Sanusi Promises Double Digit Growth
•To back foreign loan obligations •Audit on 11 banks about to be concluded
From Ijeoma Nwogwugwu in London, 08.29.2009
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The Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi yesterday in London expressed optimism about the country’s macroeconomic prospects, saying that Nigeria is expected to achieve a growth rate of 5 per cent this year buoyed by non-oil growth in the agriculture sector, improved oil prices and production following the amnesty programme in the Niger Delta, the steady decline of headline inflation and the nation’s robust foreign reserves.
Fielding questions from the international financial community at a forum organised by the CBN, Sanusi said with the efforts being put in by the federal government to improve infrastructure, particularly in the power sector, Nigeria has the potential to attain double digit growth by 2010 and 2011.
Addressing the concerns of foreign banks and investors on the recent shake up in the banking sector, the governor pledged CBN’s preparedness to back all the foreign loan obligations of the five banks taken over by the CBN in the unlikely event of default.
Penultimate Friday, the CBN had moved swiftly to save Intercontinental Bank Plc, Oceanic International Bank Plc, Union Bank Plc, Finbank Plc and Afribank Plc from imminent failure by injecting N420 billion into the institutions and dismissing their managing directors and executive directors.
Sanusi said the intervention by the CBN entailing the injection of N420 billion had fortified the banking sector in Nigeria and that the five banks are safe and have been meeting their foreign obligations, further disclosing that “one of the five had just made payments on its foreign loans.”
Responding to enquiries on whether the CBN would provide guarantees on the foreign loans, the governor stated that the Central Bank “is not contemplating providing guarantees on the (five) banks’ obligations since the need had not arisen.”
The governor informed the audience, which had in attendance the five interim managing directors, including Lai Alabi who confirmed that he had been away in the United States of America but will resume at Intercontinental Bank on Monday, that ever since the intervention there had been no single run on the affected banks.
“The CBN and government acted swiftly to protect savers and creditors to the five banks, and it is their managers and debtors that are now being held responsible for their problems,” he said.
He admitted that during the first two days after the intervention, there were concerns about flight to safety among the five banks, but their new CEOs called up their key and corporate customers to convince them of the safety of their deposits.
“In fact, one of the banks has already become a net placer of funds in the interbank market, so I am tempted to recall the money we injected in the banks,” the governor said in a light-hearted reference to the resilience of the banks.
The governor acknowledged that the problems that arose in the banking sector could be partly blamed on weak regulatory supervision of the banks’ subsidiaries that had taken margin loans to trade in equities.
“These subsidiaries, however, are not licensed or regulated by the Central Bank, which brings to the fore the question of consolidated supervision for all the regulators in the financial sector.
“We have to work closely with the Securities and Exchange Commission, the Nigerian Stock Exchange, even though it is not a regulator, the National Pension Commission and National Insurance Commission to safeguard against the reoccurrence of a systemic crisis.
“I am the chairman of the Financial Services Consultative Committee and our aim is to strengthen it and hopefully this would provide a roadmap for improved regulation in the financial system.”
Providing further insight into the exposure of the five banks taken over by the CBN, the governor said all the banks in the country were exposed to the oil and gas sector to the tune of N754 billion of which 50 per cent was accounted for by the five banks.
“The total outstanding commitment by all the banks at the Expanded Discount Window between October 2008 and July this year was N400 billion of which the five accounted for 90 per cent of the exposure.
“The five banks also had substantial non-performing loans on their books amounting to 40 per cent of their total loan portfolios.”
On the issue of the audit exercise for the 14 banks whose joint examination by the CBN and National Deposit Insurance Commission is still ongoing, Sanusi indicated that the audit for 11 bank is about to be concluded, while the three outstanding will be rounded off by September this year.
At this point, he said, “we cannot second guess the outcome of the audit for the remaining 14 banks, but the CBN does not envisage significant problems of the magnitude in the five in which we intervened.
“We are basically going to force a clean up of the entire system, so I expect that for the other 14 banks there will have to be additional provisioning.
“But by the end of the year, the fourth quarter to be precise, we expect strong earnings growth because their earnings will not be impaired by NPLs.”
The governor further stressed that the aim of the parley with foreign banks and investors was not to market the five banks, “but to provide clarity on the actions taken by the CBN and assure the foreign community of the soundness of the affected banks.”
“The Tier II Capital injected into the banks is just temporary and when we intend to sell them to investors we shall invite interested parties to submit expressions of interest for the banks.”
Sanusi, nonetheless, noted that the CBN’s policy does not preclude the foreign ownership of Nigerian banks, stressing: “No law stops any foreign bank from owning a Nigerian bank.
“The CBN will however exercise due diligence to ensure that we attract institutions that are interested in the development of the economy and not just focused on niche markets.”
On the issue of the legal challenges being mounted against the CBN for the take over of the five banks, Sanusi stated that the CBN is conscious of the fact that it will be in court for a while to defend its actions, but that “everything done by the Central Bank was within the confines of the law.
“On the other hand, we are also prosecuting the bank executives for infractions, which means that those suing us would have to decide if they want to challenge our actions or save themselves from jail.”
The CBN governor said the name and shame tactic employed by the CBN was yielding results as some of the debtors are paying up their loans.
He said he had met with the chairman of the Economic and Financial Crimes Commission, Farida Waziri, to express the Central Bank’s gratitude for its handling of the cases against loan defaulters.
The governor said the EFCC was conscious of its role and is being careful not to harass genuine businesses, which had defaulted on their loans as long as they can come up with restructured terms with the banks on how the loans will be repaid.
The decision to target loan defaulters, he explained, was aimed at exposing companies and individuals that had colluded with bank executives in insider-related loans which they had no intention of paying. “It is such people that will be prosecuted by the EFCC.”
Providing clarity on why the EFCC is insisting that debtors issue cheques directly to the commission, the governor said the decision is procedural and dependent on the requests made by the affected banks.
“If the banks have asked that the cheques or drafts be issued in favour of the EFCC, then it is procedural and was not based on any instruction by the CBN.”
Sanusi seized the opportunity to clarify insinuations that the Central Bank acted in bad faith after it approved the accounts of Oceanic Bank in July, only for it to turn around to remove its executives three weeks later.
He said when the audit was being undertaken by the joint examiners of the CBN and NDIC, the management of Oceanic Bank made a request for the approval of the bank’s accounts.
He said, however, he delayed the bank’s accounts when he became the governor of the CBN as a result of the oversight audit which showed its exposure at the EDW, signifying there was a problem.
“But the bank’s management insisted that we approve their accounts so it can pay dividends to its shareholders. So we approved it on the understanding that we would make the necessary adjustments after the auditors had concluded their examination of the bank’s books.”
He dismissed the notion that there was any sinister motive in the decision to take over Oceanic Bank and the four others. “These allegations keep cropping up and I am aware of the story published by the Vanguard newspaper, but this had nothing to do with any attempt by a group from any section of the country to take over five banks.
“It is high time we stopped ascribing anything we do in Nigeria to sectional interests.”
In respect of the sudden downgrade by international ratings agency, Standard & Poors’ last week, Sanusi expressed surprise at the latest sovereign rating assigned to Nigeria by the firm.
"At a time when we have taken steps to improve transparency and disclosure, and secure the stability of the financial system, at a time oil prices are improving, at a time we are making progress in stemming the crisis in the Niger Delta region, and the inflation rate is declining, this really came as a big surprise.”
The governor pointed out that if the agency, which is yet to live down its single “A” rating for Lehman Brothers shortly before its collapse, had downgraded Nigeria three or four months ago, it would have made sense, “but certainly not at this time.”
“I hope S&P can engage with us and review their position,” Sanusi said.
S&P cut Nigeria 's speculative sovereign long-term foreign currency credit rating one notch to B-plus from BB-minus last week, citing its costly bank bailout and falling oil revenues.
Also at the forum, the governor admitted that Nigeria remains under-banked and that the Central Bank will consider proposals that will bring banking services to the under-served.
“The proposal would consider the introduction of regional, Islamic and specialized banking in the country,” he stated.
The CBN forum for the international financial community attracted the interest of several participants, and included representatives from foreign and Nigerian banks.