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CBN mismanaged its intervention in the banking sector – Sunny Nwosu

Several months after the Central Bank of Nigeria (CBN) sacked the Boards of eight banks in the country, as part of effort to reform the banking sector, the action has continued to generate controversy. A group, the Renaissance Professionals, in particular has been most vociferous in its criticisms of the process, insisting that it lacks transparency. National Coordinator of Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu shares this view and argues that the major reason the banking sector is still facing crisis is because of the CBN mismanaged its intervention process. He spoke to Features Editor, Judith Ufford.

ALMOST seven months after the CBN sacked the Boards of eight banks in the country, the controversy is still raging. Why is it so?
The problem actually began in June 1, 2009. That was exactly when the sign began show that is immediately the present governor of the CBN was appointed. At his screening in the Senate, he made some very unpleasant and bold remarks about the policies of the present government. With such comments, we thought he was going to follow due process and take time to look into the economic problems of the country.

Unfortunately, however, he granted his first interview to the Financial Times of London where he made some admissions to the effect that he was going to audit three speed sectors of the economy–the margin loan, which refers to the capital market itself; oil and gas, which of course is where a lot of banks had to expose in order to allow the poor masses of this country to have energy to move around in order not to further cripple the economy; and the communication sectors.

He went further to say that the capital market is not so important to the economy. The first fall out of that statement was a further crash of the capital market because it then meant that at that stage, banks started recalling the loans they gave out to the stockbrokers, fuel importers and to those in communication.

All these statements put together affected the economy. And when you also take it from the angle of the global meltdown where people over there were trying to help their balance sheets and thereby throwing back their investment in the country, then the stock exchange was heavily supplied with stocks that people were not interested in buying, and that further pushed down the price of stocks. Then on August 14, 2009, he removed five managing directors of big, medium and small banks in this country.

When this happened, we cried out (this is not to say we are against reforms) because we believe that any reform that will stand the test of time must follow due process especially when you are talking about entrepreneurship. I think the CBN governor forgot that these banks were no longer government banks; capitalists owned them.

The three points on which they were removed were frivolous because all they called for were  penalties. The BOFIA allows a penalty for those things; it doesn’t give an extreme decision on them.

One is corporate governance. In our clime, Corporate governance is like work in progress because we are only trying to understand the concept. Apart from this is that fact that it has even failed the climes where it is best practiced. They are only now working on how to improve on it.

Secondly, the banks we were told were suffering from capital inadequacy. Capital inadequacy requires that the Boards be called and inform of these findings. You tell them  their capital is eroded and that you are giving them six months or nine months as the case may be to recapitalise the bank. It would then be the duty of the Boards to call the shareholders and inform them of the problem, and that it was either they capitalised or forgot about the institution. He did not do that.

The last is liquidity ratio. The liquidity ratio under the law attracts about N1 million fine. Liquidity is not static. The liquidity ratio in the banks is placed at 30 percent, which means that the banks must have 30 percent cash back up because of depositors. The remaining 70 percent is invested into other things. This aspect is also under penalty if there is a default.

So, it is obvious that out of the three issues, none is critical enough to attract the removal of an entire management team. Apart from that, we also have a law, which comes under corporate governance of the CBN, which says that if a bank defaults on the rules, the apex bank will query the managing director; and if it persists, they will remove the managing director.

Sir Sunny Nwosu

So, what he has done makes a mess of all the rules. We are not happy that due process was not followed. Moreover, those managing the affairs of the businesses were not given an opportunity to see the audit report based on which they were removed and also an opportunity to defend their actions, which they are now being criticised for. That is injustice to say the least.

I will also like to quickly add that in the United States today, more than 140 banks have actually failed but there is no outcry that will create fear in the economy. That is a better way of doing things. What they do is that as soon as a bank fails, they get another bank to buy both the assets and liabilities of the failed bank and there is no outcry or shouting.

The kind of screaming that has taken place actually eroded the confidence that people had in the financial sector. And that is why we are still like this.

Many have attributed the lingering crisis in the banking sector to the mishandling of the so-called crisis in the sector. Was the intervention necessary ? If it was, how could it have been handled such that the prevailing situation whereby the banks are neither lending nor borrowers borrowing could be avoided?

An intervention may not have been necessary in a very loud way because as the governor of the CBN, all that Sanusi needed to do was to invite the chairman and managing directors of such institutions and disclose his findings to them and then give them time, may be two or three weeks to response to the findings. Now, when they do so, he would take a look at it and quietly take actions. In fact, you can even give such institutions six months or more to recapitalise after which you remove the Boards if they fail to comply.

That means you have given them an opportunity.  Also, if anything funny was found in these institutions, one can ask them to quickly fix that. And when they do that, the managing director is then asked to resign. Things should have been done very quietly and in strict adherence to due process.

But the way the intervention was handled is like somebody who wants to treat a sore and uses force to peel it. It definitely will begin to bleed and if care is not taken, it will open up completely  and even take a longer time to heal. That is not the way to treat an economy that was on drip.

If you are given the responsibility to drive the process of recapitalising the banks, what would be your first option: sell the banks to outsiders or allow the owners (shareholders) to recapitalise their banks?

The Companies and Allied Matters Act (CAMA) is very clear. You cannot have a company without shareholders; that is obvious. So, what the CBN ought to have done is to inform the directors of the bank that they have discovered an infraction in the banks. The directors will now call on their shareholders to say that there is a gap that needs to be closed; that they have to recapitalise the banks. So, the shareholders will either hold either an Annual General Meeting (AGM) or Extra Ordinary General Meeting to discuss the recapitalisation of the institution. When that is done, they either propose right offer or public offer for the purpose or they go on tier two capital. That is the way it should be. It is not enough to come and say they have capital inadequacy and that you are selling them off. It is wrong and not done. That is what is called power drunk. You must give the owners the opportunity to recapitalise.

But the CBN has said that given the ‘enormity’ of the crisis in the banks, the shareholders may have lost their holdings in the banks. What is your reaction to this?

The CBN is not serious about that. It is very clear that for us to invest in the banks we must have the seal of the CBN, saying that they have certified and given approval to it. So, if the CBN is serious, then they should be prepared for litigations. The reason is that they have been approving the accounts of these banks in the past. Hence, we cannot say that because we now have a new governor of the CBN they have committed no sin about these things. They have been approving and we have been enjoying the approval from them and that is why we continue to invest.

However, we are also aware that the CBN is forcing provisions on these banks in order to nullify or render useless the shareholders’ funds. That is what the CBN is doing. But they cannot say that we have lost everything; we have not lost anything. They are not serious and they should be prepared.

Where was the CBN when there was debt forgiveness in Intercontinental Bank? Is N31 billion not a huge amount of money? The shareholders fund that allows the bank to operate is N25 billion. But in a single swoop, they removed N31 billion of shareholders fund from Intercontinental Bank and it was approved by the CBN. When we shouted on it, what action did the CBN take? And those who were given debt forgiveness are all well to do people in society.

But it was learnt that the intention of granting the debt forgiveness was to encourage those people to pay up?
What about the poor masses who also carry interests along? If that is the case, they should allow everybody to go scot-free. What is good for the goose is good for the gander. A single person among the debtors got about N8 billion. Why would they do that to enable them to pay? It is really senseless. You cannot use innocent shareholders’ money to take care of your friends. It is very wrong. It is against natural corporate governance, which they are even talking about.

When they talk about corporate governance, I laugh. The CBN governor recently at the National Assembly was actually shouting asking who the shareholders were and what they have at stake; that they have may be five to 10 per cent at stake and cannot dictate to them. That is the man who is talking about corporate governance. Can anybody ever remove the seed providers from the corporate institution? It is not possible because they are the risk bearers.


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