CBN would serve as an exit or resolution vehicle to assist in the recapitalization of the CBN intervened banks. The proposed Amcon would be floated with a capital base of N250 billion. The equity which would be held between the CBN and the federal ministry of finance Incorporated (Mofi), in the ratio of 60 and 40 percent respectively, would enable the Amcon to buy up some of tCommercial Rabbit Farming he bad loans from the banks.
Another measure adopted by the Sanusi-led CBN in the last one year is the planned phasing out the Universal banking model. The proposed model will unbundle the present structure whereby one bank is in itself a financial supermarket, engaging in all manner of business. According to the apex bank, the on-going banking reforms had necessitated a holistic review of the entire banking system with a view to instituting changes that would ensure the development of a banking system that is healthy, stable and sound as enunciated under the four pillars of the on-going reforms by the bank.
The apex bank had noted that the universal banking model as practiced in the recent past led to a lot of abuses. As a one-stop financial supermarket, the model provided the platform for the many insider related abuses that were discovered by the CBN and the Nigeria Deposit Insurance Corporation (NDIC) examiners. The Universal Banking model with foray into insurance, stock broking, property development became the vehicle for diverting depositors’ funds from the banks as equities into many of these subsidiaries that were used as conduits for siphoning funds that were never meant to be repaid. In essence, a substantial chunk of the non- performing loans that wiped out the capital of some of these banks were incurred through these set ups.
Some analysts have argued that the planned phasing out of the universal banking model is more of policy summersault and is out of tune with the current banking reforms. The apex bank is however quick to respond that the phasing out of the universal model is never a policy summersault. According to the bank, the essence of the four pillars of the reforms is the emergence of a new banking system that is vibrant and alive to its responsibilities. In this regard, the phasing out of the model is a direct corollary and a deliberate policy measure in line with the raison d’etre of the pillars to prevent the massive unethical abuses witnessed in the recent past from repeating itself, thereby preventing the untoward consequences to the banking sector in particular and the financial system in general.
In the final analysis, the last one year has been an eventful one for the nation’s banking industry. No doubt the changes that have occurred in the last one year with Sanusi in charge as the number one banker have redefined banking business in the country. Changes have taken place, some palatable while some are not so palatable. However, one thing remains and that thing is that the banking industry have not remained the same in the last one year. And it it is more likely not to remain the same again.
Sanusi: Still Fighting One Year After
Signs of what to expect started when he granted his first interview to the Financial Times of London. In the interview Sanusi said he was going to audit three speed sectors of the economy-the margin loan, which refers to the capital market itself; oil and gas, which of course is where a lot of banks are exposed and the communication sectors. He then ordered a special audit of banks which was executed by a team of auditors from both CBN and the Nigerian Deposit Insurance Corporation (NDIC).The result of this audit prompted a declaration of hostilities which has remained unabated even as the banking industry has recorded a good turnaround over time. His tenure so far has enhanced perception, and the banks are taking precaution, writes OKEY NWANKWO;
A number of experts have argued that the audit was actually ordered by Soludo. The state of the banks who failed the audit test informed the opening of the expanded discount window. Banks that were having liquidity problems in the short run had access to facilities from the window which helped to stabilize their operations and sustained depositors’ confidence.
On coming to office, Sanusi monitored the expanded discount window and observed some banks were always accessing the window. He then sacked the executive managements of eight banks which he said failed the liquidity test. These banks are Afribank Nigeria, Bank PHB, Equatorial Trust Bank, Finbank, Intercontinental Bank, Oceanic Bank International, Spring Bank and Union Bank of Nigeria.
According to Sanusi, The eight failed the audit on three counts of liquidity, capital adequacy and corporate Governance. However Wema Bank and Unity Bank were spared. Wema Bank was spared as it just changed ownership while Unity Bank which failed capital adequacy test was directed to recapitalise before June 30, 2010. Prior to ousting the banks’ CEOs, he said “A few Nigerian banks mainly due to the high concentration in their exposure to certain sectors (capital market and oil and gas being the prominent ones), but due to a general weakness in risk management, have continued to display signs of failure.”
Having sacked the management of the eight banks, the apex bank injected N620 billion fresh capital into the banks while guaranteeing inter-bank lending and foreign credit lines. It followed with a haste publication of chronic bank debtors’ names in the media. The publication was greeted by a barrage of protests as many people whose names were published either denied owing banks or proved that the facilities are not bad loans. The banks’ chief executive officers were handed over to the Economic and Financial Crimes Commission (EFCC) for interrogation and subsequent prosecution. Reacting to strident claims that the reforms are not well articulated, Sanusi then announced the second phase of his reforms based on what he called the ‘4-pillars’.
The four pillars are strengthening the quality of banks, establishing financial sector stability, enabling healthy financial sector and ensuring the financial sector contributes to the real economy.
Following the change in management and subsequent injection of fresh capita, shareholders began to express worries as to what have become of their shareholding in the affected institutions. To add to their dismay, Sanusi declared that shareholders have lost their investments in the banks.
Impact of Sansui’s reforms on the economy One of the first victims of Sanusi’s reform was the downward spiral in economic activities. Credit was no longer available as banks were busy calling in facilities that re not even due. Major importers of petroleum products were hard hit as they could not secure necessary funds to continue. Many enterprises closed shop or sold off in order to repay facilities.
In an interview with a national magazine, Mike Obadan, professor of economics, University of Benin argued that the gains of the current banking reforms would be appreciated if Nigerians could recall the abyss into which some bank owners and their managers have plunged the banks. “Therefore, one major gain from the reforms is the prevention of mass failure of otherwise well-capitalised banks and in the process saving depositors and shareholders from shedding tears if the banks had collapsed.”
Nevertheless, Obadan observed that it is regrettable that the reform is being used as an excuse to throw hapless workers into the labour market to face an uncertain future. “The CBN should have not allowed the retrenchments. It should have directed banks to rationalise costs at the management by drastically cutting the emolument and allowances as well as overheads at the top level.
The CBN governor beating his chest said that when he became the apex bank governor, the rate of inflation was 15 percent but came down to 11.8 percent as at March 2010. The differential between the official rate and the parallel market rate was about 25 percent; the naira was trading at 189/190 in the black market.
It’s been down to about 150/152 for a year now the gap between official and parallel market rate is less than to percent. Inter-bank rates were at 22 percent and have now been down to about two percent (seven percent last week) for a long time, the stock market has gone up 30 percent since January (2010) so all the indicators of market confidence have gone up.
