Cbn and banks' nationalisation

CBN and banks’nationalisation

Tuesday, 12 July 2011 00:00 Editor Opinion -Editorial

IF reports in the mediaare anything to go by, the Central Bank of Nigeria (CBN) may nationalise theeight banks it injected billions of naira of taxpayers’ money into two yearsago, if as at September 30 (about 10 weeks away), the banks are not verifiablyand fully recapitalised by their prospective new owners.

According to the CBNDeputy Governor in charge of the Financial Sector Stability Division, at aforum in Pretoria, South Africa, this nationalisation option will resolve theCBN anxiety over issues of governance, illiquidity and outright criminalconduct that necessitated its intervention.

It is curious that amatter of great concern to Nigerians, banks, depositors and the nationaleconomy is disseminated from afar. Also noteworthy is that the CBN has notdenied the report, suggesting that it is true. The plan, however, is flawed.

In the last few weeks,the CBN has issued several announcements regarding approvals of memoranda ofunderstanding for preferred bidders for some of the embattled banks. Similarly,statements were made on disputes within the bank entities over the fitness ofso-called suitors and their claims to either deep resources or excellentrecords of accomplishment in banking. It is also public knowledge that there isa plethora of civil suits filed by individual shareholders or groups pending incourts.

If the statement fromPretoria is a CBN directive, it may amount to a measure to override the processof the courts and the sanctity of the law. The country could, by fiat of theCBN, demolish the concept of private property and investment in Nigeria.

We believe that the CBNhas not held adequate consultations in good faith regarding the state ofaffairs in the banking sector, nor does it convey, by the bellicose nature ofstatements issuing from her officials, an appreciation of her important role inaverting an impending disaster. The CBN is searching for market-makingrelevance without enough substance. Why would it announce a liquidationdeadline in the middle of mergers and acquisition negotiations that havesubsequently suffered fissures? And now, it trumps with a nationalisationalternative.

We believe that whatevermerit or lack of it in the arguments of the shareholders and the CBN regardingsupervision, management, intervention and funding of the banks are best left tothe laws of Nigeria, through the courts’ authority.

Aside from theunfortunate developments in respect of the eight banks, there is a horde of CBNdirectives on such diverse matters as cash withdrawal penalties, location ofATMs, nationwide accounts renumbering and a revised non-interest banking beingruefully described as Islamic banking. The singular syndrome joining all theseis needless controversy in passing the message and its implementation.Inevitably, another impression of being brash, and grandstanding tags theseinitiatives.

Banking in Nigeria hashad a glorious past as an instrument of economic development, particularly ofthe small and big traders, or on big projects. It has also been highlyregulated. In 20 years or so, the banking sector has gone through a number ofbusiness models namely: indigenisation, privatisation, recapitalisation,consolidation, intervention, and will appear poised towards reverseindigenisation (suitably referred to as foreignisation), liquidation,nationalisation and conceivably, not excluding intimidation option!

Non-resolution of thelingering banking crisis portends more turmoil for the country than Nigeria canafford. Quantitative reports of losses from capital market erosion added toeconomic multiplier rate of liquidating or even dispossession of shareholdersare undesirable scenarios for a polity struggling with economic transformationand in arrears of social development.

Adversarial mediastatements tend to erase further the core value of the banks. And given theloss of fundamental values based on CBN’s own valuation already, the price forthese investments are watered down. Yet a sale is mandatory, and a deadlinelooming. Such a shotgun approach by either party is definitely unhelpful to theeconomy and to all Nigerians, not only concerned shareholders.

Fear is a legitimateconcern in the industry. An approach to resolving the banking crisis thatregretfully shows faint, but malignant signs of scare mongering, ormanipulating the anxiety of people as shareholders, pensioners, depositors, etcis not good. What is good for the rest of the world ought to be available in Nigeria.We need sober judgement in tackling the banking crisis. We ought also to doaway with the derogatory propensity to fish for options, and circulate them inother jurisdictions.

Sadly, the NationalAssembly that rightly has to provide funds, and oversight for the suggestednationalisation, is so hamstrung by its self-inflicted image as to hardly orsufficiently discharge its duties promptly.

Besides the negativeimport of making far-reaching policy announcements abroad, such major issueought to emanate from a more authoritative source in the Central Bank.

Central Banking is aboutinstitutional rather than combative behaviour. It is the duty of the CBN tomanage the country’s financial situation at all times, and to make this stable,not to stigmatise the country or increase its risk weekly. The CBN must put outherself as institutionally responsive to the challenges of both human andtechnology deficits in the banking sector.