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The ‘tsunami’ in the banking industry

By Bamidele Aturu

A senior friend of mine described what began in the banking industry two Fridays ago as a Tsunami, and he is right. Removing in a fell swoop five Managing Directors and the entire Board of Directors of five banks in a thoroughly depressed economy such as ours could not have been anything else.

As in all earthquakes, there are aftershocks to the removal of the bank directors. All of a sudden the EFCC seems to have woken up (whether on the right or wrong side is another matter altogether); it has issued unheard of ultimatums for debtors to pay up or get arrested and prosecuted.

Indeed the Commission has arrested scores of directors and officials of the troubled banks and their subsidiaries. Yet the auditing of the banks is continuing. More MDs and directors may yet lose their positions and find themselves in the EFCC net.

Some of the affected officials have already approached the courts seeking judicial reliefs against their removal and for the protection of their allegedly violated rights. Some allegedly informed economists have challenged the CBN action.

Their main grounds are that the broad sweep of the action is illegal; that it is capable of eroding confidence in the industry; that being a debtor does not make one a criminal; and that the figures supplied to the public as amount owed by the big debtors are inaccurate. On the illegality of the removal of the directors we would offer no opinion here since the issue is pending before courts of competent jurisdiction.

We shall examine the other grounds of the criticism of the CBN action seriatim in the following segments of this contribution. It should be clear by now that we endorse and support the decision of the CBN to remove the MDs and other directors and that the only problem with the CBN decision is its failure to take equities in those banks in trust for Nigerians after injecting N420 Billion of taxpayers” money in the troubled banks.  Erosion of public confidence It is important to note that none of the banks denied the basic fact that they had become illiquid before the intervention of the CBN. When a bank is said to be illiquid, it means that it has problem with cash.

That is the ordinary meaning of the term. At any rate, some of the affected banks admitted this much when they requested the intervention of the Presidency to help them recover some loans with which they had difficulties.

Against the premise of illiquidity, it would have been irresponsible for the CBN to wait until such a time when the banks would be unable to honour customers’n cheques before discharging its statutory functions. Such tardiness on the part of the CBN would have eroded whatever confidence the banking public have in the banks. The truth however is that the confidence of the people in the banks had been exaggerated. The truth of the matter is that most Nigerians never really trusted the banks. They banked with them out of necessity.

How could we possibly trust the judgment of banks that spent millions of dollars annually advertising on CNN in such a way that no other banks anywhere in the world do? Very few people would place any trust on banks whose MDs compete with members of the Nollywood for space in the print and electronic media. What with their industrial relations?

These banks set impossible deposit targets for their staff that are unheard of anywhere in the world and sack, demote or reduce their salaries for failing to meet those irresponsible targets. It is a well known fact that many of the young ladies in these so-called banks have had to resort to immoral means to meet the targets.

Trade unions that ordinarily could have checked the excesses of these bank administrators are not allowed to operate in many of these banks contrary to express wordings of our labour laws. The injection of funds into the banks and the recoveries made so far (N10 Billion by some accounts) are what would restore public confidence in the banks. It is illogical to argue that removing five MDs and the directors at once would erode public confidence. Indeed if all the bank MDs and their directors had been removed there would have been no negative impact on the trust of the people for the banks. Criminalising Debts?

The big debtors and their friends are dead right to argue that being a debtor without more does not make one a criminal. There is no single provision in any of our laws that criminalises non-performing debt. But there are instances when circumstances surrounding a debt can make the lender and the debtor liable to prosecution for crimes. Such instances would include variants of insider abuse, lending without any or adequate security or collaterals et cetera. The categories are not close. Each case would depend on its peculiar facts. It may therefore be hasty to rush into conclusion until we have all the facts.

We must never forget that the banks are notionally owned by all the shareholders and it is morally indefensible for an MD of a bank to give out loans to his or her cronies or family members without following laid down prescriptions. Where such improper and reckless act leads to illiquidity the MD should honourably accept responsibility. One reason we don’t hold our governments to deliver is because some people have access to easy money which they have not worked for.

They can easily afford to run their parallel power company, buy their own jets, fly out for treatment for headaches etc. If we succeed in preventing abuse of shareholders” funds, we would see a more active middle class ready to insist on decent and good governance.

Inaccurate figures Some of the debtors have challenged the figures supplied by the CBN as inaccurate. They are right to insist on their actual indebtedness, but the point really is to pay up whatever they owe. The contention that the CBN is wrong to have removed the directors based on wrong or contentious debt figures is an unserious one indeed.  Conclusion The CBN action and its aftermaths must be cautiously and vigilantly watched. There have been fears that the strategy is for some interests to takeover the troubled banks.

Those who subscribe to this theory readily point to extreme ethnic views held by the CBN Governor before his appointment. I read the article often cited by the critics of the Governor before he was appointed and my candid view was and is that he ought not to have been appointed to hold the sensitive position. His position in the article portrayed him as an ethnic jingoist. One is therefore not surprised that ethnic motives are being read into the removal of the bank directors.

The lesson for our political actors is that they must be very circumspect in appointing persons to sensitive positions in this country. But then it would be wrong to argue that the CBN action is wrong simply because he is an extremist.

That is a fallacy known in logic as argumentum ad hominiem. His critics must find rational arguments against his actions. In the present case, the man seems to be on a sound and strong wicket. Nevertheless, we must closely monitor what happens to the ownership structures of the affected banks. We must resist any ethnic agenda while insisting on sound banking practices.

We also have a duty to insist that the EFCC and the CBN do not exceed their statutory functions and that under no guise should the rights of any Nigerian be violated except in a manner permitted by law. We must always remind ourselves that the way to hell is often paved with good intentions. Mr Sanusi must know that he will be fought to a standstill if he misbehaves or attempts any mischief. Meanwhile let the Tsunami move on.


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