Last Thursday, the CBN     Governor was host to all financial correspondents in major newspapers, radio ad television media in the country.

Sanusi

It is the annual CBN workshop for Financial Correspondents and Business Editors. In the interaction that followed the paper presentation during the training session, the Governor provided answers to a number of burning issues in the ongoing banking reforms. Babajide Komolafe & Michael Eboh were there to represent the Vanguard. Below are excerpts of the interaction.

Most people wonder if you pre-determined your actions, because you have made it seem like immediately you came in, you just saw the problems. Do you agree with that?

It depends on what you mean by pre-determined. If by pre-determined you mean, do I know who was going to be guilty before investigation or whatever, that will be a wrong presumption. If by pre-determined you mean, did I know there is a problem and was I determined to find and fix the problem? The answer is yes. Any person who is a risk manager in the banking industry and who did not know that at least some of those banks have problems, should not be a risk manager. The signals were clear. I said this even before I became CBN Governor.

I said it in Enugu, that banks are taking depositors’ funds and taking market risks and they did not understand the risks they were taking. The signals were there. You see, when a bank has to borrow at 22 per cent, unsecured, compared to eight per cent with Treasury Bills.

When a bank is unable to get other banks who have liquidity to lend to it and it has to go to CBN, because at that time it was not a major systemic liquidity issue, even at the time that these banks were at the expanded discount window, you have six or seven banks having huge balances sitting with the CBN, why are these banks not lending to these banks?

Of course, I said it then and it got me into trouble with the CBN. I said it to everybody that there was trouble in the banking system, that the CBN was not looking into this issue and that the banking system will implode in the faces of all of us. I also told the Governor, then, in the bankers’ committee, that he had no business asking banks to restructure margin loans and not provide for them, he was not happy with it.

So, if I pre-determined it, what you mean is did I know that, like what we did, in military parlance, like controlled explosion, you are aware that there is an explosive device somewhere, now you can wait and pretend that it does not exist and when it explodes, it takes down everybody, or you can bring in bomb explosion experts, they detonate it, there will be some casualties, but those casualties would have been compared to what would have happened if you had not done it. Now, that is what happened in the banking industry.
You have to isolate the problems and make sure that we identify those institutions that potentially could bring down the entire banking system and address them. Is that pre-determination? Yes.

I did not come to the office of the Governor of the CBN with an empty head, that did not have anything. If by pre-determined you mean did I say I was going to remove, I did not even say I was going to remove anyone of them, because I did not know the extent of the rot in the banks.

I just knew that they have problems. I thought that it was just a simple problem of just identifying the margin loans, make them take provisions, disclose their losses and raise capital, if they cannot raise capital, make them find a way of injecting capital and getting them to merge with other institutions.
I thought it was just a simple problem, I did not know that the problem goes beyond margin loans.

I had a good idea of what was happening, that I know where to find the answers to those questions, how to direct my banking supervisors/officers on which accounts to check, what area to look at. I just told them, look at capital markets, market exposures, look at all marketing exposures, look at governance issues. It was a limited examination, we did not have all the details, but we have seen enough from the two weeks to know that there was a far more serious problem.

All the ten that you have, the eight banks that were sanctioned, including Wema and Unity Bank, all have negative capital. The total negative capital in all of those ten banks is about N1.5 trillion, and by the time we finished, we checked the non-performing loans, in recapitalising the banks, those that are doing rights issues, conclude their rights issues, those that are talking to investors, find investors, those that will merge, merge, every bank in Nigeria will meet with the minimum capital requirement. This is a process that is ongoing.

What is the CBN doing about Savannah Bank and Societe General Bank?
On the issue of Savannah and SGBN, it is not for the CBN to do anything. They went to court, the court said that the CBN should never have withdrawn their license, that it was done in bad faith. The CBN did not appeal, they have to come with a programme on how they are going to open their box. This would involve raising capital, obviously.

We have the Asset Management Company, it is taking off non-performing loans (NPL) from banks. If they have NPLs and they have collaterals, the AMC would buy the NPLs, if they want some support, similar to the support we are giving other banks, we will give them _ because they have a license and they are a bank.

Since we gave them a license, then we have an obligation to help them so as to protect depositors. If they have a valid license, CBN will give them all the support they need to open their vaults, that is reasonable and that is consistent with the support that we have given other banks in difficulties, but it is not for the CBN to be working towards bringing SGBN and Savannah (back to life), it is the duties of the shareholders and directors to go and look for their partners and business models and decide whether they want to continue in banking, even when they have the license.

People say you talk too much, I wonder if you know that whatever you say affects the markets and the economy, and also in the way foreign investors look at this economy?

I really wish that what I say send positive signals to the market. I think that headlines sell newspapers. Sometimes I see headlines and I just wonder where these headlines came from. Some of the press people are my friends, hence I call those things friendly fire.

I don’t like criticism, but I think the signals the media have been sending and that we have been sending to the market is that we have been doing something about cleaning up the system and those signals will ultimately be positive. And if you were at a lecture I presented sometime last year, I said that any investor that says he is losing confidence in Nigeria because we are cleaning up the system, we don’t need that kind of investor.

Market has to be fair, market has to be transparent, and there has to be a set of values within which people operate. And we are not repeating our mistakes. All the banks have bad loans, people make mistakes, and I have said over and over again, that even after the examination, there would be a different level of intervention.

In some, we would remove management, in some, we would put in money without removing management, in some we wrote letters to the Board of Directors and issued query to the managing director, in some I called the managing director into my office and had a chat that never came out.

It was the level of infraction that determined the level of intervention. If I call an MD and discuss with him and tell him that he should make sure that this kind of thing does not happen again, because it is a serious issue, and he assures me that it will not happen, why would I come and announce it?
These interventions were conducted at different levels. In those banks where we did not remove the management, it is fair to say that we did not see any serious governance issues.

I keep asking this question, if I had removed eight managing directors, what would happen if I removed the ninth one? What is the difference? All those banks that they said have clean bill of health, have clean bill of health, there is no reason at all.

The way you kicked out the bank MDs based on what you discovered in these banks, the question is, why did you not kick out CBN officials who have been supervising these banks?

I did not kick out the banks’ managing directors, I simply removed them, my leg is not strong enough to kick out anybody. On removing CBN officials inspecting those banks, I do not know if you have read the book, ‘The Art of War’. The relevance of that book to this question is that if you are in a battle, the ground on which you stand should be secured. I have to make sure that the CBN is strong and secured while I fight.

If for instance, and I am not saying that this is the case, and it could be the case, if I had documented evidence that junior officers had escalated warning signals across to senior officers and nothing was done, why should I sack the junior officer? Is it fair? And if the people that are supposed to have acted have already left the bank, what should I have done?

The House of Representatives wrote to us sometime ago that they are going to have a public hearing on what went wrong. When we come to that public hearing, the document will then be made available to everybody. The internal documents, the documents from the Nigerian Deposit Insurance Commission (NDIC), documents from the Securities and Exchange Commission (SEC), then we would see who said what, who did what and who did nothing.

We would still look within the CBN and if there are people who ought to have said and done things and they didn’t, there will be consequences. There is no way you would go into a war and light a fire that will consume your own troops.

But it will happen, because if you look at the four pillars we talked about, not just enhancing the quality of banks, we talked about governance issues within the CBN itself.

The second thing is, of course,  about empowerment and about culture. No matter what you do, institutions are built, ultimately, by the culture in the institutions. We need to have a culture where, if one of the directors hold strongly to the view that the interest rate should go up and the Governor of the CBN does not believe that, the director would insist that it is the Governor’s decision, but his recommendation remains that the interest rate should go up and he will not feel that he is in any way going to be victimised for standing up and having his view.

But if I do not want them to go up, I will take his paper and I write that I have seen his recommendation but I do not agree and I take responsibility for my decision.

We have to get to a point where the people in banking supervision will be able to say, there is a problem in this bank, we have seen it and this is our report. I would now have to, as Governor or whoever, document that I have seen this, that I have ordered you not to do anything and people should not feel that they are going to be victimised or suffer for that. That is the culture that I want to create in this country, where these differences will be welcomed.
People have to realise that the Governor of the CBN is a human being, and the position is an office and I am one out of about 5,000 people that just happened to sit in an office called Governor. It is like somebody called Director of Banking Supervision, he has an office, he has a role, and that office and that role must be decrypted.

So, when you talk about institutionalisation, I was lucky, growing up in banking, I worked in banks and with CEOs who were willing to respect offices. As an officer in ICON in the 1980s, my MD will want to book a loan, I told him I did not support it, he said write your recommendations.  I look at the documents of the loan, I analysed it, I recommended that it should not be done, he took his pen and wrote approved. No problems, he was managing director, he took personal responsibility for his decision. If the loan goes bad, the record is there that I recommended against it.

Maybe, he should have knowledge and information that I did not have, by virtue of his experience. But he did not make me write a memo to make it possible for him to pass the responsibility to me.

As a chief risk officer in United Bank for Africa, under reputable chief executives of the bank, then, and also in First Bank of Nigeria, if I say no to a credit, that was it. Even if the MD wanted it, if he could not convince me, he does not push me. And if anybody wanted to say anything, he will say you have to go and convince the chief risk officer.

So, leadership builds culture. We can talk about institutions, at the end of the day, my greatest challenge in CBN is how do I increase the self-confidence of individuals, so that they take ownership and responsibility for their decisions and know that the Governor is only one human being, that he is actually nothing but an encapsulation of the ideas and beliefs of these 5,000 people and that the decisions that I take and the pronouncements that I make, should not be the decisions of Sanusi Sanusi, but the decisions of the CBN, based on what has flowed up from below.

Everything within the banking sector was based on the report done by banking supervision. They make the recommendations to remove the managing directors, do you know that, they made the recommendations, based on what they saw and these are the rules.

They came and sat down before the committee — the governor of the CBN, all the deputy governors, the managing director of the NDIC, all the executive directors, they came and presented and recommended and they defended their decisions and we approved. Also, as you know, as the Governor of the CBN, I take personal responsibility for those decisions. Do you see the point.

So that is how institutions are built. When you have sent an examiner to a bank and he sees nonsense, and he is able to resist any attempt to compromise him and frighten him, because he knows that if he brings that report to me and recommends an action, and as far as it is confirmed that the report is true, there will be action.

Look, I was a bank MD. If my examiner goes to, let me say, First Bank, and the MD of First Bank called me to speak to me and I called him to say who sent you and start victimising him for going to ask questions, tomorrow, when he goes, he would not even come back with the report, because he does not want to offend the Governor. As we continue to build that level of confidence, I think we will build an institution.

The prudential guidelines released in May had as some of the highlights, the fact that banks must disclose executive bonuses, profit_sharing among others and also the point about extending credit to significant shareholders. Why was it that when the latest prudential guidelines were released in June, all these disclosures were not there? I want to know the rationale for the removal of these regulations.

On the issue of prudential guidelines, you know the problem with these issues and the case of do it like this and like that. First, we have an exposure draft. Let us explain this, because we see it as if the CBN has reversed itself. When we issue guidelines, we issue an exposure draft. That exposure draft allows you to take feedback from industry and from stakeholders and from the banks. In fact, the exposure draft contents have not even been looked at in details by the committee of governors.

We then come and say these are the feedback that we got, which one should we accept and which should we not?
I will give you an example of the shareholders. A guideline says that you cannot give more than 50 per cent or five per cent of your portfolio to your major shareholder. Let us say Mike Adenuga.

Would you say because he is major shareholder in ETB, that ETB should not lend money to Glo? Does it make sense?

Or if a director of MTN is a director of GTBank, that GTBank should not lend money to MTN? Does it make sense?

So, when you look at practical issues, you wonder if you should legislate that, because there are circumstances in which it does not make sense. These are companies that every bank will lend to, even at an arms length basis. Every bank is going after them, so why should a bank be precluded from lending to those companies simply because somebody who is a shareholder came to buy shares in the bank?

So, we took it out, it was reasonable. On incentives and bonuses, the question was: should they be published on the annual reports and accounts or are there other ways of disclosing them? In other dispensations, you come to an AGM and give the total package of how much you pay the management and how much you pay directors and the AGM has to approve it.

We have to decide how to bring transparency, and we are dealing with something that has to do with security, and someone says if you come out to disclose your salary, the next day, somebody shoots you. So you have to look at that.

So, we sent an exposure draft, they came back with comments, I look at the comments, some of them I agree with totally, some of them I have issues with, but they were not big issues, and I said if this is what is going to make the guidelines go, at least, we have agreed with the major issues, let us go and implement.

Now, I have simply undone what we decided initially; if I had refused to change, they would have said, Governor Sanusi is very inflexible, he does not listen, he wants everything to be exactly the way he wants it. If you show flexibility, they would say you have reversed yourself, that you are inconsistent, even when you have not issued the final judgement.

Frankly, the issue of incentives and bonuses, the question for me was the following. It came in largely because this is beginning to be what is the trend, say, in Europe. The bonus system was at the heart of the former investment banks in Europe, but was it really at the case in Nigeria? You see, it is not as critical. People look at a debate in England and they bring it to Nigeria. Bonuses and incentives are critical in investment banks in Europe, our banks were not part of investment banks. So, in terms of what it addresses, it was not relevant to Nigeria.

On publishing of interest rates, we did not say that banks should publish, we said that banks should give to the CBN, their interest rate pricing model. However, we said that it should start by June, it is true, it has not started. We accept it has not been done, we will do it.

On the recent intervention in the Power sector as well as the manufacturing, the issue is that we have seen a lot of money pumped into the power and agricultural sectors without much results. What are you doing to see that those interventions achieve the desired results?

We have not given money out, we have allocated it. You know, we are not lending to the companies directly — we are not lending to factories directly, we are not lending to power or to aviation, we are lending to banks, actually, we are lending to the Bank of Industry (BOI) and it is lending to banks and this is secured by government securities.

So for a power project to benefit from this, the bank has to be convinced that it is commercially viable and that the project will repay the loan. Because if it is a bad loan, the banks make the provision, we just sell the government securities and recover our money.

Is it correct to say that you have reduced the four pillars of the banking reforms to investor and consumer protection?
On the issue of investor and consumer protection, these two only come when you have safe and sound institutions.

I did not reduce the four pillars to investors and consumer protection. I will reduce them to two, building a safe and sound financial system and maximising the benefits of the potentials of that system as a catalyst for economic development to the real sector.

It is about creating safe and sound banks and lending to the real sector. If you go back to my interview with the Financial Times immediately I became Governor, I said very clearly that in addition to the traditional CBN duty of price stability and monetary stability, I had set for myself, two tasks, because I cannot do more than two or three things at the same time. I cannot solve all the problems of Nigeria.

When I became governor of CBN, even as MD of First Bank, I set out the three things that I wanted to do. I set myself three_point agenda in First Bank, which was growth, efficiency and performance measurement. As CBN Governor, what was my agenda? Apart from the statutory role of monetary policy stability, it is financial system stability and growth of the real economy.

I have no doubt in my mind that if I have a good and safe and sound financial system and if the banks are lending to manufacturing and agricultural sectors, I have achieved my goals.
Now, can I do everything? I cannot, the next Governor will come and do all the innovation. I will not do what I cannot do, so I will just focus on what I can do.

After the initial hype over CBN’s action; when the names of the debtors were published, with them running to the presidency for protection, will AMCON have the willpower to go after these influential persons considering their connections with people in power?

On the issue of borrowing, borrowing money from the banks is not a crime, so, debtors can walk free, but they should pay back their debts. What we have done is that we have recovered since we published those names, over N300 billion.

The AMC would be owned by the Nigerian governments, so if these debtors have been having it easy with the banks, when the AMC owns the loans, they had better come and pay. They can come and restructure or reach agreements, but anybody who has the means to pay and refuses to pay, must pay and we will try to recover as much of that money as we can. And because we are part of the Federal Government, we will use all the legal instruments at our disposal to make sure that we recover those debts.

One of the officials speaking on the four pillars of the reforms, recently, said that the CBN is currently working with SEC to create a single registrar situation in the capital market. What are the modalities and what would become the fate of the current registrars?

On the registrars, I saw it in the papers today, I think it is premature to announce it. It is certainly one of the long-term plans that we want to implement.

In the short-term, you would see from the universal banking model, banks will not own registrars certainly. Because, a lot of the nonsense that happened, only happened because banks owned registrars.

That is the first step, but the ideal step is to move towards a single registrar. Now that registrar could be one that takes from all the registrars together. How it is going to work, what the modalities would be, will not be a decision for the CBN alone, it will be a decision of the CBN, SEC and other regulators.

I will make sure it is tabled before the FSRCC. It is stated as something that the CBN will like to have. For clarity, this is not a decision that has been taken, it is a proposal that is being looked at that the CBN might propose to the FSRCC.

What level of capital base does the AMC need to be able to effectively discharge its statutory duties and the proper pricing model to be adopted?

What is important is to provide the funding. The capital for the AMC is small, it is actually N10 billion. But the AMC will issue bonds for whatever it needs to purchase the assets and recapitalise the banks, it would recover money from the sale of these assets and the balance will come from the safe deposits of the CBN and the banks.

That sinking fund can effectively be the capital, if that is what you mean, basically provided by the banks, but it would not be capital to the AMC, but would be there to absorb the differences between the assets and the loans.

The Act, itself, provides for the process of evaluation. The evaluation would be done by independent advisers, the basis would be published, it would be transparent and everybody would know.
I have an idea of what they are beginning to recommend, I cannot disclose it, when it is ready, everybody will know.

Can we say that with the current banking reforms, the economy is growing?
The problem is not if the economy is growing or not, the issue is how can we grow out of this jobless growth scenario? Some sectors of the economy is growing and they are not creating new jobs.

Today, if telecom grows by 20 per cent, it hardly creates additional employment, maybe it is just new masts and little employment, but really, very little additional employment. For all of that industry to grow rapidly, without increasing employment, because these are all technology intensive industries. How do you move that growth?

You talk about manufacturing, this is only four per cent of Gross Domestic Product (GDP), if manufacturing grows at eight per cent, what is eight per cent of four per cent, 0.32 per cent, that is all.

You will never feel it. And if you look at the breakdown of the growth in the industry, where was it coming from, electrical and electronics, apparel and footwear, it is not from the employment_intensive areas. You are not getting growth in textiles, food processing, foods and beverages, you are not getting growth in the labour_intensive intermediate growth industry.

So, I think we should stop wasting our time debating whether growth is seven per cent or five per cent, because how good is that seven per cent if it does not create jobs? The government is not happy with seven per cent if it does not create jobs. Why don’t we work with the government and the CBN and see how we can bring out ideas and find a solution to this growth model. It is better to have a five per cent growth rate where jobs are being created, than a seven per cent growth where the income is going to a very small percentage of Nigerians.

Europe recently concluded its stress test, are we going to see a re_enactment in Nigeria?
On the issue of stress test, of what use is a stress test if capital is negative? What are you stressing?
I have disclosed that we have negative capital of N1.5 trillion in 10 banks, what other stress test do you want again?
We did a stress test before we started this exercise.

Maybe, later when we start publishing the documentation of all of this, we would publish the details of the stress test and the parameters that were used.

The best time to have this stress test, would be after you have the consolidation, after you fixed the banks, then you do a test to see which of these banks are not strengthened and how do you make sure that you strengthen them so that they can cope with any shock. So I would not do any stress test at the moment.

What are the assurances that after this time out, we won’t go back to where we are coming from?
Institutions are built by individuals. How do you build an institution without human beings? In fact, the CBN is an institution and one of the strongest in this country.

The CBN Act and BOFIA, everything we have done, we have done within the context of the law that existed when I became Governor. What we could not do is take equity in banks and buy NPLs, and that is why we set up AMCON.

I do not see why everybody would want to hold office for a long time. Left to me, I do not see why anybody should have a second term as Governor of the CBN — ten years, what do you want to do for ten years as governor of the CBN? I do not think so. I think people should have a limited period, do what they have to do in that period, move on and let other people come and build on it.

But the argument is that if you are going to ask a non_executive director to leave after 12 years, then why should a managing director be there for 20 years? The MD is one that runs the institution, and a lot of what we see in some institutions happens when the MD has been there for life and believes he is going to stay there for life. When they are ready to retire, they would work to become chairman, appoint who they want as MD, and sit down as chairman and continue being chief executives.

The truth is that the things we saw can only happen in places where people believe nobody will come and check.
Do you know that in Union Bank, directors have a maximum tenure of eight years? We did not impose that, it was always there.

Four years, renewable another four years and they go. Their problems started when they started breaching their rules, when it is time for somebody to go and he did not go.

That is the beginning of their problems. Many institutions have it, so when you become MD of that bank and you know it is time for you to leave, you don’t want to leave, when you know somebody is going to take over from you. You must be a crazy person if you do not want to go.