By Babajide Komolafe
The first year of Mallam Lamido Sanusi as Governor, Central Bank of Nigeria (CBN), has been not surprisingly turbulent with unprecedented radical developments in the nationâ€™s financial system.
Special audit of banks, sacking of eight banksâ€™Â chief executives and their executive directors, massive job losses across the industry and the economy, publication of banksâ€™ debtors, and most recently, massive losses declared by banks occasioned by huge loan loss provisioning. These are the notable highlights of Sanusiâ€™s first year as CBN Governor.
Whilst some of these development are not entirely novel but the pace of occurrence is novel. Perhaps, besides the immediate past governor, no other governor in the history of the CBN has impacted the industry radically and profoundly in the first year in office.Â And for this reason the policy of the CBN under Sansui has been severely criticized as crude, partial, uncoordinated, no direction ( As the spirit leads), without human face_True!!
But beyond theÂ criticismsÂ about theÂ correctness, rightness and fairness of the methodology of policy implementation, and behind all the actions of the CBN in the last one year is aÂ one word revolution sweeping across the industry, and which is critical to the safety and security of depositors money and shareholdersâ€™ investment in banks. And that revolution is DISCLOSURE.
The CBN governor might have done it in a radical and heavy bloodletting way. But in his first year in office, he has taken disclosure to unimaginable dimension.
For a long time, not a few believe that Nigerian banks tell the whole truth-about their financial condition.Â They have devised a successful way of doctoring reports and information to deceive the public and evenÂ regulators.
Unfortunately, the CBN has always resisted any attempt by the public to know the trueÂ health of banks, hiding under the principle of regulatory confidentiality. This got to a head at the height of the global financial crisis_with many expressing concern over the health of Nigerian banks in the face of massive capital flight, declining oil revenue and sharp decline of the Nigerian Stock ExchangeÂ (NSE) by more than 50 per cent. Even the National Assembly and the Presidency were concerned.
But the CBN under Professor Soludo kept on assuring that all is well. But how well are all the banks? The CBN would not tell. Off course, the banks, all of them insisted they are in good health. But those in the know, experts and close industry observers knew that all is not well, and something needs to be done before the situation got out of hand.
Capturing the general mood in the financial systemÂ shortly before Sanusi was appointed,Â Afriinvest, an investments banking and securities trading firm wrote in an April 2009 report titled, Nigerian Banking Sector: Disclosure is the New Valuation Benchmark, â€œWe anticipate that a great degree of work will be required from a regulatory perspective towards addressing many of the underlying structural, disclosure and credit concerns that threaten the health of the system as a whole.â€
The report also stated, â€œGiven the challenges of operating over the last 6 months however, and the wider structural deficiencies with the entire system that these challenging conditions have thrown to light, we see an emerging preference for clarity and transparency as a basis for identifying business partnersâ€.
Hence, by the time Sanusi assumed office, the general desire was for drastic regulatory action that would address concerns about the health of Nigerian banks vis-Ã -vis impact of the global economic crisis via exposure to the oil sector and the capital market.
And this was not lost on the new CBN governor. In his maiden press conference, he stated, â€œTo this end, the CBN will continue to ensure the maintenance of public confidence through appropriate disclosure and would reinvigorate the policy of zero tolerance on all unprofessional and unethical conductâ€.
To address these concerns, the apex bank first moved to restore confidence by announcing guaranty for interbank loans and placements by pension fund managers.
Secondly, to get a true picture of the balance sheets of the banks, the CBN banned the treatment of Bankers Acceptances and Commercial Papers (BAs and CPs) as off balance sheet items.
Thirdly, the CBN conducted special audit of all the banks, which led to the removal of chief executives of eight banks namely Afribank Plc, Finbank Plc, Intercontinental Bank Plc, Oceanic Bank Plc and Union Bank Plc, Spring Bank Plc, Equatorial Trust Bank Plc, and Bank PHB Plc. Furthermore, the apex bank, for the first time in the history of Nigeria, it published the names ofÂ the debtors of the banks .Â In addition to appointing new management for the banks, the CBN also injected N620 billion into the banks to help them stabilise and meet depositors obligation, and alsoÂ assured that it would not allow any bank to fail.
As a result, despite the shock and radical nature of the intervention, there was no run on the rescued banks or on the entire industry. Also, according to the chief executive of Ecobank during a parley with the media, there was no flight to safety despite the intervention due to the effectiveness of the CBN guaranty.
Next,Â the CBN insisted that that all the banks must make full provision of non-performing loans and gave them deadline for publication of their third quarter result and year end result. This occasioned a wave of lose declaration by the banks, which revealed the level of exposure to risky sectors.
In the midst of these were the side effects of the intervention and operation â€œFull Disclosureâ€, massive job loses across the economy and credit freeze aggravated by the name and shame treatment of bank debtors. Maybe this could have been avoidable but for the activist manner of policyÂ implementation of the CBN under Sanusi.
But one year after his appointment, the banking public and investment community now have a clear picture of the health of the banks.Â Also, the Sanusi has instilled regulatory fear into the banks_that the apex bank would indeed deal decisively with any misconduct or poor corporate governance practice.
Also, though severely fraught with mistakes, the publications of debtors have instilled a sense of caution on banksâ€™ debtors, that if you borrow and not pay, you may be subject to public ridicule (which is essential to the problem of non_performing loans in the industry).
But for the special audit of banks and the accompany actions, the banks instead of declaring loses would have all declared profits ( most of which would be paper profits), the bankers would have carried on as if all is well when indeed so much is not well.
Then one day, the banking public would wake up and discover they cannot access their money in a number of banks, and the CBN would then traditionally announce the revocation of the licenses of such banks and subsequently hand them over to the Nigeria Deposit Insurance Corporation (NDIC), and then the legal action against the revocation while depositors and creditors wait endlessly for their money.