Nigeria: Nationalised Banks - Sanusi's Consuming Instincts to Sanitise Banking System

Jide Ajani & Emma Ujah

14 August 2011

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analysis

This report examines the implications of what is being described as the messianic desire of Lamido Sanusi, Central Bank of Nigeria, CBN, governor, to sanitise Nigeria's banking system. How far is he prepared to go without rocking the boat?

Is Malam Lamido Sanusi a loose canon? Yes, Sanusi may be a canon! But, is he loose?

Well, if the penultimate weekend revocation of licences and subsequent takeover of three banks is anything to go by, then the lanky CBN governor may be on the loose.

Like a thunderbolt, his decision days ago to create another shockwave in the banking sector has left many wondering what the real objectives are.

CBN says it wants to safeguard depositors' funds!

Shareholders in the banks insist that Sanusi has an ulterior agenda.

Penultimate weekend, the licences of Afribank, Bank PBH and Spring Bank were revoked by CBN and taken over by Nigeria Deposit Insurance Corporation, NDIC, which created three bridge banks in their places. The banks were acquired by Asset Management Company of Nigeria, AMCON.

Before shareholders, managements and staff of the three banks could realise what was happening, their banks had exchanged hands twice within two days and completely rebranded by the beginning of the new week.

Afribank became Keystone Bank Limited, Bank PHB was re-named Mainstreet Bank Limited, while Spring Bank became Enterprise Bank Limited.

Though it was common knowledge that the three banks have been struggling for some time and that the 2009 bail-out, as well as the CBN appointed managements for the banks could not do much to pull them out of the woods, not many stakeholders expected that Sanusi would take the maximum action of revoking their licences before the September 30 deadline he earlier set for all rescued banks to recapitalise.

With the acquisition of the banks, NDIC and AMCON appointed new boards for them. Consequently, former Group Managing Director of Diamond Bank Plc, Mr. Emeka Onwuka, was made the Chairman of Enterprise Bank (former Spring Bank); former Managing Director of First Bank Plc, Mr. Jacob Ajekigbe, was named Chairman of Keystone Bank (former Bank PHB), while former Managing Director of Unity Bank, Alhaji Falalu Bello, became Chairman of Mainstreet Bank (former Afribank). In addition, Messrs Ahmed Kuru and Oti Ikomi were named MD for Enterprise and Keystone banks, respectively; while Ms Faith Tuedor-Matthews was appointed MD of Mainstreet bank.
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[i][color=Black][b][i]The Securities and Exchange Commission, SEC, immediately suspended trading in the shares of the affected banks since they ceased to be publicly-quoted entities, with their purchase by AMCON. Investors' reaction was predictable -- shares in the banking industry nose-dived as they preferred to shed their stocks following what was considered as uncertainties in the sector. The directive to also place shares of Finbank, Intercontinental, Oceanic and Union Banks on technical suspension aggravated the fears of investors.[/b]
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There have been sharp reactions by various interest groups with some criticizing CBN for acting in bad faith against owners of the nationalized banks, especially the marginal-shareholding members of the public who invested their hard-earned money in the affected banks and got nothing in return.

The Independent Shareholders Association of Nigeria, ISAN, under the leadership of Chief Sunny Nwosu, denounced the action and urged President Goodluck Jonathan to declare a state of emergency in the banking sector.

ISAN, which issued a statement last Sunday described the revocation of the licences of the banks as "a calculated subversion to the nation's economy and a threat to the people of Nigeria.

"CBN's resolution of recapitalization through bridge banks remains an attestation of failure and inept leadership by the current management of the apex bank toward finding a permanent answer to the nation's induced banking problems.

"ISAN is now vindicated in its posture that the Assets Management Company of Nigeria was floated to re-nationalise commercial and publicly-quoted banks. By this action, CBN has actualised the subsisting threat to revoke the operating licences of banks whose shareholders challenge in law courts the recapitalization method. ISAN rejects the revocation of the banks' operating licences and would further meet to discuss the next line of action."

The Centre for Social Justice, CSJ, also came down hard on CBN for revoking the banks' licences weeks before its deadline .

In a statement by its Lead Director, Eze Onyekpere, in Abuja, the centre said CBN should have honoured its own deadline and particularly given the fact that the banks could still find buyers within the period left.

The centre said : "We recall that CBN had given the banks up to the end of September 2011 to recapitalize. We further recall that one of the banks had negotiated with investors to infuse new capital into the bank but CBN refused to approve the investors. Revoking the licence of the banks about seven weeks to the expiration of the deadline of September 30 is not only an abuse of powers but a vindictive action without precedence.

Why did CBN fix a deadline if it had no intention of respecting same? No economy thrives in arbitrariness of the type perpetuated by CBN. This is simply not the rule of law but the rule of the jungle and the rule of the whims and caprices of CBN.

"The manner of taking over the three banks appears desperate and intends to overreach any challenges. First, CBN revokes the banks' licence, NDIC creates three bridge banks to run them on a temporary basis, possibly for three years and AMCOM acquires the bridge banks the following day. All these were done over a weekend, which days are not official working days. This smacks of a premeditated agenda to deny shareholders of the banks of interests in their investments. From the beginning of the so-called banking reforms, CBN never gave the shareholders any real chance of re-capitalising their banks.

"Justifying this action in the name of the protection of depositors' funds creates the impression that this is the only way that depositors' funds can be protected. This is not true. There are a number of other ways to protect depositors' funds and regulate banks without unnecessarily running down the banking system. CBN failed to consider the interest of shareholders in these banks. This is not the best way to create an enabling environment for private sector investment in the economy. CBN's action creates unnecessary panic and fear and does not promote confidence in the Nigerian economy.

"This takeover even questions the competence of the 'turn-around experts' who were posted to these banks by CBN. What value did they add to these banks and why were they not able to save the banks from this unwarranted takeover?

CBN's policies since the Sanusi era, from the controversial stress test for banks and the attempt to sell the banks, up to the present arbitrary revocation sends a strong message to the public that the regulation of the Nigerian banking system is not based on legal principles, logic or reason but by sheer dictatorship.

It said: "This cannot be the economic democracy we longed for. CBN needs a leadership that understands the role of the banks in the economy and the political economy of the underdevelopment of Nigeria. It does not need a leadership with a score and a grudge to settle, experimenting with people's lives and livelihoods.

"CSJ calls on the President and the National Assembly to review this take-over in the national interest. The CBN leadership has shown a lack of capacity to properly regulate the banking sector, a sector which is so vital to social and economic development. It should either be made to change its ways or leave the podium for more informed and experienced personnel."

CBN Deputy Governor, Dr. Kingsley Moghalu, who oversees Financial System Stability, has been defending the action of the apex bank which he said was to avoid a run on the affected banks and which could extend to others with grave consequences for the entire sector.

Moghalu posited that the banks were dead, effectively and that there was no alternative than to revoke their licences and allow AMCON take over in the interests of depositors and staff.

The Managing Director of NDIC, Alhaji Umaru Ibrahim, said even if the apex bank left the banks until the September 30, it would do no good as their capital had been eroded and no genuine investor would want to touch them. He insisted that the three banks could not attract buyers.

But the questions being asked are equally legitimate.

For instance, why did CBN set a September 30 deadline when it knew it was not ready to wait out the deadline before striking? Stemming from this, what was the hurry in nationalising the banks on a weekend?

How does Sanusi intend to respond to the increasing suggestion that the idea of nationalising the banks is to create a new set of cash cows from where some people can draw milk? Worse, though unfounded yet, there are talks of a vindictive move against the banks because there is no known banking institution of Northern Nigeria extraction that operates in the big league.

In the face of the shambolism that Sanusi appears to be creating in the banking sector, his messianic instinct may be negotiating a bend from a corrective lane to one which continues to create confusion.
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More than that, there are suggestions in some quarters that Sanusi's main targets of his so-called banking reforms escaped his guillotine in his first wave of attacks but eventually got at them with the tenure regime he introduced. And, that because he had already burnt bridges on his way, his only and best approach is to stick to what he considers best for the banking sector.

Mrs. Ngozi Okonjo-Iweala, the Finance Minister, is expected to assist President Goodluck Jonathan stabilise the economy and give it the needed fillip for growth. But how would this be achieved in the face of a banking sub-sector that is being serially rocked by what some are describing as a whimsical approach to regulation.

As Sanusi's rambunctious approach to banking reforms continues, the reality, however, is that the banking sub-sector would continue to operate in an environment of uncertainty.

This, no doubt, is bad for foreign direct investment because the impression being created is that the sector must anticipate an operating environment based on the mood swings of Lamido Sanusi.