Perspectives on Reforms: Cases for and Against

Tne major hindrance to good policies or reforms in Nigeria is selfish interest. No matter how good the policies of government are, corruption and greed will not allow such policies to be successfully implemented. I am not surprised that Nigeria cannot achieve steady supply of electricity because some people in government are the suppliers of power generating sets. In much the same way, our refineries will not work as long as they have their personal refineries outside Nigeria and importing petroleum products from these refineries into Nigeria . The Central Bank of Nigeria (CBN) is not left out of this dilemma of people trying to throw spanners in the wheel.
 
The CBN governor, Malam Sanusi Lamido Sanusi who was former Executive Director, Risk & Management Control and later the Group Managing Director/Chief Executive Officer of First Bank Plc is being hailed as well as criticised as regards his reforms in the banking industry.
 
Empowered by Sections 33 and 35 of the Banks and Other Financial Institutions Act of 1991, and with the consent of the Board of directors of the CBN, Sanusi removed the Managing Directors (MDs) and the Executive Directors (EDs) of five troubled banks; Afribank Plc, Intercontinental Bank Plc, Union Bank of Nigeria Plc, Oceanic International Bank Plc, Finbank Plc and appointed new MDs/CEOs to take over the affairs of these banks. According to Sanusi, "We have saved the banks. The reforms on the table are only being implemented in CBN. If I had to remove all the banks’ MDs I’d do it…Our job was to do what needed to be done and we did it…Once you make a change, you have people who have been benefiting from it that would fight back, and I’m ready to fight”.
 
The removal of these banks’ executives by CBN attracted a lot of debates from different quarters; some described it as a northern agenda while others considered it as a right step towards strengthening and sanitizing the banking industry. There were even some group that went as far as taking it personal with the central bank boss; they queried his qualifications, his temperament and his appointment as Nigeria’s apex bank boss, according to them, Sanusi’s was not the right candidate to replace Prof. Chukwuma Soludo, this is because attention was shifted from merit to the principle of federal character, while at the same time there were two other key heads in the finance sector who hail from Kano State; the Ministers of National Planning, Shamsudeen Usman and Mansur Muktar.
 
In the same vein, there were those who believed that the removal of these five banks’ executives was a calculated attempt to stifle fierce competition. To them, these five banks were fierce competitors to the First Bank of Nigeria ; the bank which Sanusi headed before becoming the CBN boss. Sanusi was made the First Bank boss in the years in which the banking industry was transformed by fierce competition which enabled younger banks to rise to the top and to compete effectively with the older banks, hence, it was an opportunity for him as Governor of the Central Bank to quash competitors so as to allow his former bank breath air of freedom. Many of these banks and their chief executives were acclaimed by national and international banking organizations as professionally competent bankers. They were rewarded with commendations and prizes.
There are also very strong critics that have come out publicly, through sponsored commentaries and announcements to lash at Sanusi and the banking reform. The Renaissance Professionals is the most obvious stiff opposition to Sanusi and the policies that CBN under him churns out. They check and monitor closely all actions and inactions of the Governor for possible attacks. They seem to be protecting the interest of sacked CEOs of the banks and other shareholders that would not wish to be seen antagonising the system.
 
Interestingly, for a balance of power, another group emerged to support recent CBN policies. Going by a name, the Vision for Greater Nigeria (V4GN), this group is not only to attack anti-CBN policies, but also highlight positive developments that have taken place since the appointment of Sanusi as Governor of the CBN. This group places more emphasis on sanitisation of the banking system, protection of depositors’ money and shares and confidence building in the financial sector.
 
One of the points held against the bank’s executives that were removed by the CBN was the issue of granting loans without collaterals. Sanusi said it is unethical in banking practice to grant loans without collateral, and it was one major reason why the loans remained non-performing. In his words "CBN is here to protect depositors, and not the shareholders of the banks. How can one borrow N1billion without collateral? We are not saying one should not borrow. But when you borrow you must pay. I don’t think there is any bank that is not happy with the reform now because every bank would want to compete; they know that if a bank posts a profit that is higher than their own profit, the bank has worked harder to get that. So, they would like to work harder, not by diverting funds for private use".
 
So, are there possibilities that these allegations were the work of detractors? But existing records show that the five banks in question were truly ailing and the First Bank of Nigeria Plc was a clear leader when it comes to corporate governance.
 
Another aspect of the Sanusi reform which attracted attention is the reduction of lending and interest rates. The average maximum lending rate dropped from 23.45% in December 2009 to 22.88% in March from 23.32 and 23.18% in February and January 2010. The drop in the lending rates means nothing to a larger percentage of Nigerians because, the percentage of people who obtain loans from banks is minimal; it is exclusive to the upper class of the society. On the other hands, the minimum interest rate has dropped to about 2% from the initial minimum of between 8% and 10%. These lower interest rates have made it unattractive for people to keep money in banks. Hence, those top civil servants who hitherto will fix monies meant for salaries of workers in the banks for months in order to attract huge interests while the workers would live without food for months are now faced with brick walls. When you compare the percentage of reduction between the lending and interest rates, it is obvious that the banks are making more profits and paying less as interests.
 
The mandate of the CBN is to ensure monetary and financial systems stability, to this end, the Asset Management Corporation of Nigeria (AMCON) a machinery of the CBN was introduced. This company is expected to buy up the toxic assets of troubled banks. Sanusi believes that this action will empower banks and enable them resume normal lending responsibilities while at the same time allowing for more liquidity and financial activities in the economy. The company, he explained, is structured not only to deal with the purchase of non-performing loans backed up by approved collaterals from banks, but also to serve as recapitalization vehicle to restore them to a firm capital base, the thinking behind the AMCON sounds very good, I hope the whole idea will be fully implemented.
 
In the bid to finding solutions to the challenges faced by the banking industry in Nigeria , many are also of the view that it is unnecessary for the introduction of Islamic banking in Nigeria as being pursued by CBN under Sanusi to stabilise the sector. The Spokesperson of CBN, Mohammed Abdullahi said that Islamic banking is not a Sanusi Lamido Sanusi programme, but started by his predecessor, Chukwuma Charles Soludo. According to him the policy has been on for about three years and has been approved in principle. Jaiz International Bank Plc was among the banks that were said to have been given approval in principle to operate as an Islamic Bank but are yet to mobil
ise the capital base of N25 billion required for operations in the Nigerian banking system.
 
According to CBN in spite of the economic crunch being experienced, the Islamic banking institutions have displayed "strong resilience reflecting their conservative approach to business, balanced and ordered appetite for growth and focus on the basis of financial intermediation as opposed to innovation.”
 
The Islamic bank operates in accordance with the rules of Sharia, known as Fiqh al-Muamalat (Islamic rules on transactions). Its basic principle is the sharing of profit and loss and the prohibition of riba´ (interest).
 
Another shortcoming of the Islamic banking system is its selective nature. The Islamic banks do not fund any investment that is not sharia complaint, Islamic banking is restricted to islamically acceptable businesses, and it excludes investments in alcohol, pork, gambling and so on. Alcohol in Nigeria generates several billions of naira as taxes and other forms of revenue. Lottery/gambling on the other hand is another big business in Nigeria, corporate organizations use gambling to promote their products and businesses for instance some of the telecommunications companies in Nigeria will ask their subscribers to text 2010 to a certain number in order to win N2million or N20million while the subscribers are made to pay over 600% of the normal amount for the sms. Going by this analysis the Islamic banks will also not finance even the telecoms industry.
 
In the final analysis, the monetary reforms of CBN have strengthened and sanitized the banking sector. Depositors can now put their monies in the banks and go to sleep with both eyes closed, although at the same time, the reforms have also brought about reduction in the salaries of bank workers, but Sanusi says he is more concerned in protecting the interest of depositors not the bank workers or its shareholders.

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