By Dele Sobowale
NOTE: It is necessary to bring back the chart on which we ended last week because it is pertinent to this week’s discussion and because it points to the tough road ahead for the banking sector which is vital to all economic activities.

The triumph and the tragedy Soludo as we have noted, succeeded at first with consolidation. He probably even succeeded beyond his own dreams because in less than three years after consolidation, four Nigerian banks were among the 1000 largest banks in the world; as it turned out, only on paper.

Prior to consolidation, no Nigerian bank ranked among the top 1000. But, by then one of the unintended consequences of consolidation was already apparent to close observers – the race to become the biggest bank in Nigeria was on.

Banks were no longer satisfied with scaling the N25 billion hurdle; they wanted to be the biggest in Nigeria. There was no long-term strategic thrust to the manic and furious race for the top spot that was discernible. It was bigness for its own sake. That called for repeated trips to the capital market to raise funds.

The drive for funds at one point took a comical aspect when nothing less than eight banks issued IPOs at about the same time. With the glut of securities which necessarily developed came a novel way of selling shares. Banks were literally forcing their depositors to take loans to buy shares.

Shares were offered in open markets – side by side with pure water and chicken liver. Illiterate market traders were cajoled to part with their money on promises of better returns which the banks said were certain to result from the investment. Still the glut persisted.

Then stockbrokers were allowed credits to be passed on to their clients wanting to buy shares on credit. Margin loans escalated consequently. Yet, the glut persisted. Finally, some of the banks started to buy their own shares. For keen observers, the calamity that would follow was already showing itself.

Meanwhile, the banks were declaring outlandish profits every year. Annual Reports and Accounts from 2006 to the time Sanusi revealed the truth in 2009, led us to believe that the banks were growing profits by 50 to 129 per cent every year in an economy which was barely growing at five per cent.

It was then that economists and financial experts, this writer included, began to make inquiries aimed at answering one key question: what sort of investments were the banks making to earn these unbelievable returns? A corollary question was: were we back to the days of Funny Money banking as characterized by Jimi Lawal during the failed bank era which forced Abacha to promulgate the Failed Bank Decree?

The more they looked, the more horrified they became. Banks were not only forging the books; they were actively robbing their depositors in order to survive. Eventually, it became clear that Soludo must be the only economist in Nigeria who did not question the authenticity of the financial reports – up till about late 0
07 or early 2008.

The financial turmoil in Europe and the US broke upon the world at about the time it might have dawned on the Central Bank governor that all was not well; that the houses of cards, called mega-banks were on the verge of crumbling.

Simultaneously, Soludo was fighting for his second term which was not assured and would have been made almost impossible if he admitted that all was not well with Nigerian banks. So using the enormous powers of the governor of Central Bank, he allowed the banks access to more credit than they would ordinarily be entitled to receive.

The extended credit window, as it was called, did not cure the banks of their ailments. Instead, it almost amounted to getting an addict more narcotics. The more they got, the more houses were bought in London or Dubai; the more loans were given to their own businesses and cronies — all with bank money.

The question today, given the benefit of hindsight, is not, did Soludo know? But, how much of what Sanusi later revealed he knew and tried to cover up? Unquestionably, there was a cover up involving CBN bank examiners, accountants of the banks, internal and external auditors of the banks. Even if Soludo had secured the second term mandate, it was only a matter of time before the bubble would burst.

Red Skelton, an American professional clown, in the 1970s, once observed that, “A clown is like a man sitting on a throne of ice wondering when it will all melt away”. (VANGUARD BOOK OF QUOTATIONS, p 29). It is also true that an actor is always sitting on a wave of applause wondering when it will stop.

By not securing the second term, Soludo probably had no time to get the bankers to clean up the Augean stables of the horse manure they deposited all over the place. The triumph was short-lived; the tragedy to banking, to shareholders and to Soludo came shortly after he departed.

The shareholders and even depositors of some who were assured they could put their money in banks and “go to sleep with two eyes closed” are now experiencing sleepless nights. Some went to sleep with two eyes closed – forever – on account of losses resulting from investment in bank shares and loans taken to acquire shares whose values  have since plummeted to almost zero.

There were three other minor setbacks for the former CBN governor. His campaigns to stop the abuse of the naira was a colossal failure; and his attempt to re-introduce coins as replacements for currencies ended with the CBN sitting on tons of coins which nobody wanted. Finally, his move to re-decimalise our currencies almost led to his sack before his tenure expired.

Whither Nigerian Banking?

Banking is a confidence game. Nigerian banks, by and large, have lost credibility. The trials of some of the most celebrated bankers of the period; the conviction of the Managing Director of Oceanic Bank Plc; the revelations concerning the reckless abandon with which depositors funds were “privatised” by a few people connected to directors of banks had left Nigerians less inclined to trust banks.

In reality, most small depositors patronise banks, either because their employers insist they must open accounts or because there is no safe alternative. Getting more people into the system will be an uphill task. Yet, never since Bank of British West Africa (First Bank) pioneered banking in Nigeria had the sector needed more new depositors. How to induce the new customers is the major task of policymakers.