By Dr Dele Shobowale

“Impress it on the mind of any man that he can do no wrong and he will soon convince you of your mistake”.

Joel Barlow, 1754-1852.

It was approximately four years ago,when it occurred to me to raise alarm about the activities of two powerful and popular public officials. The first was the former Governor of Central Bank whose “Con-soludo-tion” policy and the way it was being operated by many banks was already driving the banks towards bankruptcy. Yet Professor Soludo continued to enjoy favourable reviews in the domestic and foreign media.

Undeterred, I went forward in mid-2008 and predicted a meltdown in the Nigerian Stock Exchange; NSE which will last for several months at a time the Director General of the NSE was predicting greater growths. Today, Oceanic Bank shares selling then for N28 per share can be purchased for less than N3. The dramatic drop in share prices and the devastation in the banking sector were inextricably related. Banks accounted for over 45 per cent of the All Share Index at the time.

Since the appointment of Malam Sanusi Lamido Sanusi and the removal of the former NSE-DG, Dr Ndidi Oyuike, I have sat back to allow the new helmsmen to perform their duties without bickering over perceived minor errors of judgment. In fact my first three articles featuring the Governor of Central Bank were quite supportive of his measures. And even this public outcry might not have been necessary if calls and text messages to his staff are now not routinely ignored. Hutzpah, a Yiddish word meaning “unmitigated pride” has set in at the CBN. They no longer care to listen; they only want to issue orders Czar-like. However, the time comes when the mistakes mount to alarming proportions, especially those linked to the management style of the officials involved and when the consequences to our economy compel one to speak out and issue a warning before another calamity befalls our nation.

With the CBN, the time is now. So, this third in a series of critical essays on the activities of the Central Bank is aimed at examining some of the decisions made since Malam Sanusi became governor and to ask what might be the consequences. As usual, as much as possible, the attempt will be made to avoid too much professional jargon. There is a vital need to carry everybody along because this is not an inquisition.

The most urgent is the recent announcement by the Central Bank that eight banks will be liquidated if they fail to meet the deadline for re-capitalisation set for them by the governor of the CBN. Little notice was taken of the consequences of this possibility when Malam Sanusi imposed the terms on the banks. Shareholders, depositors, sundry creditors, suppliers and staff of the banks just assumed that somehow things would turn out right. Well, as those of us training sales staff of companies are fond of saying, when you assume, you make an “ass” out “u” and “me”. Another vital stakeholder, which had folded its arms, is the Federal government of Nigeria which will have its operations and projections for the economy mucked up if Malam Sanusi does make good on his threat to liquidate the banks in three months time.

Already, the public announcement about liquidation has produced some staggering unintended consequences (we must believe, at least for now, that they are unintended, otherwise we must consider deliberate sabotage by the CBN) of that announcement. All of them will eventually combine to make liquidation inevitable and the banking crisis that will result far worse than the catastrophe Sanusi met when he became governor of Central Bank. Below are a few of such unavoidable consequences of this announcement – which sound judgment would not have suggested.

When Arthur Stone Dewing wrote in October 1923 that, “behind the facts of economics are the facts of psychology…The emotions of fear and confidence”, he was not only stating a fact little taken into account by many economists, he was sending a powerful warning to policy makers such as governors of Central Banks. Part of that message was clear. Before introducing any policy, pause and ask yourself if the measure will promote fear or confidence. Judged by that yardstick alone, the announcement of possible, now imminent closure of eight banks is guaranteed to lead to the following consequences. First, deposits will shrink almost to zero. Withdrawals will also rise precipitously. Nigerians might be generally forgetful of other facts, but one thing they always remember is what happened to them when their money was trapped in closed banks. Too many depositors with Savannah Bank and Societe Generale Bank, who might be depositors with any of the eight banks, have now probably withdrawn all they can from their accounts. And since banks lend from deposits, not capital (which in any case we have been told is now negative), there will be next to no new lending from those banks; no revenue earned and nobody needs to be a central banker to know that the banks are headed for the graveyards.

It is doubtful if another announcement reversing the first can alter the situation now. But, without it, the end result is certain. Eight banks will close their gates and with them will end many jobs and thousands of ATM machines providing cash in emergencies and on week-ends. Some of the gains of the Soludo era reforms will be reversed. The impact on the economy will be immeasurable.

Second, those of their customers who have other banks, considered safer, will move their deposits to those banks. Unfortunately, not all depositors operate more than one account in one bank. It is possible nobody has an idea how many hundreds of thousands will be affected. Those with only one account in any of the banks almost now condemned to liquidation must reduce their deposits in those banks or face a long and indeterminate wait for the liquidators to sort out the resulting mess. They face a financial dilemma of gargantuan proportions. They could either keep patronizing the moribund banks or keep their cash at home. Either way, the banks and their customers face unprecedented cash management problems. Neither their cheque books nor their ATM cards will be of any use to them thereafter.

To anyone who would counsel that depositors should open new accounts should simply try opening one to realize how maddeningly difficult this is in Nigeria today. Obviously, hundreds of thousands of companies are headed for the roughest period in their lives. The problems become more acute for customers in several one-bank towns in Nigeria. When the only bank in town gets closed down, the economic life comes almost to a halt. The economic carnage that will result is simply incalculable.

Creditors and suppliers of goods and services, crucial for the operations must now demand for cash on delivery or nothing; especially those formally granting 90 days credit or more. Yet, for a modern firm, banks included, credit is the lifeblood of any enterprise. With credits steadily withdrawn, the banks already hemorrhaging cash daily must also somehow find the money to keep up operations. It is difficult to imagine how these among other consequences of the threat to liquidate the eight banks could have been intended by the Central Bank.