The Effects of Sanusi's Bailout Funds

It goes by different names but means the same thing. US President Barrack Obama may choose to call it “stimulus package” or “bailout plan”. Recently, there has been an increase in the number of bailouts by governments around the world. This goes to show that economic bailout is not peculiar to Nigeria alone. Let us take the United States of America for instance, in its history of over 200 years; there have been many government bailouts. The difference between the previous bailouts and recent bailouts in America is that the dollar amount of the bailouts has increased to great proportions. Until the recent hype of the stock market issues and the takeover of Freddie Mac and Fannie Mae (mortgage companies), the term bailout was not commonly used in everyday America language. This I believe is due to high influence of the media; online PR intervention and the highest responsibility of government.
Recently two major factors were responsible for the near collapse of about eight banks in Nigeria : first is the economic meltdown as evident in the collapse of stock market and second is inefficient corporate governance as evident in the management of banks through the mismatch of assets and liabilities. This called for an immediate intervention by the nation’s apex financial regulator.
The major beneficiaries of CBN’s bailouts are not only the banks but also the real sector of the economy. There is a planned N500 billion bailout funds for the real sector which has excited Manufacturers Association of Nigeria, MAN whose Director General, Mr. Jide Mike, is quoted to have said that that the fund would boost power projects dedicated to industrial clusters. The N500 billion intervention fund is designed to boost the operational capacities in the manufacturing, small and medium enterprises.
The aviation industry is not left out as they are also going to be beneficiaries of N500 billion intervention fund to enable them refinance their loans and amortise them over the long-term. The decision was taken in response to the global financial crisis that resulted in the inability of some airlines to refund loans raised from Nigerian banks.
Bailouts usually come as a move to prevent businesses from dying; this is due to the belief that the effects of the collapse will be much worse on the economy than to help liquidate the assets until the business can get back onto its feet.
The effects of the Sanusi’s bailout for the banks can be felt even now. Firstly, the bailout in the short-term has helped to clear the level of uncertainty in the banks and stimulated lending again. The singular act of injecting N400bn into those ailing banks has helped to remove panic from the banking system because now people know the true position of things in those banks. If the five banks had been allowed to go under, it would have caused major setback in the system and depositors would have suffered. One may argue that the NDIC would come to their aid, it is sad for me to remind us of the last time it happened in this country, some depositors are yet to get their money till date; all they have from the NDIC is empty promises.
It would have been more costly to the Nigerian economy if the banks were allowed to collapse rather than liquidate the assets of the bank pending when they are able to regain their feet. By injecting the bailout funds, CBN has saved the workers of the banks from job losses, if the banks had been allowed to collapse all their staff nationwide would have become jobless.
It now appears that after the bail outs, most of the banks learnt their lessons and have developed very strict lending standards. This is happening around the world and Nigeria is not an exception. Banks gave several uncollateralized loans and margin loans supported by worthless assets and over priced/over- valued stocks in Nigeria which contributed to the economic and financial crisis. However, the CBN’s sanitization program revealed these excesses. The banks are now more prudent and do not want to loan money without proper standards and collateral.

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