I was a guest on Channels TV's programme, SUNRISE, on Saturday, 13th August, 2011, as an analyst invited to discuss the recent nationalisation of Afribank (Mainstreet Bank), BankPHB (Keystone Bank) and Spring Bank (Enterprise Bank). Also on the programme was Mr. Mustapha Chike-Obi, the Managing Director and Chief Executive Officer of Asset Management Corporation of Nigeria (AMCON), which now owns the banks despite the pending court cases filed by the banks' shareholders against the Central Bank of Nigeria (CBN) regarding the 2009 take-over of the banks. In other climes the banking supervisors would have refrained from taking steps which were clearly subjudice and in contempt of the Courts.
My encounter with Mr. Mustapha Chike-Obi was yet another experience that underscored for me the fact that many Nigerians in high public office apparently think Nigerians are simple-minded and that they can play on our collective intelligence ALL THE TIME!
It appears to me that, despite his professional pedigree which I respect tremendously, the AMCON MD may not as yet have fully familiarised himself with the Nigeria banking legal and regulatory environment. From my discussions with him, he obviously did not realise that the Nigeria Deposit Insurance Corporation (NDIC) is actually the only government agency empowered by law (Sections 38 and 39 of the NDIC Act 2006) to do what AMCON is being asked to do. Rather than face its primary objective of managing the non-performing assets of failed and failing banks it is being led by the CBN/NDIC on a misadventure which it has no competence or experience to handle.
I was utterly taken aback by the mild drama that happened between me and Mr. Chike-Obi off-camera at Channels TV's new swanky office and studios in OPIC Estate, Ogun State. Permit me to tell you the story as it is somewhat symptomatic of the attitude and disposition of the regulatory/supervisory regime in our banking industry in the last two years: When we greeted upon my meeting him in the Producer's office just before the programme began, I gave him my complimentary card and he said he didn't have his. We started discussing the topic of the programme and he made a remark about my being "ignorant about the provisions of the AMCON Act". That presumption made a first impression on me as to whom I may be dealing with. After the programme, during which he said I was being "emotional" when he saw my vehement criticism of the charade he had come to defend, I saw him give the male presenter his complimentary card as soon as we went off the air. I then said to him "Oh, so you have your complimentary card with you after all!" And, obviously embarrassed, he then handed me his card! I was bewildered why he felt a compulsion to lie when he could have simply refused to give me his call card since he had made no effort to be polite or treat me with respect.
In the course of the programme and in response to his assertion that AMCON had been “very thorough” in the way it has gone about appointing the new management teams, I raised the issue that the evidence was to the contrary and cited the appointment as an Executive Director of an ex-staff of Nigeria International Bank (now Citibank Nigeria) who committed a fraud in 1991 and was sacked by the bank. I refrained from mentioning the person's name. Chike-Obi's response was to say AMCON "is not perfect" and that "it was a mistake". To his credit, owned up to the blunder and offered apologies to the nation there on live television.
Now, if AMCON could make that kind of blunder about an issue as simple as the appointment of credible Executive Directors and its MD/CEO was compelled to acknowledge error and apologise to Nigerians on national television, then what other "mistakes" might have already been made but of which we are yet unaware?
We have real problems in the banking industry and the CBN, NDIC and AMCON are clearly not atop of their game in addressing them. The statutory functions of the NDIC and AMCON are very explicit. AMCON is not the agency saddled with the power to "own" a failed bank; that is NDIC's role which is spelt out in Sections 38 and 39 of the NDIC Act 2006. The NDIC set up bridge banks on Friday, 5th August, 2011, and "sold" them to AMCON on Saturday, 6th August, 2011. The following day, AMCON announced new management teams and even released the new bank logos. What uncommon surgical efficiency! What was the haste all about? Why intervene 50 clear days before your self-imposed dead-line? What was the hurry for? Could the CBN and NDIC not have waited just ten more days for the new Minister of Finance, Dr. Ngozi Okonjo-Iweala, to assume office and make an input into the decision-making process? Why the enormous effort to present her with a fait accompli?
NDIC can operate a bridge bank for up to FIVE years per Section 39 of its Act. What magic is AMCON going to perform which NDIC is unable or incompetent to do? NDIC would not have had to inject N678.5Billion into the banks as "Share Capital to achieve 15% Capital Adequacy Ratio" because the law says a bridge bank needs no Share Capital. All NDIC would have done is provide liquidity by way of 90-day "Accommodation Bills" which it is empowered by law to issue as "Financial Assistance" to the banks which is one of its fundamental functions.
Chike-Obi said during the programme that AMCON had already sourced fifteen investors who wish to acquire the three banks. What a miracle!! Within just seven days of its acquisition of the bridge banks, which the NDIC Managing Director (Alhaji Umaru Ibrahim) told Nigerians on NTA News just about five days ago had no chance of being recapitalised before the CBN dead-line of 30th September, 2011, and that the CBN/NDIC acted seven clear weeks before the time-line because by end-September the banks would be "more than dead". The NDIC should then have had no problem negotiating with the "AMCON Fifteen Investors" to buy off the banks from it directly. That route would have been the cheaper, more transparent, credible, efficient and legal way to resolve the three failed banks' affairs.
To date, the CBN and AMCON have doled out N1,298,500,000,000 (One Trillion, two hundred and ninety-eight Billion, and five hundred Million Naira only!!) to salvage the eight banks it took over in 2009. Is Nigeria so much in need of what to do with money again as it was during the Oil Boom years of the early 1970s such that spending N1.3Trillion to save eight banks has become inconsequential? Is the cost-benefit analysis of a failure resolution option no longer relevant in choosing the most viable path of action which makes the best economic/financial sense? Are we not operating a free market economy where the principle of “Free Entry and Free Exit” holds sway? This latest injection of N678.5Billion into the three nationalised banks is an unnecessary waste of funds since the NDIC could have statutorily managed them as bridge banks without them needing to have any Share Capital and NDIC would only provide them temporary liquidity support until they are sold to new owners.
And why the opacity of the CBN in its handling of the acquisition bids for the three banks just nationalised. Particularly curious is the case of Afribank which had signed a Memorandum of Understanding with Vine Capital Partners Ltd. led by Mr. Tosayee Ogbomo, who resigned as a divisional Managing Director of Goldman Sachs, New York, to pursue the Afribank acquisition transaction. Dr. Kingsley Moghalu, CBN's Deputy Governor, Financial System Stability, was reported in the news media about three weeks ago to have said: “We have information you don’t have. It is not a matter of proving beyond reasonable doubt. It is based on the judgment of the regulator. The record of the proposed investor did not go well. There was an attempt by the proposed investor to acquire two banks. From the point of view of financial systems stability, we will not approve one party taking control of two banks, especially two intervened banks by a party that has not demonstrated a track record of managing a commercial bank”.
My sources told me that the CBN was suspicious of a possible relationship between Mr. Ogbomo and the erstwhile Chairman of Afribank, Chief Osa Osunde, especially since they are both Bini from Edo State. The CBN was also said to be concerned that an Adviser to Vine Capital Partners, Constant Capital which has Cally Udalor as the Principal, had done some repurchase deals with Afribank (among other banks) in the past which it frowned at. But, surprisingly, the CBN as at 5th August, 2011, when it withdrew Afribank’s banking licence had not even written Vine Capital Partners to explain why it voided the MOU.
Pray, what led the CBN to conclude that the folks at Vine Capital Partners were apparently not "Fit and Proper Persons"? One of the abuses I have seen on the part of the CBN over the years when banks are being licensed or acquisition transactions are being done in the industry is the issue of deciding whether the prospective investors are "Fit and Proper" persons. The CBN decides if people are "fit and proper" in such a subjective and opaque manner that it appears one's face alone could disqualify one! Yet we have seen many cases where people who were known treasury looters, fronts for politically exposed persons and even 419ners being approved as significant shareholders in banks! If the CBN were sincere about these matters, why has it found it convenient to retain as its acquisition advisers persons whose interests clearly conflict?
The CBN Governor has done some commendable things since being appointed to the office in 2009. For instance, the take-over of the eight banks in 2009 and the injection of funds then were steps in the right direction. I also applaud him for the enforcement of the CBN Code of Conduct for banks which Prof. Chukwuma Soludo merely paid lip-service to as Governor; the issuance of the new Prudential Guidelines for Loan-loss Provisioning and the creation of the bail-out fund for the real sector were other commendable steps he took.
But Mallam Sanusi Lamido Sanusi has done poorly with regard to the CBN flip-flop on the removal of ATMs from non-bank premises; the retail cash policy and cash withdrawal and deposit thresholds when the technological and logistic infrastructure for a cash-less society is still at the nascent stage even in Lagos and Abuja; the shoddy and ill-informed withdrawal of Micro-finance Bank operating licences only to restore some of them later; and, of course, the contrived and unwarranted Islamic Banking controversy which has led to war cries from the Supreme Shariah Council of Nigeria.
Sanusi's Monetary Policy failures are also evident. For instance, our foreign reserves have been considerably depleted while crude oil prices have been positive just because he feels he must defend the Naira and keep the value at sub-N155/$1. Meanwhile, the Naira's real value is reflected in the Parallel Market which has now given room for Round-tripping and FX arbitrage given the growing margin between the CBN rate and the Black Market Rate. The Monetary Policy Rate (MPR) was recently increased by 75 basis points to 8.75%. The MPR mechanism has been a grand failure. It has no meaning any more since the CBN has been indulgent of the banks allowing them to get away with spreads as high as 2000 basis points between their weighted average cost of funds and their effective lending rates instead of the CBN-stipulated 750 basis points.
The former Minister of State for Finance, Mr. Remi Babalola, famously described Mallam Sanusi Lamido Sanusi’s banking reform actions and policies as being conducted “as the spirit leads”. Mr. Babalola must be feeling vindicated today!
Time has come for the amendment of the Central Bank of Nigeria Act to strengthen corporate governance at the Bank. The Act provides that the CBN Governor shall be both the Chairman of the Board of Directors and also the Chief Executive Officer. That situation has been abused since Prof. Chukwuma Soludo became the CBN Governor in 2004. He carried on like a Sole Administrator in many ways and forced out two of his Deputy Governors Mrs. Wahir Mshelia and Dr. Obadiah Mailafia. The CBN Board was not even aware of Prof. Soludo's plans for bank consolidation and sectoral reforms until he announced them at a press conference!
Unfortunately, Mallam Sanusi Lamido Sanusi has continued that adversarial, combative, domineering and knee-jerk policy style of Prof. Soludo. Some of his colleagues on the CBN Board are apparently intimidated by his personality to acquiesce with many of his ill-advised ideas as what they say in private on CBN policy matters is at variance with the Governor’s position. The CBN's autonomy has not helped matters since the CBN Governor does not report to any Minister. For proper corporate governance, I believe the time has come to amend the CBN Act to create the position of a CBN Board Chairman who shall be non-executive and so part-time while the Governor remains the Chief Executive Officer. The status quo has been abused thereby jeopardising the banking system and the monetary policy direction of the country. The office of the CBN Governor must be protected from the temperament, idiosyncrasies,whims and caprices of the occupier.
The CBN is the ONLY government regulatory organisation that has the CEO as its Board Chairman. Similar bodies like the Nigeria Deposit Insurance Corporation, Securities and Exchange Commission, Pension Commission, National Insurance Commission, National Universities Commission, Nigeria Communications Commission etc. all have Board Chairmen distinct from the CEOs so why not the CBN? The CBN will be more efficient and effective if the corporate governance structure is strengthened by having a non-executive Chairman for its Board and to whom the Governor, as the CEO, reports. Regulators need to be regulated too. And supervisors must also be supervised. Two good heads are always better than one no matter how brilliant and well-intentioned.
EGHES EYIEYIEN
15th August, 2011
