EXAMINING RECENT BANKING REFORMS IN NIGERIA

By Rita Eremiokhale

 

When Mallam Lamido Sanusi assumed office as Governor of the Central Bank of Nigeria (CBN) in June 2009, the global financial crisis had taken its toll on both the oil and gas sector and the Nigerian markets. A sharp deterioration in the quality of bank assets followed immediately leading to liquidity constraints across the banks.

Concerned about the state of some Nigerian banks and the overall stability of the financial system, the CBN commissioned special examinations of all the twenty-four banks in the country.

The examination revealed significant deficiencies in capital adequacy and liquidity requirements of some banks indicating major weaknesses in corporate governance and risk management practices.

The nine affected banks were Oceanic Bank, International Bank Plc, Union Bank of Nigeria Plc, Bank PHB Plc, Afribank Nigeria Plc, Finbank Plc, Equatorial Trust Bank Ltd, Spring Bank Plc and Wema Bank Plc.

The CBN took immediate steps in order to prevent further deterioration of the situation.

First was the replacement of the executive managements and in some cases boards of the affected banks with new ones.
It did not stop there; the apex bank also referred the cases of some of the suspected principal officers to the law enforcement agencies for prosecution. Some former chief executive officers of some of the affected banks have been tried and convicted by competent law courts. Other cases are still being tried.

To ensure that business activities continue, the CBN under Sanusi promptly injected about six hundred and twenty billion naira into the affected banks in form of tier two capital to be repaid from the proceeds of recapitalisation in the near future.

The CBN also reaffirmed the guarantee of the local interbank market to ensure continued liquidity for all banks and guarantee foreign creditors and correspondent banks credit lines to ensure the confidence level in correspondent banking relationships remained high.

In order to minimize the overbearing influence of the CEOs in the system, CBN limited the tenure of CEOs of banks to a maximum of ten years as well as introduced what it called know-your-customer (KYC) directive and a comprehensive review of the process that brought managers and directors to office.

Having averted a crisis in the short run, the CBN in consultation with the Federal Ministry of Finance and other Nigerian regulators devised a strategy for restructuring, recapitalising and bringing the nine distressed banks to a safe harbour.

A crucial part of the recapitalisation process was the establishment of the Asset Management Corporation of Nigerian, AMCON.

AMCON’s purpose is to provide the support required in restoring rescued banks and salvaging some value for shareholders.

Firstly, AMCON was to acquire qualifying non-performing loans from all banks in Nigeria and to inject equity into the rescued banks in order to bring their net Asset Value back up to zero. AMCON has now successfully acquired the bulk of the non-performing loans from the rescued banks.

In order to further sanitise the banking sector and operate an open economy, the CBN introduced a banking model, reversing the universal Banking policy, and minimising risk and undue adventurism among operators in the Nigerian banking system.

Sanusi further advanced the banking reforms to include limited daily cash withdrawals to one hundred and fifty thousand naira for individuals and one million naira for corporate bodies. Withdrawals above these amounts attract extra charges. This according to Sanusi is to encourage electronic banking, reduce bulk cash holdings as well as check issues of money laundering.

These timely interventions of the CBN have no doubt helped to stabilise the banks and restored confidence in the banking public.

The CBN’s priority in all its actions is clear. It is to protect the financial system, safeguard the interest of depositors and creditors as well as restore the confidence of the international community in Nigerian banking system and at the same time go the extra mile to salvage value for the shareholders of the banks.
.

Broadcast on Thursday July 06, 2011

 

READ OLD COMMENTARIES: click here