|
Urhobo Historical Society |
Culled from:
Friday, September 11, 2009
Cleaning Up Nigerian Banks: Let's Do This Thing Properly
By Dr. Dele Cole
I
WAS happy to read the esteemed Justice Bola
Ajibola's comments in The Guardian
newspaper last week on the recent actions of the Central Bank of
Nigeria and the subsequent moves by the EFCC to detain both the
executives of those banks that have been sacked and the debtors
currently regarded as 'non-performing'. Justice
Ajibola, while congratulating the Central
Bank Governor for his courage, was keen to express the importance of
due process and transparency in the process for those that have been
accused.
The basis for the CBN's actions was that the accused executives have
demonstrated a lack of transparency in their dealings and a lack of
respect for the depositor's funds under their supervision, in some
cases, taking their institutions to the point of insolvency.
Allegations such as these are serious, and if they are proven beyond
reasonable doubt in a court of law to be true, then the protagonists
deserve everything that they get, but we must act in a way that
provides legitimacy to the process.
It seems the EFCC has been given a mandate to detain and pass
judgement on the accused before specific
guilt is proven. The Attorney General himself has said that he will
give the EFCC the authority to pursue criminal proceedings against
both the bankers and their debtors, but the accused have already
received a 'public' trial on the pages of newspapers with no recourse
to defend themselves. The EFCC need to be
restrained from knee jerk reactions, not encouraged in the way they
have been. We have recently seen significant plaudits given to the
EFCC for the amount of money they have recovered on behalf of the
banks since this episode started, but what is N25 billion when
compared to the N740 billion or so non-performing loans that the CBN
says it has identified, or the N400 billion the CBN has injected into
the system to prevent collapse?
Not only is the amount collected so far puny, compared to the total
value of the non-performing loans supposedly identified, but we now
have the spectre of depositors losing
their money if what the NDIC has said is true. During the previous CBN
Governor's tenure one of the main concerns was that he repeatedly said
that no depositor would lose their money, which was patently untrue if
you consider that fact that depositors in banks that did not meet the
consolidation requirements are still waiting to receive their money.
Mr Sanusi has
maintained the same mantra, verbally reassuring depositors that their
money is safe, when everything suggests that this is not true. If the
money of depositors is safe then why does the CBN not guarantee
deposits in the same way as governments in the U.S. and Europe do? No
amount of sanitation within the banking sector will return confidence
without such a guarantee.
Not only do we have no guarantee on deposits, but we have no clear
proposals from government on dealing with the main causes of the
financial crisis in Nigeria in the first place. The reasons for the
extreme de-valuation of assets in the stock market alongside the
ongoing issues in the downstream petroleum sector are not being
addressed. We have no policy to guarantee deposits, no policy to
return confidence to the capital market and no policy to restore
confidence in the financial services sector.
The CBN needs to very careful in the way that it implements its
current policies. Banks are the lifeblood of our economy and risk is
an inherent part of their operations. It is vital that while ensuring increased transparency and
disclosure in the system, the CBN does not stifle the credit vital
to the successful operations of our economic system. Oceanic Bank,
Intercontinental Bank and Union Bank took immense entrepreneurial
spirit to establish, we cannot allow ourselves to destroy the
entrepreneurial spirit that is the bedrock of development. We will
end up with a tepid, diluted and incapacitated financial system
sacrificed at the altar of egotism. We must protect the
infrastructure that has been built as we institute better
transparency and systems.
While I am talking about infrastructure, let's look at another
fundamental issue in this story. The nature of our environment means
that debtors to banks may have legitimate reasons for failure to repay
obligations on time. They may not have been paid by the government on
time (downstream oil & gas), their
goods may have been delayed due to port congestion or corrupt customs
officials. Perhaps there is no electricity supply to their factory?
What authority will resolve the fundamental issues that are required
to create a viable economic environment for business to thrive? The
CBN should not implement policy in isolation; the issues are much
wider than financial services.
It seems that in Nigeria, the only time the government functions
effectively is when it acts in a paramilitary way, rather than one
that follows due process and secures the legitimacy of the outcome.
The CBN has quite dramatically washed its dirty laundry in public; we
can only hope that the detergent they have used will not irreversibly
damage the clothes they are washing.
There is another worrying element to this process that must be
mentioned. Why are we in such a hurry to sell these five institutions?
Only 10 of the 24 audits have been completed so far and we do not have
a holistic view of the situation that would allow a sales strategy to
be developed that addresses all of the issues. Let's take an example
from the international community over the last two years. Lloyd's
acquisition of HBOS during the height of the credit crunch was
initially billed as great business, only
for reality to emerge much later on with Lloyds forced to accept
considerable sums of government money to cover undiscovered
liabilities in HBOS that were not spotted because of the speed of the
sale process. Do we want to replicate this error?
The law allows the CBN governor to proceed with these sales, but
civil society should be pursuing an injunction against the sale to
ensure that the process is conducted properly and at the appropriate
time. Perhaps Mr. Sanusi is not confident
in the calibre of the appointments he has
made to take over the troubled banks? Certainly many of them have had
less than illustrious banking careers and are of questionable
pedigree. Are they the right people to return these banks to
stability?
There are too many questions to be answered in this process at the
moment. There is the perception of a political motive lurking in the
background, and the perception that sectional interests are behind the
move must be avoided. Issues that have not been fully explained and
demonstrated to be fair should be treated carefully and I fear we are
seeing the 'bull in a china shop' approach so common to our history.
We look like a banana republic at the moment, when the process that is
being pursued should in fact ensure an improvement in the reputation
of our nation and its financial services sector. I urge all involved
to resist the urge to pursue vendetta's, to avoid the sensational in
favour of the practical and to work to
ensure that those that are guilty are punished, but those that are
innocent are not tainted by over-exuberance on behalf of the
authorities. It would be interesting to know if the CBN would stand up
to the level of scrutiny it is currently applying to the banks.
- Dr. Cole, former Ambassador to Brazil, and former Special Adviser on International Relations to former President Olusegun Obasanjo is a Consultant to The Guardian, Editorial Board.