Thursday, August 20, 2009

The Political Economy of Nigeria’s Financial Sector

The hen has come home to roost. A Yoruba adage says if lies travel for twenty years, truth will meet it in just one day and so Mallam Sanusi Lamido Sanusi, the new Governor of Central Bank on Friday, August 14, 2009 put a lie to all the false claims of some of our megabanks about their state of health. Since that fateful day when five of the Nigeria’s banks Managing Directors and their Executive Directors were sacked by the Central Bank of Nigeria, I have followed the development with keen interest. To my mind, much of the analysis of the unfortunate development has failed to appreciate the political underpinnings of the entire issue.

This is not the first time Nigerian banks will be in crisis. Right from the first republic, politicians have had dominant influence in the operations and misfortunes of our banks. Where are Africa Continental Bank (ACB), National Bank, Trade Bank, Gamji Bank and Societe Generale Bank today? All are defunct. Who were the people responsible for their distress? Am by no means saying that there are no fiscal issues bordering on financial indiscipline, mismanagement of shareholders fund and poor corporate governance in the matters arising, but stricto sensu, the issues are far beyond that.

Just last July 6, Senator Nkechi Nwaogu, Chairperson, Senate Committee on Banking, Insurance and other Financial Institutions on the floor of the upper chamber named former directors of 13 failed banks who were involved in insider credit abuse that led to the banks’ failure. The former directors of the failed banks collectively owed the defunct banks N53.3 billion out of which the Nigeria Deposit Insurance Corporation (NDIC) was said to have recovered a paltry N4.722 billion. Scores of names reeled out by Distinguish Senator Nkechi were those of political juggernauts who were directors of the distressed banks.

Already, news making round suggested that two of the Banks who were currently on life support of CBN donated N1billion each to the election campaign fund of President Umaru Musa Yar’Adua while one of the former South-South Governors loaned N40 billion and $200 million from the same banks without paying back. We should not also forget that many of these banks contributed to the Presidential Library Project of Nigeria’s immediate past president as well as his elections in 1999 and 2003 under the aegis of Corporate Nigeria. If the board members of these five debtor banks are to be exposed it will be found that many of them are politicians and are also involved in the insider credit abuse. It baffles me that the CBN Governors did not deem it fit to dissolve them. Talk of scapegoats and sacred cows.

Political intrigues and considerations are perhaps responsible for the conspiracy of silence and aiding and abetting of these ailing financial institutions by the regulators. It would be recalled that the immediate past CBN Governor issued a press statement in favour of one of the banks and raised false hope that Nigeria’s financial institutions are immune from the global financial crisis. We now know better. If the truth must be told, what is currently happening in Nigeria’s financial sector is partly total failure of institutions. The Central Bank of Nigeria, Nigeria Deposit Insurance Corporation, Securities and Exchange Commission, Nigeria Stock Exchange, Corporate Affairs Commission, Federal Inland Revenue Service, relevant committees of National Assembly, the banks external and internal auditors, anti-graft agencies and even a section of Nigeria’s media should share part of the blame for condoning or refusing to blow whistle on the excesses and abuses in Nigeria’s financial sector.

Earlier in the year, there was news report that many of the Nigeria’s banks MDs are engaged in reckless spending spree; buying private jets and globe-trotting in the name of business expansion. Some analysts explained it away then that it is expedient. Where were the regulators when banks turned to casinos or lottery where unsuspecting members of the public were being asked to save and win mouth-watering prizes? Where were the regulators when banks were engaging in round-tripping and other unethical practices such as engaging beautiful ladies as marketers with targets to bring in certain millions of Naira within a short period? Where were the regulators when banks went gaga fixing arbitrary interest rates and refusing loan to small and medium scale enterprises?

All the sharp-practices and malpractices that the sacked management staff of Oceanic Bank, Fin Bank, Union Bank, Intercontinental Bank and Afri Bank were alleged to have committed were not new, what is desirable is an holistic cleansing of the entire financial sectors from the banking industries to the Stock Exchange and the Insurance sub-sector. However, it is doubtful if political solution will not be adopted by the regulators at the end of the day. This is because many of those responsible for the present and past undermining of Nigeria’s financial sectors are members of the ruling political elite.

I do hope the the CBN Governor has not breached the 1999 Constitution of Nigeria with the approval of N400 billion bailout fund for the five ailing banks without a recourse to the National Assembly. It would be recalled that earlier in the year, Barrack Obama took his stimulus package to US congress for approval. The argument has been made that there is need to build the capacity of regulators and banks as there were dearth of competent people to run the industry. All well and good if the politicians will allow them do their work professionally, honestly and with integrity.