Sanusi: The Hangman Cometh …
The Presidency — By Prince Emeka Obasi
Business Hallmark August 24 – 30, 2009
For the discerning, the appointment of Lamido Sanusi to replace Chukwuma Soludo as the CBN Governor was bound to cause a major earthquake in the Banking Industry. But obviously few Nigerians have eyes and fewer still can see.
Unknown to most Nigerians, the Banking Industry under the erstwhile regime at the CBN was rotten even beyond belief. For the avoidance of doubt, it still is. At the best of times, Banking is a risky business. That is why in every part of the world where Banking is practiced, it is very heavily regulated. Still that does not prevent occasional abuses. But there is possibly no other country in the world where Banking is as thoroughly abused as in Nigeria.
This might sound like an exaggeration, but some have argued allowing a Nigerian to run a bank is actually tantamount to giving a thief license to steal. Indeed, the very logic of banking is at odds with some salient Nigerian world view. There is a popular Nigerian proverb that a man does not stay with money. It literally means that men are meant to spend money. Perhaps it was this logic that inspired former President Ibrahim Babangida’s famous statement some years ago, to the effect that, “Money is meant to be spent.”
As Dr. Chidi Amuta once pointed out: “Banking is the ultimate con game. I mean, how can a man give his money to another man to keep for him?”
Well, it is that “giving” that is at the core of banking. The trust and confidence that anytime you need your money, it would be made available to you. Banking therefore operates on the logic that not all depositors would demand their money at the same time. So Bankers lend the surplus money in their custody to those who need it for all manner of projects, for a fee.
In Nigeria, that simple process has been subjected to severe abuse and incredible exploitation. Even before the liberalization of the sector by the Ibrahim Babangida Government, bankers routinely abused their positions often by giving loans to their friends and cronies without adherence to the requisite prudential guidelines and subsequently writing off the debts as bad loans.
The effect, of course, is that Nigeria has about the highest number of failed banks on average terms, in the world. The situation was worsened by the liberalization of the sector, which made the acquisition of a Banking license a one way ticket to riches.
Road to Golgotha …
In the frenzy to increase their share capital to N25 billion from the previous minimum share capital of N2 billion, banks hit on the strategy of initial public offers (IPOs). Initially, the market response was lukewarm at worst and mildly satisfactory at best. But within a short period of time, there was an explosion in the valuation of Banks stocks.
The average bank stock appreciated by over 500%. It was bonanza. But was it really, or was it actually a carefully orchestrated scam, an officially sanctioned ponzi scheme in which millions of people were seduced with promises of hefty returns only to be disappointed by Mr. Soludo and his Godfather Olusegun Obasanjo.
The truth is contained in the revelations Mr. Sanusi’s audit team are unearthing now. The banks created artificial demand for their stocks in several ways:
- Lending money to customers to buy the banks’ stock and securing same with the shares.
- Setting up brokerage firms to mop up the shares, thereby creating artificial scarcity and stimulating demand.
- Taking direct positions in the markets through their treasury departments.
- Using their Securities subsidiaries to mop up their own shares.
Fundamental banking principles were thrown overboard, while prudential guidelines were completely jettisoned. It was a speculative frenzy that gripped the market for over two years and overheated the economy.
A Hangman on Call …
The scam would have continued and indeed was set to continue. Mr. Soludo had created another special vehicle, the Expanded Discount Window (EDW), a contraption that allowed him to disburse billions of taxpayers’ funds to the banks to increase their liquidity and enable them remain in business.
So when Mr. Sanusi was appointed against the wishes of some in the industry, it became crystal clear that the bonanza was in mortal danger. In the event, Mr. Sanusi has not disappointed. Even then, it is not time to say Eureka! Because the problems are not over yet.
Although he has started on a flying note, there is much more to do. Certain aspects of the new policy thrust appear hasty and piecemeal. The problems in the sector are too deep and systemic to allow for knee-jerk responses lacking broad perspective.
There is also the issue of authority and legal framework. Mr. Soludo was wrong to disburse taxpayers’ funds without appropriation. Mr. Sanusi would be wrong to toe the same line. The CBN is a creation of the law. It cannot appropriate legislative powers.
Finally, the five banks are not the only sick babies in the industry. Mr. Sanusi must also reveal to us the state of health of the other institutions, otherwise the allegations of hidden motives and ethnic agenda, already levelled against him, may begin to look credible. And that would not only be sad, it would be a terrible tragedy for this tragic country.
