Dr. Sam Omale a London based financial consultant is the founder and CEO of Rock Global Training & Consultancy which focuses on exotics and structured financial products. Omale holds a doctorate from the Commonwealth University College Belize City. A graduate of Ahmadu Bello University ,he also holds an MBA (Banking & Finance) from the University of Nigeria Nsukka, an Msc ( International Capital Markets) from theÂ prestigiousÂ University of Brighton Business School UK. A banker for more than 25 years in both Nigeria and the UK including board membership of two banks, Omale is also a fund manager and trainer in the City of London.
In this interview with Vanguardâ€™s Emmanuel Aziken, Dr. Omale appraises the evolving reforms in the Nigerian financial sector and gives his verdict on historyâ€™s judgment on Mallam Sausi Lamido Sanusi, the Governor of the Central Bank of Nigeria (CBN).
What is your perspective on the ongoing reforms in the Nigeria banking industry?
May be we should break it into two. First of all let me start with the obvious ones which is the banking reform that has been going on, that is been orchestrated by the new governor of the central bank. I will say it has brought a lot of hope to the system. Hope in the sense that someone who is a practitioner himself, who was in the system managing one of the biggest banks knows the in and out of banking must have also observed the practices that has been going on was well equipped for this job.
He was definitely equipped for this job and that is why when he came it didnâ€™t take him time to know what was wrong in the system and decided to make these immediate changes which are really not changes, but really getting the banks to get the job they are supposed to be doing in the first place. That will indeed show that their oversight functions or supervisory functions were sleeping at the watch.
When he came in he woke them up and he is equipped for it because he isÂ coming from the risk perspective which is superior to other forms of supervision because it goes beyond banks meeting the demands of regulatory reforms. So I will say that it has brought a lot of interest to the international market because people are now saying that for once we now know that banks are been reformed, banks are now going back to their original traditional practices.
I feel that what has happened over the past few years is that banks left their traditional roles of money creation, of banking and went into a primordial form of trading, warehousing. Now they have also abandoned two key principles of the banking profession. The two pillars that guide the banking profession is prudence and conservatism. These core principles are traditional principles that if you violate them..â€¦it has led to what has happened. As conservatives you donâ€™t flaunt around, you donâ€™t speak loud, you donâ€™t join in the frivolities that was being orchestrated in the Nigerian capital market, these bogus awards and all the patronizing all over the place, you donâ€™t do that.
Conservatism should also be in your credit assessment before giving out loans, you donâ€™t give out loans without collaterals and that is why the key problemsâ€¦.over the past three years I have been saying to whoever wanted to hear that the rise in bank shares was fraudulent, because if the banks are doing well the question to ask is why is the share of a particular bank going up?
Now if you cannot answer that question intelligently then you are a gambler. Even if you look at their financial statements, as long that there is no transference of their performance on a macro level then you should know that there is a failure, it is at the macro level that capital formation takes place, capital formation is an obvious physical things you can see on ground, companies having smoke coming out from their chimney producing fumes, people buying things at the shop, new businesses springing up, new employment being generated and all that. That was not happening so the banks claims were bogus.Â What the CBN governor will be doing is to bring out the sensibility of risk and the core pillars of these will be prudence and conservatism. Secondly, there should be no emotion attached to this at all. This guy who has come is a professional banker he has the interest of the whole country at heart, and what he is doing is the sure way of integrating the Nigerian financial system into the international financial architecture.
What worries me is that despite the consolidation that took place a year or two ago and despite what is happening now that five of the biggest banks failed there is no impact of that action around our boundaries let alone in other African countries or in the world. That will mean that we are isolated from the international financial architecture and why are we not integrated? Number one, we are not integrated into the international financial capital architecture because our practices donâ€™t meet international standard. One core standard that is operating in most developing or developed economies is what we call international financial reporting standards.
The international financial reporting standards has certain criteria that the company must report on. For example the Nigerian Accounting system except I am corrected still report on historical records basis. Historical accounting tells you this object was bought ten years ago at this value and you keep that value here today and that has ignored inflation, that has ignored the reality.
Modern accounting is based upon fair value , fair value will tell me that this is what should be the value now so all our accounting system have to be changed immediately and the reporting standard should be international financial reporting standard basis.
The Central Bank in its supervision should also go beyond the accounts of the banks they are supervising. That is when they come to a bank they should look at the subsidiaries and associates and other activities of the banks.
Another thing I would want to say is that there should be a collaborative effort among the various regulatory bodies in the country that will be the central bank for the banks, SEC for the brokers and the capital market, PENCOM for pensions and NICOM for insurance alongside with NDIC. There should be a collaborative system. People argue for one regulatory body and that is what we use in the UK.
Banks own insurance companies, or insurance companies own banks they own investment houses they own brokerage houses so supervision must be consolidated. Consolidation is a process where all accounts are in one sheet of paper in one place you see all the activities of the group, instead of having individual accounts,Â you have a group account where you have access to see the reality.
Despite your argument there is some perception that this banking reforms by Sanusi were rushed and premeditated to achieve some certain agenda do you agree?
Can you say some of these agenda
Well it is said that there was a personal agenda either from him or from certain people around him directed against some of the bank executives who he didnâ€™t flow with?
Well, I donâ€™t know him I have not met him in person.. I will say that it was not premeditated, I think that because he was in the system and understood what was wrong in the system nobody has brought that argument, because he was in the system and knew what was wrong, he knew the market place very well unlike the former governor who came from the classroom.
So the question to ask is that the facts that came out are they wrong? The fact that most of these banks were involved in not just mismanagement but involved in actual fraud are they proven wrong? What he is doing is a professional job that is very rare in a country like this and he should not even be distractedÂ by such things at all, he should just be focussed, let him do something that will leave a legacy.
When consolidation was happening one section of the country was saying it was an agenda and consolidation was a natural thing to happen because most of the banks then didnâ€™t have enough liquidity, they didnâ€™t have enough capital base so consolidation was to firm up these loose one house banks into a more strong foundation.
What do you talk of the contractual agreement between banks and their customers which have now been called to question? These are essentially civil cases why are they making them criminal cases?
Donâ€™t forget our background but I think that they are in court.
They are being charged to court for owing. Is it wrong to owe?
It is not wrong to owe but it is wrong for your debt not to perform, that is fraud.
Is there not supposed to be a collateral agreement?
That was the problem now you are going to the point. Most of these loans have no collateral that is where the fraud is. That is my own understanding, there were no collaterals.
What I am hearing is that some of these people who took these money they did what they wanted to do with it they brought oil, they sold and made profit and did not pay back.
You coming from outside the country, what opportunities exist for financial investors in the present situation?
Even before the present situation came on, Nigeria was a virgin land for investment. The opportunities are all there in the financial sector, in the manufacturing sector in the consultancy aspect, in capacity building especially so much but they are scared of coming. Investors are hunters they have tons of money they need their money to perform. They donâ€™t like cash in their accounts, no good fund manager wants cash in the till so they are looking around for these opportunities, but these opportunity are based on a strong regulatory frame work of the financial system.
But, donâ€™t you see the persistent flaws, the scandal arising from these malpractices as a barrier for foreign investors?
No, the premise is the rule of law and regulatory frame work being applied. Every economy has fraud, in the USA the volume of fraud there canâ€™t compare with what obtains here. Even in the UK the banking failure that happened there was fraud where one person could defraud a whole system for years of $69billion. So letâ€™s not put ourselves as if we are the dirtiest in the world, the difference between us and the outside world is information data. Fraud is an individual thing, it is not a corporate thing. I think he (CBN Governor) is a very focussed man who wants to do something and we should be grateful and should watch and should all collaborate with him and see how these changes can come about.
This is going to take about one year or two for whatever he is doing now to actually stabilize us. I canâ€™t see any foreign person coming in now in the next one or two years.
A final word?
Another thing of interest is the capital market; the capital market is unprofessionally practiced in Nigeria. We donâ€™t really have an authentic capital market going on now around the country that is the truth. There is a lot of skill gap, what is being practised here is mundane warehousing trading going on. What I mean is that the operators are not skilled with international practices and services. As a stock broker what services are you rendering?
Then another thing that is wrong with the capital system is the paucity of products traded in the capital market. As far as my knowledge goes there are basically two instruments traded here, stocks and bonds and that limits the depth of available outlet for investment. I have read in papers the PENCOM DG saying they donâ€™t know where to invest and I agree with them, because you either buy shares or you buy bonds and bonds are safe and are not high yielding investments.
So the Nigeria capital market can immediately develop products in the system and the products are all there with us. Derivatives, futures that our native people do naturally but have not been standardized so we need products development, we need skill development and we need a strong definable regulatory frame work.