16 Aug 2009 |
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Five Banks And Sanusi's Big Axe By Reuben Abati Lamido Sanusi, the CBN Governor is in need of help. His assertive and courageous intervention in the banking sector through the sack of five Bank Managing Directors/Chief Executive officers is curiously being passed off by propagandists and conspiracy theorists as having ethnic and religious undertones. It's been said that all the affected MDs: Cecilia Ibru (Oceanic Bank), Erastus Akingbola (Intercontinental Bank Plc), Okey Nwosu (FinBank), Sebastian Adigwe (Afribank) and Barth Ebong (Union Bank) are Christians and Southerners, and that certainly, it must be that the CBN Governor is playing the script of some Northern power brokers who want to discredit Southerners and then pave the way for the take-over of some of the banks by Northern interests. Otherwise, one fellow insisted, why has the Sanusi axe not fallen on Unity Bank? They say it is further curious that it is only Southerners - mostly from the same area as the deposed bank MDs (with the exception of the Union Bank MD) who have been brought in as interim managers of the banks: a clever move to justify a future Northern take-over especially now that the North is in charge of all the strategic sectors of the economy: the latest being the appointment of a Northerner also as Comptroller General of Nigeria Customs? My take on this is that the ethnic and religious argument is completely irrelevant. The events of the last 72 hours in the Nigerian banking sector have nothing to do with whether or not Erastus Akingbola says his bank is built on the foundation of Christ, or that Mrs Ibru is a prominent member of the Redeemed Christian Church of God (RCCG). Nigeria's banking industry is dominated by Southerners, it is only logical that most of the casualties in this kind of house-cleaning exercise would also come from the South. The present action is the outcome of a CBN audit of 10 banks, we can safely expect that more bank MDs will be removed in due course, and it wouldn't matter whether they are Southerners or Northerners, Moslem, pagan or Christian. Commentators on the development should focus on the facts of the case, while Lamido Sanusi and his team need to work harder on their communication of the details and import of what can be regarded for want of a better term as Sanusi's own Consolidation Exercise or Consolidation Phase II. A proper communication strategy is imperative in order not to over-energise the rumour/speculation mill which appears to have been unwittingly activated by the aggressiveness of the action. The surprise element in the CBN action and the courage that has been displayed can be sympathetically underscored. We knew all along that Nigerian banks in the face of the global financial meltdown and the crisis in the stock market, made worse by the bank's over-exposure through margin loans and unsecured advances and bad investment in the downstream sector were mostly unhealthy. What Sanusi's CBN has now done is to expose the severity of the crisis. The former CBN Governor, Charles Soludo had tried to manage the situation. Being the architect of the consolidation process in the banking sector, he must have been reluctant to expose the banks. He tried to give the ailing banks a chance by introducing a number of measures including the Expanded Discount Window in the hope that they will clean up their acts. But the banks and their managers were mostly insincere. Poor risk management, corporate abuses, incompetence continued apace in the banking sector and more attention was paid to hype. Research analysts who should have provided a honest analysis of the situation spoke from both ends of the mouth. While some analysts predicted a looming distress, other analysts praised the banks to high heavens. Africa Report, a special publication of Jeune Afrique which was one of the last to blow the whistle on Nigerian banks, and which in the face of counter-intelligence responses stood firmly by its story, as well as Proshare Nigeria which in its 2008 Annual Report wrote confidently about the present crisis, must now feel vindicated. About a year ago, Intercontinental Bank even issued a statement protesting about de-marketing within the industry. There is a big lesson in all of this about reality and appearances. Three of the affected banks are what will be regarded in Nigerian parlance as big banks: Union Bank, Oceanic Bank and Intercontinental Bank. These are banks which have always won local and international awards. Their boards boast of recipients of the country's National Honours, and university honorary degrees! Media houses were also not left out in the race to decorate both the banks and their leaders with diadem: Best Bank of the Year, Most Improved Bank of the Year, CEO of the Year etc. Now all of that has gone burst. The same Bank MDs that we used to admire and who had so much clout locally and internationally have now been described by the CBN as reckless and incompetent. Take Erastus Akingbola. He is Chairman of the Chartered Institute of Bankers of Nigeria (CIBN), Second Vice President of the Nigeria Stock Exchange, Pro-Chancellor of a University, holder of multiple honorary degrees and a national honour awardee. The humiliation for the persons involved must be painful. But let this be said: the CBN must share part of the blame. It presided over the same rot that it is now trying to clean up. The failure of the regulatory authority cannot be excused on the grounds that the banks refused to make proper submissions and disclosures. Institutional failure explains the kind of abuses that characterise the banking system in Nigeria; for too long, the apex bank looked the other way as the banks abandoned core banking and professional services and chased quick gains. In fact this same CBN once told us that Nigerian banks are insulated from the effect of the global financial meltdown. So, what has changed? It is the same CBN Board of the past five years that is still in place. There has been no departmental restructuring at the CBN institutional level. Only one thing has changed at the CBN: the arrival of a new CBN Governor, Lamido Sanusi. Determined to make an impact, Mr Sanusi has so far been focussing on the assignment and he has brought to the job, a sense of purpose and independent-mindedness. His first strike was to tell the Federal Government the home truth on the seven-point agenda: forget about seven points he said, priotise, concentrate on two or three. His second major strike is this earth-shaking coup against five Bank MDs. We must note that in the eyes of the ordinary man, these were not banks that were failing. They were run by high-profile public figures. There are many persons without doubt who will swear by the name Union Bank, for example: big, strong and reliable? It takes a lot of courage for Lamido Sanusi to take on these sacred cows as it were, and to confront them with the facts of their negligence and the force of the powers of the CBN. If his intention is indeed a continuation of the Consolidation Process initiated by Professor Charles Soludo, then there must be proper articulation of follow up steps in terms of how the apex bank hopes to enforce a return to core banking while strengthening its own regulatory functions. Margin loans are not the only problematic advances and in truth, the crisis may be more serious than the failure to manage risk effectively. A realistic assessment of what the CBN can or cannot achieve must be attempted, and how the interim managers intervene in the process should be of great interest so that the CBN does not in the long run create more problems than it initially set out to correct. Three useful questions in my view: what are the criteria for the selection of the interim managers? Shouldn't the stocks of the banks have been placed on suspension before this action? And where are those lying auditors who have all along certified the accounts of these banks as true and correct? Sanusi had promised to restore confidence in the banking system. That confidence is now severely shaken. Banking is a business built on trust. If Union Bank, Oceanic Bank, Afribank, Finbank and Intercontinental Bank could unravel as they have, then ordinary people would be tempted to panic and take out their money from the banks. But the CBN must ensure that this ends up only as a short-term, short-lived response and that depositors are reassured of safety. The CBN Governor has disclosed that a sum of N400 billion will be provided to stabilise the affected banks. Obviously the five MDs had to go because the CBN cannot trust them to manage the bail-out funds well. But since the N400 billion is public funds, it is Nigerians who are being short-changed although we have been assured that this is only a loan which will be repaid as soon as the banks are in a position to do so. We can only hope so, for the amount is big enough to address part of the grievances of the Academic Staff Union of Universities (ASUU). It could be used to make a difference in the health and power sectors too, now all that money is to be used to subsidise the failure of corporate governance in the banking sector, and to correct the distress that was caused by CEO inattention and auditor negligence. There should be much deeper investigation and where criminal negligence and greed can be established, persons should be prosecuted, and any Bernard Madoff in the system must be unmasked. The CBN has made scapegoats out of five Bank MDs. The debtors, auditors and stockbrokers who have contributed to this problem should also be brought to book. The CBN should go ahead and publish their names and bring in the law enforcement agencies. We hold on in this regard to Sanusi's words when he concluded as follows: "We will not allow any bank to fail. However, we will also ensure that officers of banks and debtors who contribute to bank failures are brought to book to the full extent of the law and that all proceeds of infraction are confiscated where legally feasible." Fourteen additional banks are undergoing audit; clearly by year-end, the present restart mode into which the banking sector is locked would have run its course leaving behind a more realistic ranking of the banks with only the real players left in the game. The banks that survive should not just hope to reap the gains of the process or indulge in needless grandstanding and one-upmanship, rather this should be seen as an opportunity to learn useful lessons and to upgrade their performance, and their share capital, more so as the possibility of increased foreign investment in the sector is foreseeable within the next 24 months. Bank shareholders who stand to suffer more losses in the stock market beginning from this week, and who have a right to be angry, may also have to modify their expectations; size and hype we have all learnt do not determine a bank's health, what matters more is the quality of its governance.
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