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CBN: Don’t sell the banks

By Oghene Egoh

THE world economy is one wide market; whatever economic catastrophe that affects the worlds biggest economy can reverberate in other countries. Modern means of communication such as internet, satellitetelevision, GSM, etc, has brought the world closer than ever in the history of man.

The economic crisis that rocked the world in 2008 and 2009 has left no one in doubt that economies of the world are interrelated. There was no single economy in the world that was insulated from this ominous crisis: From America to Japan, Germany, France, Britain, all the G8 countries of  the world suffered seriously from the crisis.

The developing economies of the would like China, Indian, Brazil, South Africa also, had their fair share just as under-developed countries of the world have also suffered  from it.

Can you imagine that “al mighty Dubai” that Nigerians rely on as a shopping heaven is seriously rocked to the extent that price of property in Dubai has crashed by over 50 per cent. This rich kingdom has also collapsed financially that they could not pay their debts and had to be bailed out to the tune of billions of dollars by their neigbour, the Abu dabi emirate.

The reason for the world economic crisis is so well known and publicised that it will be unnecessary to deal too deeply on it now but it should be  sufficient to state that this gargantuan crisis started in the United States of American which is the power house of the world economy when those who took mortgages to buy and build house could not pay back. The result was that mortgage banks and financial institutions started closing down that they resorted to forclosing houses of delinquent debtors. The crisis spread to all facets of the economy such that those who took loans to buy cars and credit card companies were also affected. The multiplier effect affected all facets of the American economy and because no country

or  economy is an island  it  spread  all over the world where massive unemployment became the order of the day. Several financial institutions closed down and the price of international commodities such  as oil collapsed from US$140 a barrel of crude to as ridiculously low as $30. The price of stock was also affected. The Dow Jones and  American Nasdaq  collapsed;  prices of stock fell all over the world as auto companies, Leman Brothers liquidated losing billions of dollars.

The big question is how did the world handle the biggest financial crisis since 1992? America injected US$300 billion to the financial institution like AIG Insurance, Bank of American, City Bank, JP Morgan, Merile Lynch, etc. When this was not sufficient they increased the bail-out to about one trillion dollars and pumped the money into Detroit where most of the auto companies received billions of dollars. Today America is on the “path to recovery” according to CNN.

Japan, Germany, Britain, France, etc, also injected billions of euro and Yen into their banks. It is instructive to note that most of the banks in America Britain and the developed and developing economies of the world are now reaping the result of the quick interventions in their economy as most of the banks are now paying up the loans, with employment and consumer confidence rising considerably.

Let us come back to Nigeria what did our government do about the world economic crisis? Nil I will say. The former Governor of Central Bank Professor Charles Soludo could not take any action because some people in high places felt that the banking industry was being controlled by  a section of this country. When it became clear that Nigeria could not follow the path of economic wisdom of all countries of the world Soludo came up with the idea that Nigeria was insulated from the world economic crisis because we had a successful financial engineering, in the name of consolidation of bank.

Viewed against this background it is praiseworthy that the present Governor of Central Bank, Mr. Lamido Sanusi moved quickly to provide the banks  with N620 billion to cushion the effect of the international crisis. The governor deserves to be commended with this pragmatic decision because Nigeria is not operating its economy in isolation of the world.

Indeed the Nigerian government should have come to the aid of the banks in early 2009; by refusing to do that, government exacerbated  the problem in the banking sector and made it impossible to introduce enough physical monetary policies that would have led to quick economic recovery by the financial sector of the economy.

I want to state that the CBN should not use the intervention to witch hunt the banks because they belong to over a million shareholders. The banks should be made to pay back the CBN loan when they recover. CBN should hand over the banks to the shareholders. Nothing should be done to discourage investors.  Banks and the prosecution of corrupt officials should not be tied to the reason to take over the bank owned by millions of shareholders for peanuts.

How did the world financial crisis affect Nigeria? It affected Nigeria inmany ways especially in oil industry, and the stock exchange, andfinancial sector.     Before the financial crisis, Nigeria was earning Usl40 per barrel of oil but at the peak of the crisis the price of oil fell to Us30. People who took loans to import oil at the price reflecting UsHO per barrel could not pay back when the price fell to Us30. The result is that a lot of banks now carry loans that are not performing. Just as it happened in USA and other develop countries in the world the Nigeria banks faced a lot of financial crisis because several billions of naira was loaned to the oil sector.

The second area where the financial crises hit Nigeria is in the area of crash of the stock exchange. There was economic boom in most of the world before the economic crisis that led to a big lift in the stock exchanges of the world, naturally the Banks captalised on this to have a good investment return to their shareholders.

The Banks invested heavily and gave “margin” loans to people who invested in the stock exchange, when the international markets collapsed, international investors who invested in Nigeria sold their stock in our exchange and took their profit, this seriously depressed our stock exchange market that some shares fell from N45 to just N2 per share. The result is that Banks lost a fortune and had liquidity problems. Another problem is that International Banks who lost money, abroad decided to recall most of their credit facility to Nigeria Bank, the result is serious economic crisis in the Banks.

Against this background it was good wisdom for Sanusi to have intervened by giving the nine Banks N620billion naira. There is nothing unusual about what he did. It was infact belated as other countries in the world had since intervened in their Banking sector.

What is abhorrent in Lamidi Sanusi action is the fact that he acted with suspicion and malice. All over the world CBN gave money to Banks to overcome the economic problems but it would appear that Sanusi acted with intention to take over the Banks.

From inception of the CBN intervention, they claimed that the original investor have lost all their investment and consequently the banks have to be sold. The CBN unlike other CBN in the world did not give a time frame for the Banks to recover before planning to sell them. In America AIG Insurance and J.P Morgan and City Bank took over a year before they started paying back their loans, they have not fully recovered yet nobody is taking over the Banks by force. But in Nigeria they put the cart before the horse from day one of CBN intervention, it was clear to even the most doubtful eye that the aim of the CBN is to take the Bank from the shareholders. They did not intervene with a spirit to help them out of the economic crisis.

There is no doubt that there is a lot of corruption in the Banking Sector, it is my candid opinion that the investigation of the corruption should have been treated separately from the recovery of the Banks. The CBN should carry out audit of all the Banks separately and treat cases of fraud in their own merit. It is not fair to look for faults among the Directors of the Bank they intervene in and use that excuse to take over the Banks.

Mr.  Egoh, a commentator on national issues, writes from Lagos.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.