Isn’t it strange that after seven months, the reforms introduced by the Central Bank Governor, Sanusi Lamido Sanusi, into the Nigerian banking sector can be adjudged as a floating particle? A strange object in the sky with no clear direction, tossed here and there by every gust of wind! That is exactly the image painted by his employer, the Federal Government of Nigeria, after what can be described as careful examination of his performance.
Background
Sanusi, a risk management expert, was hired by President Umaru Musa Yar'Adua on June 3, 2009, shortly after his nomination was ratified by the Senate. He replaced Chukwuma Soludo, a professor of Economics, whose major achievement in office was the consolidation of the banking sector. Let’s take a quick snapshot of his views during his screening at the National Assembly and compared them with his performance.
“What we need do is to build on corporate governance and the risk management system with individual banks, disclosure requirement; ensure that banks actually recognize their losses”
Views
On risk management: "Risk management is ultimately about asking yourself when the terms are good, what could go wrong ? When the capital market was going up and banks were lending to the capital market, somebody should have asked: what happens if the market crashes? Will these banks survive? The risk managers in the banks did not ask those questions; the regulators did not ask those questions. On consolidation: "I think it is a true statement that a good bank requires a lot of capital. But having said that, consolidation was not and should never have been seen as an end in itself because while it is true that a good bank needs a lot of capital, it is not true that every bank that has capital is a good bank. How you use that capital, how you manage it, whether that capital is placed in the hands of fit and proper persons who should be trusted with people's money are the critical questions that should always be asked. What we need to do is take consolidation as a foundation; now, build on the other things that were actually set up in the first two-point agenda - the corporate governance and the risk management system with individual banks, disclosure requirement; ensure that banks actually recognize their losses. When people talk about stock market and confidence, we all know that there is N1 trillion out there. That number has to show up as non-performing loans; if they are not showing up, people do not trust the numbers. We need to ask: where are those non-performing loans and we need to enforce provision and if banks need more capital, then we should recapitalise those banks. But the solution is not to pretend that they are there and they are strong. I think the system as a whole is non-capitalised. I think the liquidity in the system as a whole is good, but I think there will be a few weak points in that system.There are a few banks that are weak spots and we need to help those banks correct the problems; otherwise the system will not regain the confidence."
On lending to Small and Medium Scale Enterprises: "It is always extremely important to remember that the financial system is a transmission mechanism for monetary policy to the real sector. It does not provide other access. The constant theme was that if you cannot show that your economic policies have improved the wellbeing of the majority of the people, you cannot claim that you have succeeded. I think it was valid in 2005; it is valid today and it will be valid tomorrow.” On Soludo: “In terms of the overall direction and the overall policies, I think he has done a very good job. Whether I will succeed as much as him, we have to wait for the next five years to judge.”
Scorecard
On August 14,2009, he sacked the Managing Directors(MDs) of five banks: Erastus Akingbola of Intercontinental Bank, Cecilia Ibru of Oceanic Bank, Okey Nwosu of Finbank, Sebastian Adigwe of Afribank and Barth Ebong of Union Bank. Offence? Their banks failed stress test. He arrested and is currently prosecuting them;he published list of bank debtors, injected N420 billion as bailout funds and appointed new management teams for the banks. On October 2, 2009, the Managing Directors of three other banks kissed the dust for same offence. They are Francis Atuche of Bank PHB; Charles Ojo of Spring Bank and Mr Ike Oraekwuotu of ETB. He also announced new management teams and injection of N200 billion as bailout. He ordered Wema and Unity banks to recapitalize by next June and prescribed 10-year tenure for bank MDs.
"We want a blueprint of the reforms to know where the CBN is headed and more importantly to be sure that its actions are not just taken ‘as the spirit directs"
Effects
Sack gale in banks. Banks’ refusal to lend to businesses led to fuel scarcity, shut down of companies’ , cash crunch in the economy and worsening of the unemployment rate in the country.
Verdict
Because his policies have failed so far to improve the wellbeing of the majority of the people as he said, the Federal Government asked the apex bank to furnish it with the blueprint on the banking reforms to allow assessment of the direction of its policies and also ensure that they are in line with government’s long-term economic programme. Disclosing this, the Minister of State for Finance, Mr Remi Babalola, said that Sanusi’s employer wants “ a blueprint of the reforms to know where the CBN is headed and more importantly to be sure that its actions are not just taken ‘as the spirit directs’.”The minister said the government was fully in support of the CBN reforms in line with its strategic focus on the growth and development of the economy but added that government was trying to back the CBN to the extent that its actions do not jeopardise the confidence level in the economy. Babalola stated that the Federal Government had in the past abandoned some crucial decisions to the CBN in the name of protecting its autonomy, noting that the situation contributed to the crisis in the sector, adding that the government would “now be more involved”. Does this mean that the man, Sanusi, has no clear road map on his mission at CBN? Or does it mean that his blueprint for the sector is just a fly leaf ? Sanusi, over to you.
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