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PEOPLE AND POLITICS by
MOHAMMED HARUNA
Bank
consolidation : Peterside versus Ezegbu Two Wednesdays ago I appealed on these pages to President Olusegun Obasanjo and Professor Charles Soludo, the Central Bank Governor, to heed the plea of Mr. Atedo Peterside, the chief executive of Investment Banking and Trust Company, IBTC, for a re-think of CBN’s decision to raise the minimum equity of banks from the current two billion Naira to 25 billion, with a deadline of December 31 next year. Peterside had made his plea in a four-page advert in The Guardian of July 21. The investment banker’s contention was that this decision amounted to doing too much, too fast. Even as I made my appeal I had this sneaky feeling that it was futile. I only went ahead because I had nothing to lose by adding my tiny voice to that of those whose calls for caution and more clear-headed thinking in government’s economic reforms sounded reasonable. In any case, only the dead in body or spirit gives up hope completely. As I return to the subject this morning I have still not given up hope that the authorities, both political and banking, will still re-think their banking reform before the December 2005 deadline. Even then the signs are that mine is a forlorn hope. Among the signs giving me little cause for hope are the repeated remarks by both Obasanjo and Soludo that there will be no going back on the decision, even though the first time it was made public, Soludo said it was preliminary thinking. Another sign, perhaps the most definitive to date, was a three-page advert in Thisday of August 11, which was a point-by-point reaction to Peterside’s advert in The Guardian. Titled “BANK CONSOLIDATION: WHAT IS WRONG WITH A NIGERIAN MODEL?”, this reply to Peterside was signed by one Basil O. Ezegbu of Plot 2, Taiye Olowu Street, Lekki, Lagos. Ezegbu, in effect, described himself as an ordinary member of the public, but reading through his advert it seemed to me he was speaking with the approval, if not the authority, of Soludo himself. Peterside, said Ezegbu, raised seven questions in his advert. These questions, said Ezegbu, “represent the substance of your open letter to the Governor. The rest are stories, your personal experiences, feelings and anxieties, and an advertisement of your bank’s expertise in M and A transactions. These I do not intend to get into.” His concern, Ezegbu said, was only with the seven questions and not with Peterside’s anxieties and self-advertisement, etc. Ezegbu’s summary of Peterside’s seven questions were 1) does the 25 billion Naira capital base refer to a bank’s capital base or its total capitalization?; 2) are there going to be exceptions for merchant banking subsidiaries of commercial banks?; 3) why did the CBN adopt the Malaysian model and not, say, the Lebanese?; 4) how did the CBN arrive at 25 billion and not 10 or 20 or even 30?; 5) how did the CBN arrive at a deadline of 18 months and not 12 or 24 or even 36?; 6) what is CBN’s plan for banks that are in distress or worse?; and 7) how ready are the various regulators and the courts for the implementation of the reform? If I feel even more forlorn this morning in my hope that there will be any rethinking of government’s banking reform than I did two weeks ago, the reasons are Ezegbu’s answers to Peterside’s Questions Four, Five and Seven. These questions go to the heart of the banking reform, and from my understanding of Ezegbu’s answers to them, it is only fair to conclude that CBN’s approach to its banking reform was arbitrary. Questions One , Two, Three and Six are either marginal technicalities (hair-splitting stuff about the difference between market and balance sheet capitalization), concerned too much with labels( is the reform modeled after Malaysia or Lebanon or is it home-grown?) , or their answers are simple and straightforward. It should, for example, be obvious that in theory, at least, no one would expect CBN to make exceptions to its rule, just like it should be obvious that under the new reform, distressed banks will be allowed to go under. That Ezegbu’s answers to the more important questions of the size of and the deadline for meeting the 25-billion Naira equity and the preparedness of the regulators and courts for the reform, are proof of CBN arbitrariness in the matter, is pretty obvious from Ezegbu’s exact words. To begin with Question Four about the size of the new equity. “Why 25 billion Naira”, asked Ezegbu, “and why not 10 billion or 30 billion Naira?”. The answer, he said, was that “Nobody is ever going to tell you about a mathematical methodology used to arrive at the figure. I AM NOT SURE ANY WAS USED. I am not sure any methodology was used to arrive at the 5 million Naira capital for merchant banks and 10 million Naira for commercial banks in the mid 1980s, or the 2 billion Naira capital for new banks early in this decade.” (Emphasis added). In other words, each time the CBN took a decision on what should be the equity base of our banks it probably did so in a capricious manner. If this is true, clearly, there is cause for alarm. It is alarming that the guardian of a country’s monetary system would make fundamental decisions based, not on a sound scientific method, but on the whim and caprice of its central bankers, with, of course, the backing of its political authorities. Ezegbu sought to justify this capriciousness on four grounds, first, that Soludo is well-intentioned, second, that Soludo needed to replace his predecessors moral suasion with force (“Professor Soludo needed to force the willingness of the banks which Dr. Sanusi was unable to achieve by moral suasion”), third, that the new equity “completely removes speculation from any future entry into the industry” and, fourth, that the exit barriers from the industry has been very high. The most charitable thing one can say about Ezegbu’s justifications for CBN’s capriciousness is that the justifications are themselves even more capricious. First, why should a whole industry, not to talk of a whole country, be asked to trust any one’s intentions? Besides, has it not been said, with good reason, that the road to perdition is full of good intentions? Second, is it not a contradiction that a government which preaches the virtues of liberalization and deregulation would rely on force rather than on its famed market forces to order its affairs? Isn’t it obvious that in a world that has become a global village, a 25 billion Naira equity can only raise the stakes for speculation rather than “completely remove it”, as Ezegbu claims? After all, does he himself not admit that even our biggest banks are not big enough to compete outside our borders, national and continental? Can he then not see that, to the extent that speculation is a vice, the new equity would more or less only be limiting it to outside speculators or those who have stolen Nigeria blind and have stashed their loot aboard? In any case since when did speculation become a sin in Capitalism? Is it, indeed, not the essence of the system? After all, isn’t the ordinary definition of speculation “making risky deals for profit?” Is it therefore not reasonable to say that the problem of banking in our mixed economy is not speculation as such but the unwillingness of the guardians of the system to let those who live by speculation die by speculation without fear or favour when they make the wrong judgments or become too greedy? Finally, is the raising of the entry barrier into banking the only solution to a high exit barrier? It may be the easy way out for a central banker who does not want to engage in the more painful but more judicious exercise of identifying and punishing those who break its financial regulations without discrimination, but it cannot be the only solution to the spread of distress and insolvency in banks. Collective punishment, which is what the new equity amounts to, is always the easy recourse of the unjust. If we now move on to Question 5, we can see that the same arguments apply to it as they do Question 4. For as Ezegbu said “The discussion above (Question 4) also apply to this”. “I tell you again,” he added, “there was no need for a methodology in setting a deadline of this nature”. Just as with Question 4, Ezegbu tells us in his answer to Question 5 that force, and not dialogue, is the answer to our banking problems. “Dr. Sanusi’s strategy of unending dialogue for fear of hurting this or that friend or colleague, was a disaster. Professor Soludo’s initiative is bold – he was simply telling the operators that dialogue has not paid off in the past… That in this matter, there has been enough dialogue and such has come to an end.” This macho-complex seems to be a central pillar of the present administration. Another is its messianic-complex. Between the two complexes they seem largely to define how this administration has run this country’s political economy. This is explified by the decision of a government which says it has no business running refineries at the same time thinking it should descend into the level of running taxis in its capital city. It is this same combination of complexes that explains its decision to break the laws of the land which says no public officer should be paid for his services in foreign currencies, never mind the fact that the two ministers paid in dollars did not also enjoy free and lavish housing, cars and medicare in their former places of work. Back to the last of our three questions. This is Question Seven about the readiness the banking regulators and the courts for the implementation of the reforms. Ezegbu’s answer only reminded me of the joke about the penchant of Nigerians for answering questions with questions. Instead of showing how ready the regulators and the courts are, Ezegbu decided to point fingers back at Peterside. “How ready”, asked Ezegbu , “are the Regulators and the Courts? I would rather ask how ready are the banks? How willing are the banks? How cooperative are the banks? Do not ask your brother to take the spec out of his eyes when you have a log in your own eye”. If only Ezegbu had paused a little before pointing his fingers back at Peterside, he would have realized that, by his metaphor of specs and logs, he was admitting in effect that the CBN has specs in its eyes. Surely as the guardian of our monetary system, the spec in CBN’s eye is far more important than the log in the eyes of commercial banks for the efficient and effective functioning of the system. Two weeks ago when I first wrote on this subject, I was not particularly hopeful that anything will change. Nothing has happened since then to make me any more hopeful. If anything, Ezegbu’s advert makes me even more despondent. However, as I said at the beginning, only the dead in body or spirit completely give up hope. I may be despondent, but like many millions of Nigerians, I have not completely given up hope that the authorities may yet see reason and re-think, not just their banking reform, but their other reforms that appear to stem more from caprice than sound methodology. Duro
Irojah The death of Duro Irojah, Deputy Editor of Daily Trust, two Saturday’s ago, came to me as a great shock. The Thursday before, he looked hale and hearty when he helped me trace the reporter who had been transcribing a soon-to-be-published interesting interview Father Mathew Hassan Kukah had with a senior reporter of al-Jazeera in Doha, its headquarters, on behalf of Daily Trust. I had complained to Duro that the transcription of the audio tape of the interview which Father Kukah had sent to me in London in June through a friend, was taking for ever. As Irojah took me round the Trust premisces to trace the transcriber, he looked as fit as a fiddle even though he had complained of a heart problem. Duro will be sorely missed at Daily Trust and by friends and professional colleagues alike if only because he was a commitment journalist. All his life he worked as a journalist, from Daily Times in the seventies through The Guardian, through Today and finally to Trust, much of it in the less glamorous aspect of editing copy to make sure that it did not break the rules of grammar and usage. If ever there was a rolling stone that gathered stone, it was Duro. As journalist he was also as passionate in his defense of what of what is right and just as he was in his insistence on correct English. However, he was passionate without being an ideologue or preachy. Duro was not only diligent, he was also a decent, easy-going, honest-to-God chap who did not care much for life’s creature comforts. I remember one occasion not too long ago, when he was approached by the police to kill a controversial story about the current Inspector-General’s national honours. At that time I doubt that he had up to two thousand Naira in his pocket or that he was worth the policemen’s inducement in his bank account. Yet he rejected the inducement and reported the matter to his Editor-in-Chief, Kabiru Yusuf. Between the two of them, they decided to promptly return the “brown envelop” that came with the request with thanks. Many a reporter would have behaved differently. Without doubt many of us, his friends and professional colleagues alike will sorely miss him. |