Douglas Anele

EVER since the new governor of Central Bank of Nigeria, Sanusi Lamido, announced that some of the well-known banks in Nigeria are not healthy despite the consolidation exercise carried out a few years ago, a lot have been said and written on the matter.

Naturally, some commentators have lauded the CBN governor for acting promptly to save the banks concerned from collapsing. Other commentators, however, maintain that Sanusi acted too hastily and selectively; there is even the allegation that he was carrying out a nothernization agenda of the financial system. From experience, when issues involve large sums of money and influential big men and thick madams, objectivity and respect for truth are the first casualties.

I, like most Nigerians, is neither an economist nor a banker. But there are some fundamental truths which every reasonable person can grasp easily. The first one is that our financial institutions are built on phony or voodoo foundation. For example, if one considers critically the impressive end-of-year financial statements Nigerian banks had published since the Charles Soludo-engineered consolidation programme of 2004, particularly within the context of the shrinking manufacturing or real sector of our economy, it becomes clear that there is a lot of legerdemain in the banks. Now, it appears that the wind has blown and we can see the anus of the chicken, as the Igbo would say.

For instance, we know now that the bulk of profits declared by banks are false and illusory they are the result of clever manipulations of certain banking practices opaque to nonprofessionals in banking and financial management.
It is quite horrifying to learn that the managing (damaging?) directors and directors of banks approved loans worth billions of naira, without adequate safeguards, to themselves, friends and cronies, whilst hardworking honest Nigerians are routinely intimidated with demands of unrealistic collaterals for loans not even up to one million naira.

Of course, Nigerian banks are not really interested in growing the economy on firm foundations. Rather, they are interested in making huge profits as quickly as possible. That is why they are eager to give huge loans to importers of petroleum products and contractors, but very reluctant to assist long-term investments in the manufacturing sector.
It has been argued that Sanusi’s actions against some of the banks are ill-motivated because few of the financial institutions concerned were rated by some organizations to be among the best in sub-Saharan Africa.

Those who argue this way forget that the rating agencies operate on the basis of information or data available to them. I even suspect that some of the agencies might not have been as thorough and painstaking in their researches, probably because the people directly involved in the analysis have been compromised. The phenomenon of “working towards the answer”, as far as I am concerned, is rampant in Nigeria banks.

But why did the Central Bank governor descend so heavily on five banks out of the existing twenty four at the commencement of his sanitization programme? Are his actions not dictated by a sinister plot by Northerners to “redress” the imbalance created by the consolidation exercise? At first glance, it appears reasonable to argue that Sanusi should have waited until all the banks have been thoroughly scrutinized before taking remedial action to correct the anomalies detected.

The possibility that he was, for certain obscure reasons, biased against Oceanic Bank, Finbank, Union Bank, Intercontinental Bank and Afribank can never be completely ruled out. But as far as I am concerned, his argument for singling out these banks and acting promptly is convincing. Using the analogy of a cholera outbreak in a village to support his actions, the CBN governor argued that the gravity of problems in the five banks made it expedient for him to act quickly and decisively to ameliorate the problem.

Let us not forget that both the banks and their regulators, the CBN and the Nigerian Deposit Insurance Corporation (NDIC), were carried away by the euphoria of post-consolidation growth in the capital base of the surviving banks.
With the emergence of large financial institutions, there arose an urgent need for greater regulatory capacity within the banks and in the regulating institutions. While the banks failed to properly police themselves, the CBN and NDIC also did not live up to expectations. From what has been disclosed thus far, it is apparent that the CBN under Soludo and other relevant agencies paid lip service to the issue of risk supervision in the banks.

The core of banking is located in sound values, in fundamental ethical principles. Whenever the core principles such as honesty, integrity, transparency and fidelity to regulations are ignored or half-heartedly applied in banking transactions, the result is always disastrous for all stakeholders. Given the nature of capitalism, giving loans is not necessarily a bad thing.