By Amaka Agwuegbo
At a security awareness seminar organised for the new members of the then Acting President Jonathanâ€™s administration on April 17, 2010, General Aliyu Mohammed Gusau (rtd) spoke on a number of national issues, chief among which is the banking reforms being undertaken by the Governor, Central Bank of Nigeria, CBN, Mallam Lamido Sanusi.
Referring to Sanusiâ€™s dramatic removal of a number of bank executives since August 14, 2009, the consequent takeover of the management of these banks, the arrest and prosecution of the executives for their roles in the â€˜in the grave dangerâ€™ in which their organisations found themselves, Gusua remarked â€œthe fragility of the economy dictates that offenders be interdicted without damaging the sector.â€
But he noted that the CBNâ€™s intervention â€˜seems to have damaged economic activity in the banking sector to the detriment of the larger societyâ€™.
Though, according to the CBN Governor, the Banking Reforms Blueprint is anchored on four pillars, namely, enhancing the quality of banks; enhancing financial stability; enabling healthy financial sector evolution; and ensuring financial sector contributes to real economy, but the opposite seems to be what is obtainable.
Challenging Sanusi on the first blueprint – enhancing the quality of banks – the Renaissance Professionals, which has relentlessly canvassed alternative solutions for an enduring and strong banking industry, noted that it is ambiguous because it fails to outline the parameters to measure the quality of banks.
The Group tackled him for doing the opposite of what he wishes to accomplish, accusing him of engineering a crisis that has forced Nigerian companies to seek loans abroad.
Though the essence of every reform is to make society better, not to exacerbate the condition of the people, Sanusiâ€™s reform has unfortunately made things far more difficult for Nigerians and is hurting the economy in a very reckless manner.
This the Chairman of Solace MFB, Pastor Glory Abrefera, agrees with, positing that though Sanusi meant well with his reforms, but his approach was rather hasty and his policy thrust lacked short, medium and long term plans.
â€œThe reforms are meant to be corrective, not punitive, but everyone in this country is suffering the adverse effects, while those of us that are bold enough to speak out have become targets.
â€œThe reform was timely, but was hasty and wrong implemented because it does not, in any way, encourage entrepreneurs since the grass root is the engine of the economy. The SME sector is dead and the reports are all over the papers, prompting people to call for his resignation.
For the Managing Director of a Lekki-based MFB, who pleaded anonymity, the MFBs and the micro sectors are the worst hit from the effects of Sanusiâ€™s reforms because of their level of dependence on funds.
â€œOur activities have almost become paralyzed due to our overly dependence on two major sources of, which are the depositorsâ€™ fund and funds from commercial banks for on-lending, and the commercial banks not lending anymore due to the tight measures of the reforms.
â€œOne of the commercial bank that ventured into microfinancing has closed shop and is redirecting all her customers to their main banks. This is to show you that the operating environment has not been conducive due to the reforms of the CBN Governor.
â€œAlso, most grass root people who used to bank with us can no longer do so because they barely have enough to feed with, not to talk of having any savings. Thus one of the aims of MFB which is to provide diversified, affordable and dependable financial services to the active poor, in a timely and competitive manner, that would enable them undertake and develop long term sustainable entrepreneurial activities has been defeated as a result of Sanusiâ€™s reforms.â€
Banks, like other businesses, do run into problems from time to time, for various reasons. In the last two years in particular, we have seen a wave of bank crashes across the globe, in the wake of the world economic meltdown.
Iceland, where the banking system collapsed, is probably the most notorious example. In the US alone, over 200 banks have collapsed in the last two years, and Northern Rock is among the banks in the UK which ran into a troubled weather.
Still, none of the central bank governor of those countries called a press conference to announce that banks on his watch are in deep trouble. This is because banking is a conservative profession and the central bank governors are to be super conservative.
Only last November did the Bank of England reveal that it loaned 61.6 million pounds to the Royal Bank of Scotland and HBOS between October 1 and 8, 2008, when the two leading banks ran into troubled waters.
Bank of England governor, Mervyn King, recently told a committee of British parliamentarians that the bailout was made secret so as â€˜to prevent a loss of confidence spreading through the financial system as a wholeâ€™.
Drawing a parallel to how Ben Bernanke, Chairman of Federal Reserve Bank, USA who handled the American banking crisis, an anonymous managing director of Lagos based microfinance bank posits that Sanusi clearly does not know what â€˜Financial Stabilityâ€™ means.
According to the MD, â€œBernanke moved to save the American financial system with clear understanding that saving the system is more important than killing the bankers that caused the crisis with the uncontrolled lending to the mortgage sector of the American economy, by announcing a capital assistance program for banks.
â€œBut the CBN governor did exactly the opposite by killing the bankers that are allegedly responsible for the failed banks, thereby, killing the banking system. Not one US bank MD was sacked despite that most banks were on the verge of collapse.
â€œBernanke did not go on TV to say that bank MDs were thieves and that the banks were on the verge of collapse. He did not take pages of newspaper adverts rubbishing the cream of the American entrepreneurial class because they could not repay their loans to the banks that were in trouble.
â€œHe did not threaten to seize the banks from its shareholders or threaten to shoot bank MDs for risking depositorsâ€™ funds because he knew that maintaining financial stability mainly rests on confidence in the banking system. So, why should our CBN Governor do all these if not to kill the banking system?â€
Lending his support to this is an anonymous Managing Director of an Okota-based MFB, who said the inappropriate actions of the CBN governor have negatively affected the MFB sector.
â€œHis actions have affected the MFB sector badly because since August 2009, there have been a run on a lot of MFBs, and we are still suffering from that. If Union Bank can be declared to be troubled, what stops small MFBs from having worse financial troubles?
Truth is that the troubles we are presently having started from the day Sanusi declare those commercial banks unhealthy.â€
Supporting this colleague, another anonymous MFB Managing Director said the element of distrust and the happenings in the commercial banking sector have rubbed off on the MFBs, which is responsible for the many problems besetting the sector.
â€œIn the US, several banks went under, but none of the MDs/CEOs are in court or prison and their government is making efforts to revive those banks. But the reverse is the case here as the government and CBN are busy running after MDs/CEOs and EDs of troubled banks, leaving the banks to suffer more.â€
An Ikorodu-based MFB boss said all sectors of the economy are negatively affected from the banking reforms as there is no clear cut policy on how to sustain the system.
â€œIn other parts of the world, MFBs impact positively on their economies because they are the engines of reformation. But the opposite is the case here as there are no clear cut policies for MFBs to serve as the engine for grass root development and the President is no longer comfortable with this situation.â€