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Two years of CBN under Sanusi: An Xray

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Two years of CBN under Sanusi: An Xray

IT was, to some operators, most unexpected. The eventual casualties even beat the imagination of the banking public. The effects were dramatic, with some describing the backlash as draconic. But the initiator-in-chief of the reforms in the banking sector, Lamido Sanusi has no regrets over the “tsunami” But others thought otherwise.

Two years into the programme, the controversy rages on, with focus not on the banking sector itself, but on the man, Sanusi.

The situational factors in the global financial world could havejustified his actions.

Specifically, the financial crisis triggered by the sub-prime mortgage crisis in the United States of America between 2007 and 2009, has made resounding impact on the global economy, Nigeria being no exception.

The after shocks hit Nigeria’s financial landscape and the banking system tottered almost to the point of collapse due to; poor corporate governance practices, overt and undue exposure to the capital market, oil and gas sectors, poor risk management practices, distress signs through the banks’ frequent resort to the interbank market and the Expanded Discount Window (EDW) at the CBN for financial accommodation, inadequate disclosure and transparency about the banks’ financial positions.

These developments informed the decision of the new CBN management led by Sanusi on assumption of office in June 2009 to take concrete and pragmatic steps to address the problems.

First, the CBN commenced a special joint examination in conjunction with the NDIC to ascertain the true state of the banking industry. The outcome of the examination revealed that a total of eight banks exhibited imminent signs of collapse, which could drag the entire banking sector down, thereby endangering the Nigerian economy.

To stem further deterioration in the condition of the affected banks and protect the interest of depositors and creditors, CBN in August 14, 2009 intervened through the following measures:

The CBN replaced the executive management and in some cases boards of the banks with new ones and referred the cases of some of the principal officers to the law enforcement and prosecution authorities. One former CEO was recently convicted and other cases are already being tried.

The CBN injected a total of about N620 billion into the banks in form of tier Two capital to be repaid from the proceeds of recapitalisation in the near future. This has helped to stabilise the banks and restored confidence in the banking system.

As a further confidence building measure, the CBN reaffirmed the guarantee of the local inter-bank market to ensure continued liquidity for all the banks and guaranteed foreign creditors and correspondent banks credit lines to ensure confidence in correspondent banking relationships. This led to enhanced liquidity and helped to restore confidence with the international corresponding banks.

The CBN interventions as revealed by Sanusi in 2010 were predicated on a four-pillar policy framework: enhancing the quality of banks; establishing financial stability;  enabling a healthy financial sector evolution and  ensuring the financial sector contributes to the real economy.

Besides these measures, the bank also rolled out other strategies to mitigate insiders’ abuse and instil discipline for proactive and risk-oriented supervision, through a new code of corporate governance for the banks and the implementation of risk-based and cross-border supervision in Nigeria.

Other measures include the limiting of the tenure of CEOs of banks to a maximum of 10 years, know-your-customer directive and the comprehensive review of ‘Fit and proper persons’ as managers and directors and major shareholders of banks. All these have helped to minimise the overbearing influence of the CEOs.

In order to boost liquidity and enhance the safety and soundness of banks, the CBN in conjunction with the Federal Ministry of Finance also established the Asset Management Corporation of Nigeria (AMCON), which recently acquired N1 trillion risk assets of some banks.

A new banking model was further introduced, which led to the reversal of the Universal Banking Policy, thereby minimising risk and undue adventurism among operator in the Nigerian banking system.

The CBN governor acting in his role as the adviser to the President   on economic matters ensures that there exist some measurable relationship between the real economy and the financial sector. As a result, the bank in its determination to ensure that there is no disconnect between the banks and the economy, adopted a hybrid monetary policy (a combination of market–based monetary policy measures and direct intervention fiscal like measures in some critical sectors of the economy).

In pursuant to these, the bank in collaboration with other stakeholders took concrete steps to among others: improve banks lending to the real sector; empower small scale entrepreneurs; create employment opportunities; alleviate poverty, ensure food security; and promote youth entrepreneurship

In order to achieve these, the CBN initiated a number of schemes and programmes, which included the Infrastructure Intervention Fund (Power & Aviation Intervention Fund).

The Central Bank of Nigeria at its 213th Monetary Policy Committee (MPC) meeting on March, 2010 approved the provision of N500 billion-Infrastructure Intervention Fund as part of the bank’s quantitative measures to create liquidity and support the development of the real sector of the Nigerian economy.  Out of the N500 billion, the sum of N300 billion is being applied to power and aviation financing, while the sum of N200 billion was to be utilised for Re-financing and Restructuring Facility (RRF) of banks’ loans portfolio to manufacturing entities. The Fund is financed through a debenture instrument issued by the Bank of Industry (BOI) and subscribed to 100 per cent by the CBN.

Under the N200 billion Refinancing and Restructuring Facility (RRF), a total of 516 projects valued at N199, 671.4 billion or 98 per cent of the approved N200 billion RRF had been utilised by banks through the BOI to refinance and restructure their outstanding manufacturing exposures.

The scheme also included the N200 billion Commercial Agriculture Credit Guarantee Scheme (CASCS), which was established by the CBN in collaboration with the Federal Ministry of Agriculture and Water Resources in 2009 for promoting commercial agricultural enterprises. It is being funded through the issuance of FGN bond worth N200 billion, by the Debt Management Office (DMO) in two tranches.

Under the Commercial Agric Credit Guarantee Scheme (CACS), the sum of N101.38 billion has been released to finance 109 projects made up of privately-owned projects/promoters and 19 state governments received N1 billion each for disbursement to farmers’ cooperatives and unions within their constituencies.

Small and Medium Scale Enterprises Guarantee Scheme (SMECGS) was also one of the schemes. This was established N200 billion with the aim of promoting access to credit by SMEs in Nigeria. This intervention fund of N200 billion is being managed by the Bank of Industry (BOI), for the purpose of fast-tracking the development of the manufacturing sector of the Nigerian economy by improving access to credit to manufacturers, among other objectives.

Others include the Nigerian Incentive-based Risk Sharing Agricultural Lending (NIRSAL), Enterprise Development Centres, Committee of Governors’ & Bankers’ Committee Initiative on Infrastructures and Agricultural Credit Guarantee Scheme (ACGS).

Meanwhile, and as usual, the latest reform, the planned cashless banking policy, has also come under serious scrutiny.

But the World Bank has endorsed the planned cashless banking policy recently announced by the Central Bank of Nigeria (CBN). This was disclosed during the launching of a book titled “Achieving Nigeria’s Financial System Strategy 2020: Making Finance Work for Nigeria” by the World Bank in Abuja on Friday, June 4, 2011.

In the book that appraises Nigeria’s readiness in its quest to become one of the largest economies in the world by the year 2020, the World Bank says operating a cashless society in Nigeria is a key strategy to fast tracking growth in the nation’s financial sector. The World Bank further notes that getting access to finance and developing a vibrant market that would create more jobs requires the backing of a solid and modern financial sector.

The World Bank observes that moving cash around is considered normal in Nigeria but warns that as the world increasingly moves towards cashless society, continuing with the fashion of moving around with cash takes the nation’s financial sector a step backward.

It will be recalled that the CBN announced its intention to implement the cashless banking policy effective from June 2012, which drew a lot of apprehension from the general public and stakeholders. The Senate Committee on Banking and Currency in response, invited the CBN to a public hearing it held on the matter, where Mallam Sanusi Lamido Sanusi explained the reasons for the policy and what the banking system and the economy stand to gain from the new policy. He appealed for the understanding of all stakeholders and promised that the CBN and banks will soon embark on a massive enlightenment campaigns as he confirmed that the CBN would go ahead to implement the policy with some adjustments if found necessary.

Commenting on the governor’s two years in office,  the Chief Executive Officer of chaste Mutual Investment Limited, Ayo Olatunde observed that the man came at a time that Nigeria Financial Sector was yearning for a courageous, articulate and a discipline professional who can arrest and discard the Nigeria abnormal or unconventional banking practice and embark on radical anti corruption campaign in order to sanitise our financial sector without minding whose ox is gored.

In addition to the standard central bank duties of monetary policy and financial stability, Sanusi have set himself two primary tasks. “The first one is restoring confidence in the financial system. The second one is slightly less conventional but it is actually playing an important role as an agent for development,’’ he said.

According to him, the man has truly initiated some reforms in order achieve these two objectives. The reforms initiated by Sanusi were necessary in order to sanitise and save the Nigeria banking industry from entering into another round of distress.

His words : ‘’Sanusi in the last two year has embarked on some banking reforms that would lay a solid foundation for the future of the Nigeria banking industry. Hardly there is any month within the two years of his stewardship without having one reform or the other being reeled out. In all these Sanusi has let his common sense prevailed when making some decisions and judgments.

“While some business in the aftermath of his reforms may have closed down with attendance job loses, it is now a known fact in Nigeria that banking is no longer business as usual, but the institutions to serve the whole economy. Banks now concentrates on pure banking practice and they are now discarding the merchandise banking practice. Banks are now withdrawing from competing with their customers in buying and selling and other non banking activities.

“While I admire his leadership style, I am a critic of his recent reform on cash limit, I am of the opinion that Nigeria is not yet ripe for cashless society because of inadequate infrastructure to man this reform, but come to think of it, I summed up that the advantages of this policy over the challenges could be an opportunity for Nigeria businesses to provide necessary infrastructure to meet these challenges when it arises,’’ he said.

Olatunde however said that Sanusi needs to do more on the economy, he need to device strategies that will lower the inflation more, that will make the Naira stronger, that will arrest the depletion and increase our foreign reserve. While our foreign reserve still sits in foreign banks, with well structured mechanisms he could still make the foreign reserve work harder and create more wealth for the country without depletion.

“In my opinion Sanusi has scored a pass mark in his two years stewardship and I believe he can still do more,’’

Also speaking with The Guardian, the lead director of Centre for Social Justice, a non governmental organization, a legal practitioner and public analyst, Eze Onyekpere observed that Sanusi’s two years in office have been eventful but dogged by controversies. He approached the job of the Central Bank Governor as an activist who was in a hurry to blow the whistle, expose those he felt had mismanaged the banking system and let the offenders face their day in court.

According to Onyekpere,  he may have had the most noble of intentions but the job of a Central Bank Governor is not the job of an activist who shouts from the rooftops without caring about the implications of his statements on the system.  The Central Bank Governor is a confidence builder in the economy.

His words:‘’The banking system is to a large extent built on trust and confidence and people believing that transactions will run their course. When the manager of that system built on confidence discovers flaws and faults, he should manage it in such a way that resolves the flaws and faults without pulling down the roof. The road shows in foreign lands to talk about our failing banks were unprecedented and did not show a good understanding of the dynamics of the international political economy.

‘’The CBN had no road map for the reforms at the inception phase. Pronouncements were made as “the spirit moved the CBN Governor”.  The road map for the reforms was developed after some fundamental actions have been taken, which actions should have been properly articulated with milestones, timelines and alternative strategies in the road map. His approach and strategies has led to the situation where two years down the line of his reforms, we are still in the woods compared to other economies who also undertook reforms of their banking system. For instance, many questions remain over the date when the CBN will be expecting back the bailout funds it extended to the crisis hit banks.

“Sanusi has elevated risk management to such an (un)enviable position in the scheme of things that banks are finding it difficult to play their intermediating role in the economy. Banks are afraid to lend for fear of their transactions being criminalized in future.  The credit squeeze on the private sector has refused to go away and as such, the economy is yet to balance on an even keel,’’ he said.

Onyekpere however said that on the positive side, monies that were mismanaged have been recovered and many powerful men of yesterday who apparently abused their position have been forced to eat the humble pie.  Monies have also been set aside as intervention funds in many sectors of the economy.

“For the future, the expectation from the CBN Governor is that he should carefully weigh and consider CBN’s policy interventions and their long term impact on the economy before finalizing them. It is also imperative to show more openness and transparency about how decisions are reached so that even doubting Thomas will understand the basis for the decisions. It appears he is on a learning curve and seems with time to be fully coming to grasps with the demands of his office,’’ he said.

Also speaking with The Guardian, Jide Ojo, a public analyst based in Abuja noted that the appointment of Sanusi Lamido Sanusi as the Governor of Nigeria’s Central Bank in June 2009 was one of the laudable things the administration of late President Umaru Musa Yar’Adua did.

Other reformed measures taken by the CBN under Sanusi Lamido was the classification of the banks into four groups with different capital bases; namely, international, specialised, regional, and national banks. The CBN also initiated idea of having a 10-year reform for the Nigeria banking industry which the CBN governor at a pre-convocation lecture at Bayero University, Kano in February 2010 said was aimed at “enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring that financial sector contributes to the real economy.”

In September 2010, CBN withdrew the licence of 224 microfinance banks and thereafter restored the licence of 37 of them. There was also the reported crackdown on the bank debtors as four non-executive directors of Finbank were allegedly suspended for 90 days by Central Bank of Nigeria on September 27, 2010  for failure to pay their debts totalling N20 billion.

He said further that in November 2010 CBN issued a directive which states that: “from the date hereof, no bank shall grant or permit to subsist, any loan, donation, gifts or any form of financial accommodation to any political funds, political party, or for political purposes whether directly or indirectly; incur any political expenditure”.

According CBN under the leadership of Malam Sanusi also directed banks to ask their customers to update their account details and at present, banks are also executing the CBN directive to have a unified account number for all their customers. On Thursday, April 28, 2011, Central Bank of Nigeria issued a circular titled “Industry Policy on Retail Cash Collection and Lodgement”. In the circular the CBN put a cap on the amount an individual can withdraw from his or her account at N150, 000 while corporate organisations can only withdraw maximum of N1 million in a day.

His words:’’The aforementioned policy decisions and directives were taken under the leadership of the indefatigable but highly controversial CBN Governor, Sanusi Lamido Sanusi. Under the incumbent CBN Governor, risk management has been central to banking operations as financial institutions have stopped granting unsecured and non-performing loans. Thus, it is no longer business as usual.

“The CBN Governor also stirred the hornet’s nest when he said at Igbinedion University 2010 Convocation Lecture   that Nigeria’s national parliamentarians consume 25 per cent of the country’s annual budget. He was promptly summoned by the two chambers of the national assembly to come and explain the statement which they considered untrue and careless.  He defended himself creditably. He refused to be cowed and even offered to resign his position if need be.

“The CBN Governor has been much appreciated locally and internationally with flurry of awards and recognitions. This shows that only the corrupt, selfish and the unscrupulous love to hate him. To my mind, he is fearless, patriotic, conscientious, and of exemplary conduct. If he were to be a lawyer, we would have seen another fiery legal practitioner in the mould of late Chief Gani Fawehinmi who spent his life fighting the cause of the masses.

“Sanusi’s detractors have levelled all manners of allegations against him but none of such have been proven to be true. Amongst other things, he is accused of hidden, ethnic agenda in the removal of the 8 bank CEOs in 2009 and the proposed

and playing to the gallery. In my estimation, there seems to be too many reform measures being pushed in a short span of time and am just worried about faithful implementation of these initiatives.

‘’ Irrespective of his human failings, I believe he deserves all the honours and accolades he has been showered. What the CBN action Governor needs is our prayers and support through constructive engagement of his bank’s policies so that Nigeria can be liberated from her current economic quagmire,’’ he said

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Updated 7 Years ago

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