The Presidency — By Prince Emeka Obasi
Business Hallmark March 15 – 21, 2010

Seven months after he got the CBN top job and five months after he launched the controversial banking reform programme, Mallam Lamido Sanusi, the CBN Governor, is in obvious trouble, even if he does not readily admit it.

By the time he assumed office, the banking industry was undergoing severe stress. A catastrophic meltdown of the stock market had exposed the soft underbelly of the industry. Many banks were hugely exposed to the stock market and the oil and gas sector. The global economic recession froze international credit lines and put pressure on the banks to repay existing facilities. Some of those facilities were dollar denominated. So when the naira plummeted in exchange for the international reserve currency, the dollar, the crisis in the banks deepened. Unknown to many ordinary members of the public, many banks even prior to Sanusi’s appointment were having immense difficulties meeting daily operational requirements. Their capital base was almost eroded, while their capital adequacy fell below statutory requirements. Many of them resorted to the CBN, as lender of last resort, through the Expanded Discount Window programme in order to access funds crucial for their survival. The banks which were worse hit — Oceanic Bank Plc, Intercontinental Bank Plc, Finbank Plc — were virtually on the CBN life support machine.

Curiously, the authorities, including the CBN and sundry officials of the Federal Government, kept insisting that the economy was in perfect health. Of course, nothing could have been further from the truth. The appointment of Sanusi opened the Pandora’s box and exposed the rottenness of the financial system. Sanusi vowed to stabilize and restore the industry’s health. To do that, he adopted two measures, both of which have been deeply controversial. First, he announced an infusion of a hefty N420bn into eight banks whose situation he adjudged to be in terminal distress. Then he sacked their Chief Executives and appointed new managers to run them. His mandate to the managers was to recover loans, nurse the banks back to health and prepare them for sale to local and international investors.

Over six months after the fact, Sanusi’s mid-year report is dismal. His reforms have unleashed turmoil in the industry and caused severe macro-economic dislocation. The industry is almost comatose, while the economy is reeling. How did Sanusi get it so wrong and what should be done to arrest the drift?

The Logic of Good Intentions The road to hell, it has often been argued, is usually paved with good intentions. I have no doubt that Mr. Sanusi means well. There is little doubt either that he is deeply affronted by the rot he confronted in the sector. Where there is reasonable doubt is on the issue of his appreciation of the exact problems with the sector and the effective solutions for them. His fatal flaw is his temperament. Effective leaders do not govern in anger or pique. Sanusi is clearly angry, resentful and even vengeful. There are many, including this reporter, who would share some sense of moral outrage at the colossal abuses in the industry. But in enunciating and implementing policies that are designed to be effective, the wise leader puts away anger and adopts a sober and reflective approach. Sanusi apparently does not do that. In his frenzy, he has adopted the wrong policies and tried to force improper solutions, and in the process unwittingly became the problem instead of the solution.