Work in progress on Nigeria’s home grown economic crisis

From the moment when Sule Lamido was plucked from the nations apex commercial bank, First Bank and planted in the nation’s apex bank, Central Bank of Nigeria via confirmation by the senate as it governor, he has scarcely done much, than attempt to micro-manage the commercial banks in the country irrespective of what goes by the board in the process.

Capitalizing on the ghoulish public outcry of some critics about the health of the banks vis-à-vis the sudden collapse of seemingly far healthier financial institutions in the western world, he had sent into the bank, examiners, to closely and diligently, examine their books. This was after a statement, whose importance has only come to light with recent happenings in the sector, had been credited to him that non citizens, contrary to the stand of his predecessor Prof. Soludo, who knew better, could directly acquire Nigerian banks.

On the strength of the findings of his team of examiners, he had announced the sacking of the Managing Directors including executive directors of five of some of the nations, before then, presumed best managed banks namely: Union bank, Intercontinental bank, Oceanic bank, Afribank and Fin bank; and since then, reactions have been pouring in from every nook and corner of the country and beyond largely praising his action while calling for the prosecution of those involve including the debtors and in some instance, insulting the person of the erstwhile governor of the apex bank Prof Chukwuma Charles Soludo—one of us actually posted a comment on the site of one of the newspapers calling him a windbag— who, with all warts and all surrounding his stewardship, would remain a benchmark for future governors of the apex bank including the current, for many years to come.

As for Mrs. Farida, one does not think she could have wished for any better situation to prove Mrs. Clinton, the American secretary of state who had conveyed the American government vote of no confidence on her and the commission she superintends, wrong. She had while on a visit to Nigeria, told the other that the commission was literally dead when juxtaposed with same under, Ribadu. Therefore, rather than a quiet investigation like was the experience with the Elumelu’s power scam, she has constituted herself and the commission into the biggest singular distraction to , not just justice but normal trade practices like restructuring, as it is applicable to such transactions. To hear her issue her pay or get arrested order would have misled the uninformed into concluding that it is equivalent to conviction and sentence or, even death. At the last count, she had, according to the papers, some sixteen of the nations banks managing directors and sixty of their customers cum debtors in her quarry

And what is her premise? That interpretatively, Sanusi said that his team of examiners discovered that majority of the loan agreement between the affected banks and the borrowers were not performing according to the spirit and letter pertaining to each and that the standard practice of pledging assets otherwise called collateralization, which would have compensated for this trouble, was not, in some cases, made part of the bargain and so, submitted that though, these were assets, that they were however, very harmful to the well-being of the banks.

For the non collateralized loans which she has not failed to drag attention to as constituting economic sabotage, the question one ask is: has she traced any of the individual debtor’s loan history with the affected bank to see where and how such non-performance came about or is it just about unreasoned dogmatism about following rules where common sense would dictate otherwise. There is what is known generally as normal trade practices between parties to a business or sector. If billions of naira has always been nakedly advanced to a particular firm like was the normal trade practice between African Petroleum and Afribank, with the latter recovering its funds and profit thereof, through daily collections of sales revenue of the former, then classification of such as non performing loan would amount to a gleeful advertisement of ignorance; for there can not be any better collateral than a well managed self liquidating loan.

The CBN says that the five banks collectively have a non performing loan of over a trillion naira which it expects them to make provisions for. The question to ask is: at what point does a loan become irrecoverable? Is it when the debtor’s firm going concern state is seriously in doubt or when it encounters business challenges like is the case with Femi Otedola’s Zenon Oil, whose collateralized loans arrangement with Union Bank got adversely affected by a wide variation in dollar exchange rate due to the devaluation of the naira? Has he or any of the other debtors repudiated the entire amount posted against their names or gone to court to question the figures as to warrant such provisions? No. they have only disagreed with the CBN figure.

Sanusi was predisposed to finding faults with the operations of the banks. And fault, he did find. Listen his self adulating statement like some police boss addressing the press on foiled robbery incidence. That he came and shut a discount window which had been providing the banks with some breather— because of disruptions to their projections concerning loans which were caused by the global economic crisis which had shut some banks in Europe and America— and then, discovered these five to be toxic assets to the economy. That was his own version of America’s stress test. And when he discovered that they were terminally ill according to him, he did not find it in his place to interface with the executives of such banks on ways out of the situation. Mrs. Ibru said so.

Could he not have discussed candidly with the CEOs about the challenges and see how the government could have helped in recovering some loans to balance their capital adequacy requirement rather than send in people who went in and carelessly collected names and figures without recourse to the internal auditors and executives of such banks. Who is that auditors who would qualify a report without issuing any audit query concerning his/her findings for management reply? Only those made in the image and likeness of INEC: working to prove the answer. And to recall that Farida actually agreed without an independent examination! Her outburst: "there is no discrepancy in the figures quoted by the CBN (published on Wednesday) as they affect what the persons mentioned owe the banks, there is nothing like discrepancy.


Do they realise that with their non-performing loan mantra that they are actually placing a question mark on the going concerning positions of some the nation’s biggest firm in one fell swoop; And that this has the potential of straining their credit worthiness, externally?

And have they really thought of the implication for the future? Does Sanusi realize that this so called reform could end up discouraging flexible or reality based loan transactions? That obtaining just got more difficult if that advanced to Rocksons Engineering, backed by CBN letter of credit could be classified as non-performing even when it was for a federal project? Which of the banks would dare grants loans henceforth without literally clearing such with the governor? Is that not equivalent to a credit crunch? Will international finance institutions not insist on a personal guarantee from Mr. Yaradua since CBN letter of credit no longer would do for a transaction? Is this incidence not going to create a silo out of the banks?


There is no financial institution any where in the world without it share of non-performing loans. In the future, bank ownership could change hands based on the same set of excuses. Simply collect names of debtors including performing like we have witnessed, after closing windows and pigeon holes to justify the actions and then pour in a convertible fund. Wait for the whistle to be blown for the sale of such convertible funds, then move over to London or send fronts to wait for a road show of nothing, then move in and take over. But how many foreign investors are ready for such an ownership relay race after every eight years, at most; Let alone advance loans based on letters of credit from them which is likely to be classified as “worthless paper” by the right CBN governor? Does he understand that Localisation of the banks has just been launched under his watch since no nation would allow you move their funds through opening branches in their country, to Nigeria?

President Yaradua must as matter of fact pour the remainder of his rule of law or law of rule and due process water on this needless wildfire and not join the acutely risk averse Sanusi in the way he has done by ordering all security agencies to assist him destroy the economy in the name of saving it. He must not be allowed to neither pass judgement on Nigerian banks based on his personal risk tolerance level nor plunge us into economic crisis that Soludo helped us escape, lightly.

Ilobi Austin is on www.facebook.com www.twitter.com www.nigeriavillagesquare.com and www.vibratinaustin.blogspot.com