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By Prof
Mike Ikhariale Let
us begin with the disclaimer to the effect that the credit for the term
“bankocracy”, as used here, belongs to Karl Marx, who, when faced
with the abuses in the banking system of his day, decried the process by
which public debt helps to facilitate the primitive accumulation of
capital, by permitting money to be turned into capital without taking
the risks of its employment in actual productive activities. In that
case, there are no risks for the lenders, since they receive public
bonds which are as good as cash, but the money thus released “has
given rise to joint stock companies, to dealings in negotiable effects
of all kinds, …to stock exchange gambling and the modern bankocracy” (Chapter 31,
Part VIII, of the famous Capital,
volume 1). It
is interesting to note how, with considerable accuracy, his analyses of
the situation in the nineteenth-century European banking system in
relation to the vexed subject of “capital” which in turn led him to
articulate the dynamics of “bankocracy” remains very valid to our
situation in In
the days following the ill-fated deregulation of the Nigerian economy
(without a corresponding deregulation of the political sphere), it was
possible for people with access to the sprawling government’s
patronage machine that was then under the evil grip of IBB, his cronies
and successors in office, to readily obtain banking licenses, then go to
any of the government-controlled banks, take as much loan as possible,
with or without collateral, and use the borrowed funds (capital?) to set
up their own banks. The banks thus created are able to make a lot of
easy money (profit?) for the pseudo-bankers (investors?) by simply
selling foreign exchange that are auctioned to them by the same
government even before opening their banking doors for business! A
banking boom soon ensued. So numerous are the banks so created that they
ran out of names and we started seeing names that sounded like
“Ogwugwu Bank”, “Agbaya Bank”, “Jankara Bank”,
etc, etc. Their capital structures are clearly inadequate to
protect depositors or stimulate the much-needed long-term lending for
economic growth, all against the background of their insatiable
Enron-type of corporate lavishness. So, we have enormous balance sheet
wellbeing without any real economic value backing it, thereby setting
the stage for the calamitous bursting of bubbles, someday. Because
the demand for quality bankers was far more than the supply, the
recruitment standards were forcibly diluted. The MBA degree was the
preferred gate pass and this fact forced thousands of people from all
backgrounds into the program. Naturally, it was of good quality at the
beginning, but it soon became something else. As a university professor,
it is only with considerable disgust that one discusses the scandal that
those courses became simply because people who in normal times would not
be qualified for admission into them as students were being desperately
hired as “teachers”. Consequently, curricula qualities plummeted
while many of those who would not have been able to enter a university
for any degree program, due to inadequate entry qualifications, managed
to find their ways into those “MBA” classes. Some faculties that
were faced with grinding budgetary problems quickly joined in the
business of producing assortment of worthless all-comers MBA degree
courses, often through what they called “satellite campuses”,
charging unjustifiably astronomical fees from equally desperate
applicants under the guise of ‘market forces’. Consequently,
previously unemployable people in sensitive money handling duties soon
found their ways into bank vaults, resulting in widespread frauds and
disgusting disappearance of professionalism in the industry. Perhaps
more telling about how debased banking became in From
the little travel that I have had the good fortune to make, I have never
seen where bankers, like itinerant Jehovah witnesses, pound the streets,
knocking from door to door, soliciting for funds as is now the vogue in The
big talk in Clearly,
Prof Soludo is a solid economist even if he is not a banker. Which means
that he knows what he is about to do and how it would affect both the
micro and macro sides of the national economy. He might indeed be the
voice of an unseen hand. For many reasons, I am convinced that he was
given to Obasanjo by the World Bank and for a purpose too. While his
enormous World Bank credentials are not in doubt, some of us are, at
least, alert enough to be able to follow the debate, and possibly, also
formulate our own take on the matter even as ordinary citizens. What
is happening in the country right now is not new. It is a situation that
was created by the government it is only them that can also cure it.
Therefore, without the adroit intervention of the government at some
point, things would remain as they have always been, i.e.,
“associations of private speculators, who placed themselves by the side
of governments, and, thanks to the privileges they received, were in a
position to advance money to the State. … The sudden uprising of this
brood of bankocrats, financiers, rentiers, brokers, stock-jobbers …”
It is true that these outfits do routinely carry out some of the
traditional functions of banks such as accepting deposits and granting
loans and overdrafts but it is also an open secret that they survive
mainly on government’s direct and indirect patronage and, of course,
on the notorious 'forex' deals. The
differences between these bankers and the ubiquitous
calculators-carrying currencies hawking “Mallams” are not much and
without a creative regulatory mechanism to police them, they would soon
bring the nation to her ruins. This parasitic dependency of the banks on
the government also explains why the government finds it irresistible to
frequently issue and re-issue directives, which are, at times
contradictory, to them at will. The bottomline is that the banks, as
presently constituted, both in their capital structure and corporate
philosophy, are ultimately dangerous both to themselves and to the
public. Why
is the CBN governor acting tough on the banks at this time, as some have
argued? I am not sure if I have ever Soludo in person anywhere. But I
have come across some of his writings and I am pretty able to place him.
And being of the same generation, entering the academic world about the
same time when SAP was packaged and presented within a
‘non-negotiable’ dictatorial framework, it is a lot easier for me to
see reasons for his actions even if we might be miles apart in style. It
is my hunches he must have been shocked at some point in his career to
see fresh graduates who collected references from him to some of these
new generation banks returning with letters of appointments carrying
salaries that were at least four times his pay as a university
professor! And as an economist, he is, more than anyone else, able to
know that these banks were really not creating wealth or helping to
build capital through mopped up savings beyond just trading in hard
currencies - easy money to finance their corporate hedonism. What is
more, he is also aware that, but for the state-supervised fraud that is
deeply embedded in the business, so many Nigerians wouldn’t have been
rushing into it. More importantly, it is because the capital threshold
has been deliberately lowered in other to facilitate the easy entry of
government favoured cronies, retired army generals, etc, that enabled
the Nigerian banking population to grow in “geometric proportions”.
It was thus obvious that something must be done to reverse the
“deregulated” trend. Clearly,
if the capital base of these banks is mandatorily jacked up to 25
billion Naira as has been decreed, not many people would be sufficiently
motivated to establish family-size banks anymore. The additional fact
that not many of the existing banks can afford to generate the newly
required capital also portent the possibility of forced merger or
widespread bankruptcies. In any case, the CBN has being telling us for
some time now that many of these banks are operationally moribund. The
‘Soludo effect’, therefore, is the imminent possibility of many
banks going under because they were never really designed to be bigger
than what they are now – just conduit pipes for round-tripping, forex
deals and, possibly, money-laundering, and for just a few. In
principle, I agree with Soludo. There are just too many banks (all
fraudulently claiming to be big) in The
only snag about the new directive is that it still suffers from some of
the old symptoms of dictatorship in which policies are hastily
formulated and forcibly imposed with the highly militarised “with
immediate effect” dikta, pushed them down our throats even if no one
is genuinely in compliance of them. Another legitimate issue, and one to
which Soludo must listen if he would not regret later, is the fact that
the figure itself is arbitrary. It is the same defective logic that led
to the jumbo hikes in fuel prices in one fell swoop and many other
extravagant “reforms” initiated by the government leading to
needless frictions, if not outright sabotage and public disenchantment
with government. That, to me, is neither creative nor workable in a
society where nobody trusts the government or her actions anymore. It
would be nice if the capital bases are graduated in such a way that
there would now be big banks, medium banks and small banks in the
industry, each serving its own market. The customers may have reasons,
and they are many, for preferring one of the categories of banks due to
their specialised services and their capacities. It
is true that, in dollar terms, 25 billion Naira may not be enough to
start off a community bank, say, in the There
is also the complaint that not enough consultation was carried out
before the new policy was decreed. The failure to carry all the
stakeholders along, especially under a democracy, is yet another
‘banana peel’ lurking in ambush for the policy. Some have mentioned
that the directive may economically disenfranchise some sections of the
country. But looking at the geographical spread of the directorate of
these banks, one is unable to see the truth in such a charge. Instead, I
think it is the whole economy that could be disadvantaged by the policy.
Finally,
I think it is wrong for a supposedly democratic government to be making
a virtue out of policy rigidity up to the point where it actually
borders on malice because there is always a good faith middle ground in
public governance. Good leadership entails the continuous search for
that delicate policy balance. It is typical of government policies in |