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Before The N25bn Recapitalization Deadline Closes By Bello Abdullahi
Highlights of the Pius Okigbo Panel on the Reorganization and Reform of Central Bank of Nigeria set up by Abacha in 1994 included a critique of the economic policies of the Babangida administration, the waste and mismanagement that characterized the government, and the indictment of the Central Bank as a regulatory organ which was under the direct control of the head of state. Specifically the Okigbo Panel identified poor supervision, the dearth of qualified personnel, corruption, poor management of the economy, inept management of foreign reserves, lack of independence, and the proliferation of two-branch banks. In short, the report concluded that the Central Bank of Nigeria has completely failed in its primary responsibility of supervising other financial institutions and managing the economy.
After the handing over ceremonies in 1994, the report disappeared into thin air, only to resurface sometime in 2004 – ten good years after! Government copies could not be traced and Obasanjo had to obtain late Pius Okigbo’s copies from his widow after his demise! In Nigeria, anything is possible!
As a result of this, very few Nigerians had the opportunity of coming across the complete report as not all the national dailies in the country serialized it all. Pius Okigbo and his team concluded that “we have tried to develop a Central Bank that would facilitate the effective management of the economy, provide non-inflationary support to Government and foster a healthy financial system: a Bank that would be insulated, as much as possible, from the direct influences and powers of office holders, and could inculcate in its functionaries the ethics of hardwork and transparency.” Part of that effective management of the economy and healthy financial system is having a sound banking industry with banks that foreign correspondents will feel free and confident to transact business with.
Be that as it may, it is in view of the indictment of the Central Bank of Nigeria as contained in the report that Nigerians welcomed the reform initiated (at the instance and encouragement of the IMF and World Bank?) by the youthful governor, Professor Charles Soludo, which was immediately christened the “Soludo Solution”. With the encouragement of IMF and World Bank or not, Nigerians, particularly the key players in the industry, welcomed the reforms as events unfolding globally do not put our banks in any credible position. No thanks to the daily reports of distress within the banking industry – from industry watchers and CBN officials alike. The highlight of the reforms is the across the board increase of commercial banks authorized and fully paid up share capital from N2bn to N25bn (a more than 1150% increase!). Or in Dollar denomination terms from a paltry US $15mn to a meager US $190mn, assuming an exchange regime of N132/$. This compared to US $526mn for the smallest bank in Malaysia. Banks like Citibank, Bank of America, Lloyds, Amro, and Barclays should have confidence in our banks to open letters of credit and enter into correspondence relationship.
As the CBN governor indicated in his maiden speech of 6th July, 2004 on the planned reforms in a paper titled: “Consolidating the Nigerian Banking Industry to Meet the Development Challenges of the 21st Century”, the idea behind the reforms is to “move the Nigerian economy forward, and to proactively position the banking system to become sound and reliable catalysts of development.” This, the Apex Bank intends to do through mergers and acquisitions as no bank should go it alone and no bank should be allowed to go under – this is the case all over the World. A deadline of December, 2005 was given for all the banks in the country to comply.
There has always been the argument of whether the Nigerian banking industry is “under-branched” or “under-banked”? The indiscriminate issuing of banking license in the 1990’s saw the proliferation of two-branch banks, which the Nigerian press ignorantly dubbed “New Generation Banks”. From a modest number of fifty four, or thereabout, the number of banks in the country increased to the present figure of ninety. Most of the banks pick their locations courtesy of the CBN, killing the rural banking scheme which was pioneered by the so-called “old-generation” banks. Yet the CBN frowned at moves by these banks to close branches under Phases I & II of the Rural Banking Scheme that are not viable. Up till today most of these types of branches are being run at a loss, with the fair ones managing to break even. The big banks continued to ask why does CBN not penalize the new banks for failing to locate their branches in such rural areas without officially announcing the jettisoning of the Rural Banking Scheme. A lot of accusing fingers were being pointed at the apex bank on favoring such two-branch banks even before the Pius Okigbo Panel was inaugurated. These banks were declaring mind-boggling figures in their P&Ls and doctoring Balance Sheets with the help of our “Arthur Andersen’s”, when in actual fact such banks were no better than bureau de change outfits since they were strictly dealing in foreign exchange. Round-tripping has been in practice long, long time ago before the apex bank woke up from its slumber. This is no thanks to the myriad of foreign exchange policies that defied all economic theories at the time.
This is why I pick quarrel with the so-called “debt relief” for the certified distressed banks initiated by Soludo. His main line of argument is that it is better to give the banks the relief (write-off), rather than see shareholders’ funds and depositors’ money go down the drain. This, according to him, will enable the banks bounce back and compete favorably with other players in the industry. This is nothing but “textbook theory”. Professor Soludo is making it sound 1+1=2! If anything, such banks will be besieged by anxious customers waiting for the slightest opportunity to withdraw from their accounts to the last kobo! I am sure many Nigerians, including the key players in the banking industry, do not buy Soludo’s arguments, either. None of the distressed banks will be able to compete with other players to make any meaningful impact in the industry. A better option might be for the apex bank to encourage the banks to dissolve and come up as a single bank with a different name. Anything short of this will be an exercise in futility and will be another easy way of wasting the tax payers’ money.
Professor Soludo’s July address understandably sent shivers across the banking industry. Of course, most of the so-called new generation banks knew what was coming. Pressure started coming from all angles through intense lobbying, directly or indirectly, for the government to either rescind the decision completely or create tiers for all the banks to stay alive. The lobby as expected reached the National Assembly where an unpatriotic attempt was made by the not so honorable members to create a three tier level of capitalisation – Mega, Large and Small, or whatever it is! This did not come as a surprise as most of them (the legislators) are behind those bureau de change outfits that parade as “new generation” banks. The governor of the CBN had to use his “initiative” to “settle” the honorable Senate Committee on Banks and Financial Institutions with a handsome amount of N50m to “enable them perform their job”. Since then we did not read anything about the three-tier re-capitalisation in the papers again! So we can safely assume that, barring any shocking “hidden agenda”, the N25BN re-capitalisation for banks in Nigeria has come to stay for good. And as the governor of the apex bank confirmed to us on many occasions, there is no going back and the deadline will not be extended. This is a welcome development because even if the banks are given five years to recapitalize some will still look for extension.
As at today, only UBA and STB have legally merged and are operating as a single bank, while the rest have either been called off at due diligence stage or are still at MOU (Memorandum of Understanding) level – with only FOUR MONTHS to go. The governor of CBN keeps telling us that at the end of the deadline of December 2005 twenty five banks with fully paid up share capital of N25BN and above are expected to emerge (President Obasanjo told the Americans in New York sometime ago that TWELVE banks will emerge by January 2006). Feelers from the industry point to a third most likely scenario – that less than twelve compliant banks may emerge, come January 2006.
My advise to those banks that are able to cross the hurdle of recapitalization is to set out a Marshall Plan to increase their fully paid share capital to N100BN – yes, ONE HUNDRED BILLION NAIRA ONLY!! With current daily happenings in the world, the volatile nature of the oil market, and the daily poor showing of the Naira against other major currencies of the world, particularly the dollar, the N25bn may be far inadequate within a period of five years. Dollar will continue to dominate world market for quite sometime even with the Euro giving it a chase. This is to avoid the type of increase that characterizes the local pump prices of petrol and petroleum products in the country!
On the other hand, the Central Bank of Nigeria must take these reforms serious, particularly as contained in the Pius Okigbo Panel report of 1994. If the apex bank will supervise banks post N25bn recapitalization the way it messed up things in the 1990’s then the Nigerian banking industry will continue to be in the doldrums as banks will be isolated and they will find it difficult to cope with domestic and international demands.
The “Soludo Solution” must defy the “Nigerian Factor” and become a reality.
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