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Credibility Question Over Sanusi’s Actions

By Lucky Fiakpa
Most Nigerians, even though, agreed that it was right for the Central Bank of Nigeria governor to save depositors and investors from the danger of a possible bank failure, disagree with the haste with which he went about the exercise, Lucky Fiakpa writes

Sanusi
Sanusi

In an interview session with the Cable News Network (CNN), three days after he ordered the changes that removed five bank managing directors and their respective executive directors, Sanusi further said that, “We discovered huge amount of bad loans that had not been disclosed. There has been all sorts of financial engineering and we basically unraveled all of that and decided and concluded that at this point in time the banks are in a grave situation”.

He added that “some bankers have not been doing business professionally and ethically and in the next few weeks, we will gather the evidence and if we need to try… and if we found any evidence that would put people in jail, we will put them in jail”.

All of these sounds quite logical, except that the haste with which the action was carried out tend to suggest that there is more to it than meets the eye.

Opinion of Nigerians
The first argument is that there are 24 banks in the country and the special audit was supposed to cover all. Some critics therefore cannot understand the haste to release the result of 10 banks while the exercise was still on going.

This was the line of argument of the former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu. According to him, the apex bank should have concluded the audit of the 24 banks before sanctioning the five banks. He said the sack of the management of banks, considered to be capable of jeopardising the financial positions of their institutions, should have been handled more subtly by giving their boards the leave to do so.

He regretted what he described as the unwarranted loss of confidence the public announcement had caused in the banking public. According to him, “This decision is already affecting the industry. I said that the way the CBN handled the issue is not satisfactory. They should have concluded the audit of the remaining 14 banks at the same time”.

Secondly, he added, the CBN should have invited the boards of directors of the affected banks, give them two weeks or one month to remove these managers and replace them by themselves, so that the fever of an announcement will not be experienced.

Unegbu, therefore described the action as a good move that was handled very unprofessionally. “My opinion is that it was a good move that was handled in a very unprofessional manner. Even though they are giving them money (tier two capital) to at least be able to get over the problem, it should have been done in a more professional manner.”

The Kaduna Chambers of Commerce Industry, Mines and Agriculture (KADCCIMA), President, Hajia Saratu Aliyu, also faulted the CBN approach. She does not believe the CBN handled the issue in the right way. “I don’t think that removing the chief executives of banks is the right way to address the problems. The real way is to bring these people, sit them down and ask them why these things are happening.

“When the problem started in the United States of America, did they go about to remove the chief executives? They brought them together and inquired why they were facing such problems. I don’t know if they did that before removing the CEOs here. Definitely, that action would not solve the problem,” she said.

The hasty approach of the CBN has therefore given rise to suspicion that the CBN governor was acting a script written from a section of the country.

But Sanusi dispelled such insinuations in the said interview with the CNN. According to him, “I don’t think so. I don’t expect any kind of politicization of the institutions. All the banks play important role in financing private sector growth. Last year, credit to the private sector exceeded government spending for the first time in the history of the country. So we will save the banks, we will fund them. We will give them the management, we will support them. But we will not save individuals and we will not shield them”.

Withholding Action
Even at that, some bankers who spoke to Financial Vanguard last week on condition of anonymity said the sack should have been the last resort. They say the CBN should have first applied withholding action instead of the outright sack of the bank chiefs. The argument of the bankers is found in Section 35 of the Banks and Other Financial Institutions Act as amended.

The Section states as follows: “(d) where, after an examination under section 32 of this Act or otherwise howsoever, the Bank (CBN) is satisfied that the bank is in a grave situation as regards the matter referred to in section 32(1) of this Act, the Governor may by order in writing exercise any one or more of the powers specified in subsection (2) of this section.

Subsection 2 states, “The Governor may by order in writing under subsection (1) of this section
(a) prohibit the bank from extending any further credit facility for such period as may be set out in the order, and make the prohibition subject to such exceptions, and impose such conditions in relation to the exceptions as   may be set out in the order, and from time to time, by further order similarly made, extend the aforesaid period~

(b) require the bank to take any steps or any action or to do or not to do any act or thing whatsoever, in relation to the bank or its business or its directors or officers which the Bank may consider necessary and which is  set out in the order, within such time as may be stipulated therein~
It is when all these fail to stabilize the bank that the governor can go ahead in subsection (2)(c)(d) to remove any officer found culpable or any director of the bank and proceed to appoint any person to advise the bank in relation to the proper conduct of its business.

Akingbola Legal Challenge
This seems to form the crux of Erastus Akingbola’s argument as he challenges his sack in the court. In the affidavit deposed to by Dapo Oduwole of the law firm of Chief F. O. Fagbohungbe (SAN), Akingbola noted that his purported removal from office by the CBN was premeditated.

He noted that CBN and NDIC (Nigerian Deposit Insurance Corporation) visited the bank several times between the months of February and July this year. But when no official report on any of these examinations was made available to the bank, he wrote the Director of Banking Supervision on August 5, 2009 to demand a copy.

He also noted in the said letter that the figures and details of non-performing accounts to be provided for, change with each different list given to the bank which were “different from the various exit interviews held with our management”.

He therefore requested for the full examination report with “details of accounts deemed non-performing for our review and response in keeping with your (CBN) normal practice”. To this letter, Akingbola claim, he got no reply.

To further show that the purported sack was premeditated, he said as was the practice with the CBN, once the liquidity ratio of any bank falls below the required minimum of 10 percent, it would notify the bank to do something to shore it up. But in this case, he said, “Intercontinental Bank Plc was never informed that its liquidity ratio had fallen below the required minimum.

“The details of the 48 per cent non-performing loans allegedly granted by Intercontinental Bank were not disclosed despite demand in this regard. The basis of the computation that the liquidity ratio of the bank is 21 per cent was not disclosed”.

The CBN, he further said, did not disclose “how they arrived at the conclusion that the Capital Adequacy Ratio (CAR) of the bank was 7.41 percent and not up to, or above the prescribed 10 percent”.

Perhaps, if given the opportunity, he stated further, the bank would have been able to show that the “CAR was above 10 percent as prescribed by the CBN and not 7.41 percent as alleged”.

To prove this point, Akingbola says the balance sheet of the bank as reported in the monthly returns to the CBN, has never shown the shareholders’ funds as negative. At all relevant times, the CAR of the bank, he said, was above the limit of 10 percent as required by the CBN. “Based on the monthly returns to the CBN and the audited accounts of Intercontinental Bank as at February 2009, the CAR was consistently above 20 per cent.

“Following the examination conducted by CBN on the balances of the bank as at May 2009, Intercontinental Bank was advised that the expected provision in the  books as at February 2009 should be N100 million.

“Although there was no detailed breakdown from the CBN for the computation of the CAR for the month of February 2009, the bank’s CAR when it was instructed by CBN to make provision for the said N100 billion was above the prescribed 10 percent.

“Furthermore, when the expected provision in the books of the bank was subsequently increased to N142 billion in May 2009 as recommended by CBN, the bank’s CAR was still above 10 percent”.

Akingbola also made attempts to correct the CBN claim that it had insufficient assets to fund its liabilities. According to him, there was no justifiable basis for such conclusion. He said the use of the Expanded Discount Window (EDW) of the CBN in not a sign that if is a failing bank, in any trouble or in a grave situation. “Intercontinental Bank did not use the EDW of the CBN persistently and all the arranged time plans of the repayment were diligently followed,” he pointed out.

Apart from that, he claimed, the use of the EDW by the bank “was not unreasonable when compared to the use of same facility by other banks. The other banks deemed “strong” or “healthy” by the CBN made recourse to the use of the EDW more than Intercontinental Bank”.
The grounds of Akingbola’s protest are not very far from those of Cecilia Ibru, the embattled former chief executive of Oceanic Bank. She also complained of not being given a fair hearing in the entire process that led to her sack from office.As the legal fireworks commenced this week, Nigerians would be able to know who acted well in the entire process at the end of the day.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.