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Sanusi’s Interview With London Financial Times

By Les Leba
Lamido Sanusi, the new CBN  Governor’s interview with Matthew  Green of the London Financial Times is the second extensive interview granted the media house since his appointment.  Mr. Sanusi should be commended for ensuring that a local media “Next on Sunday’ was given the first opportunity to reveal the person, aspirations and the patriotic colouration of the new CBN Governor.

The ‘Next’ interview marked a fine departure from the usual inclination and practice of our public office holders who shun the local media and choose to address the Nigerian public through inaugural interviews with such international media as BBC, CNN or indeed, European and international print media such as the London Times or the Weekly Economist Magazine.  However, it must be said that while the Next interview covered the personality, lifestyle, professional antecedents and visions for the next five years as CBN Governor, the Financial Times interview was much more incisive with questions which reveal Sanusi’s perception of the problems of the economy, the banks, the operation of monetary policy and his immediate “primary responsibility to restore health and confidence in the system” and not the hasty precipitation of its death.

The foregoing is an admission that the CBN in its present state is very sick and requires urgent measures to restore its credibility as an institution so that the public may have greater confidence in its management of the financial and monetary system.  The questions of the Financial Times related to credibility of the banking sector, the soundness of our 24 banks, the size and shape of toxic margin loans granted by banks to their customers for share purchase, disclosure requirement and transparency of financial reports, the problems of monetary policy and foreign ownership of banks.  The nature of these questions and Sanusi’s responses induces the impression that the regulatory and supervisory departments of the CBN have gone to sleep in the last five years!

Indeed, one is left with the feeling that our 24 mega banks had virtually a field day to do practically whatever they could conceive.  In spite of the recognition of toxic margin loans as a major cause of the crisis in our financial markets there was no sincere or concerted effort to determine the extent of these loans and the public was instead simply regaled with estimates of between N800bn and over N1 trillion.

It is reassuring that within three weeks of his appointment, Sanusi has already launched an audit exercise to ‘diagnose the scale of the margin loan problem’ and has also gone a step further to schedule the completion of this exercise  to not more than eight weeks!  The new Governor is certain that once the extent of margin loans in banks’ debt portfolios have been more accurately determined, it would become easier to consider appropriate options, when these margin loans are considered alongside assets, capital base and performing loans!  This is no doubt a transparent and commonsensical approach devoid of the usual camouflage of economic jargon!

Mr. Sanusi’s response with regard to disclosure requirements for banks is again another admission that financial results and the quality of the asset base of most banks were truly suspect!  Mr. Sanusi is determined to ensure that our banks will quickly adopt International Financial reporting standards; the adoption of which he had earlier promoted as a Director in First Bank!

Even though Sanusi believes that failure of the regulatory authorities is not peculiar to our CBN as evidenced by the failures of financial institutions abroad, but he appears honest enough to recommend that “what we have got to do is to put up our hands and say ‘guys, we made a mistake’ and fix it’’,   In other words, we must recognize the age old adage that honesty is the best policy!  If Sanusi upholds this policy over the next few years, he would have introduced a breath of fresh air into public administration in Nigeria!

However, I would recommend that his objective of sustained transparency in the banking sector would be more enduring if he also insists on our recommendation (see for “A Liberalised Foreign Exchange Market: a proposal for a liberalised foreign exchange market in Nigeria and its economic benefits” – Boyo/Ojomaikre, 2002) that the treasury and Foreign Trade Department of each bank should be embedded with CBN resident auditors who will be rotated from time to time!  It is only in this manner that the CBN can swear to the accuracy of financial statements published by the banks!

In addition, financial position of all banks will be available online, real time so that the CBN is constantly aware of individual bank’s status at any time.  The asset position and consumption pattern of the resident CBN auditors in these banks should be subject to scrutiny regularly to ensure collusion for self enrichment is curtailed.

Mr. Sanusi projects that further consolidation may reduce the current number of banks from 24 to about 15, but recognizes that it will not be appropriate to bring about such reduction by fiat.  The CBN is hopeful that mergers and acquisition would bring this about in a much more transparent way with less shackles, once the true extent of margin loans and the quality of other loans and assets are fully disclosed!  The CBN Governor is optimistic that most of the margin loans of some banks can be eventually provided for if most or all of the huge profits currently being declared by some of the banks are dedicated to offset part or all of these margin loans over time rather than the current “seeming failure (of the banks) to acknowledge the problem”

Mr. Sanusi is anxious that the remedial measures that are needed to restore confidence in the banking sector do not cause a panic in the system.  He is concerned that the sins of the senior management of the banks are not visited on the corporate investors as well as millions of retail shareholders and depositors.

For this reason, CBN will not hesitate to send packing the management of any bank whose practices are not above board.  In other words, the public will be shielded from the recklessness of bank management and the huge losses suffered by depositors and investors in the failed banks that preceded consolidation.  Sanusi has declared this level of caution and concern as a part of his desire to play an important role “as an agent of development” rather than as an agent of pain and sorrow for millions of hapless Nigerians!

In other words, the new Governor will not be satisfied with reports of positive movements in the rates of inflation, interest rates and money supply if these indices do not bring in their train economic growth!  This position sharply contrasts with the glowing reports of excellent economic and monetary management in the preceding five years, while in reality our people climbed down to the lowest rungs in the ladder of world poverty in spite of best ever export reserves while 50% of our population became unemployed with over 80% of our people living below the $1 a day poverty line.

It is inexplicable that in spite of such failures, the leaders of our government’s financial team which included experts in the academia as well as those seconded from the IMF have received accolades both domestically and internationally for their excellent performances for pauperizing 140 or so million Nigerians and facilitating a huge brain drain in spite of increasing export revenue and a democratic rather than despotic dispensation at home!
Surprisingly, in spite of these glaring failures, Sanusi still manages to also join the ignoble league of those who have sung the praises of the government’s former economic management team!!

Next week, we shall complete the evaluation of Sanusi’s interview with the Financial Times of London.  In particular, we will take a look at his position with regard to foreign ownership of banks, as well as his thoughts on monetary policy management and the rate of the naira.


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