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Of the five banks : CBN yes, EFCC, no

By Babs Alasa

IT is saddening and disheartening that some privileged Nigerians who ought to know better, should trivialise a very serious issue that borders on the health of the nation’s financial sector and the economy at large.

Otherwise, why should any rational Nigerian fan the embers of disunity by attributing the laudable measures taken by the CBN to sanitize the rot in the banking sector to political and ethnic undertones?

What has politics and so- called ethnic agenda got to do with the mismanagement of these banks when the facts adduced for the sack of their boards and top managements are so glaring for every well-meaning Nigerian to appreciate?

Have we forgotten so soon the hurricane that swept through the nation’s financial sector in the mid ’90s, during the Abacha regime, when most banks in Nigeria collapsed like a pack of cards, with several billions of depositors’ funds going down the drain?

For the avoidance of doubt, the collapse of the banking sector in the mid-90s was a consequence of poor corporate governance and practices, insider abuses and non-adherence to banks’ credit risk manage-ment practices, which led to excessively high non-performing loan portfolios that suffocated the banks to death.  Unfortunately, during that era, the apex regulatory authority failed to act decisively to arrest the situation with catastrophic consequences on the economy, which some Nigerians and corporate organisations have not been able to overcome till date.

It is instructive to remind ourselves that based on the negative signals emanating from the banking industry at that time, some Nigerians (including yours sincerely) severally raised alarm in the media, that all was not well with the nation’s banking industry, despite the astronomical paper profits that they were posting.

Unfortunately however, the apex bank came out in strong defence of the then ailing banking industry, assuring all that cared to listen, that there was no cause for alarm.  But before we knew what was happening, the banks started collapsing one after the other.  The rest is now part of history.

Needless to state the obvious, that if the CBN had acted decisively then, as it is doing today under the leadership of Mallam Lamido Sanusi, the economy would have been saved the agony of the bank distress of the mid-1990s.

As most professionals and financial analysts will agree, the problem of the nation’s banking industry has never been that of adequate capital base.  Yes, adequate capital base is essential for effective and sound financial intermediation.

But note that after the recapitalisation exercise of the Soludo regime, Nigerian banks were so well capitalised that they were regarded as mega banks; but their activities were not impacting positively on the health of the economy.  The banks were expanding their operational network and declaring astronomic profits, but the real sector was suffocating and the economy stagnant with spiral inflation and unemployment.

Since there is a direct correlation between the health of the banking sector as the engine of growth and that of the economy, it implies therefore that something is fundamentally wrong with banking practices in Nigeria, in comparism with what obtains in other parts of the world.

The greed exhibited by Nigerian banks to make quick money has inspired them to embark on unholy practices as investing in high risk (money spinning) ventures that have over exposed them to the detriment of the economy.

It is a known fact in Nigeria today, that an entrepreneur with a laudable project idea that would have generated enormous multiplier effects on the economy, will not get the requisite support from a Nigerian bank, as they will request for impossible requirements that will discourage such a potential investor.

On the contrary, the banks will prefer to embark on suicide mission of granting unprotected margin loans and high risk facilities to oil companies whose activities are subject to the vagaries of the market.

These unprotected high exposures in margin loans and credit to oil and gas sector have led to the high percentage of non-performing loans among the affected banks.

It is instructive to emphasise that before the CBN’s intervention, the five banks were already in distress.  They were only surviving on the financial oxygen mask provided by the CBN’s Expanded Discount Window (EDW) where they were permanently locked, as well as heavy reliance on interbank borrowings which had to be guaranteed by the apex bank, since other banks were not willing to extend further facilities to them because of their poor state of health.

Mr. Alasa, a commentator on national issues, writes from Lagos.


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