By Joseph Coker
The period 2007 – 2009 was turbulent for the global economy. The world passed through its worst financial crisis in seven decades as large financial institutions collapsed in the United States of America, across Europe and other parts of the world. The global events also shook the Nigerian economy and triggered the collapse of about 70 per cent of the stock market. The financial turmoil was still apparent and the banking system in the country was experiencing a crisis when Sanusi Lamido Sanusi assumed office as the 10th Governor (ninth indigenous) of the Central Bank of Nigeria (CBN) on June 4, 2009.
From the moment the soft-spoken Lamido Sanusi assumed office, he made his intentions known: The CBN will not allow any bank to fail in Nigeria! In his maiden press briefing, the CBN Czar promised,“the CBN would strengthen the regulatory and supervisory framework and enhance monitoring of the operations of Deposit Money Banks (DMBs) to ensure that they remain safe, sound and healthy to support the macroeconomic objectives of the government, in general, and monetary policy, in particular.”
To successfully drive the process, Sanusi anchored his reforms in the banking and financial sector on four pillars: Enhancing the quality of banks;Establishing financial stability;Enabling healthy financial sector evolution; andEnsuring that the financial sector contributes to the real economy.
The external perception was that after the pre-2009 merger of banks in Nigeria, the worst was over.However, it took the courage of the CBN under the new Governor to uncover the level of risks some of the banks were exposed to at the time. Many of the banks were on the brink of collapse owing to the actions and inactions of the Chief Executives and Boards of these institutions. The banks continued to be exposed to risks due to the obvious weak corporate governance standards. Although the consolidation of the banks created bigger banks, the process somewhat failed to overcome the identified weaknesses in corporate governance.
According to CBN reports, some of the banks were engaged in unethical and fraudulent business practices. The CBN’s examination of the banks revealed that “Corporate Governance in many of the banks failed because boards ignored the unethical practices for reasons including being misled by executive management, participating themselves in obtaining unsecured loans at the expense of depositors and not having the qualifications to enforce good governance on bank management.”
In addition, the special audit jointly carried out by the CBN and the Nigerian Deposit Insurance Corporation (NDIC) revealed that all the banks appeared not to have taken fully into account the rapid deterioration of the Nigerian economy and hence the need for aggressive provision against risk assets. According to the Bank’s helmsman, nine out of the 24 banks were in grave situation, prompting immediate intervention by the CBN. Non-performing loans in ten banks totaledN1,696 billion, representing 44.38% of total loans. Aggregate provisioning required in the affected banks amounted to N 1,221.52 billion, while the Capital Adequacy Ratio in the banks ranged between (1.01) and 7.41%, which were below the minimum ratio of 10%. The additional capital injection required by the identified banks was N495.83 billion.
Having identified the banks that were in dire situation, the CBN made preemptive moves to check further deterioration of the banks rather than suspending or revoking the licenses of the banks, which would have meant that the banks would be handed over to the NDIC.
Unlike what transpired in the past when banks were seen to have “failed” Sanusi turned the tables by exposing those behind the “failures”. The CBN made a courageous move by publishing details of the extent of insider abuse in some of the banks. For the first time in Nigeria’s banking history, the Chief Executives of banks were held responsible for the “failure” of their banks.
In a bold move, Sanusi in August 2009, inspired a bailout of ailing banks by injecting N620 billion into banks with issues bothering on weak corporate governance, after removing the CEOs of the failed banks from office. The Asset Management Corporation of Nigerian (AMCON) was also established as an innovative crisis resolution vehicle to soak up toxic assets and deal with non-performing loans.
AMCON acquired the initial non-performance loans (NPLs) from banks valued at over N1.2 trillion and subsequently injected about N1.6 trillion for the purpose of further sucking up of toxic from the banks. Thus began a new form of revolution. In the words of the Bank Governor, an ideological choice had to be made in order to rescue the banking industry from collapse.
In blaming the chief executives and management boards of the affected banks for the crises in the sector, Sanusi also pointed a finger at the regulatory authorities. According to him, the lack of coordination among the regulatory authorities in the financial sector (FS) prevented the CBN from having a comprehensive consolidated bank view of its activities. Among other issues, the CBN noted that none of the 373 circulars issued by the apex bank between January 2008 and 2009 addressed the issue of corporate governance. There was also the issue of uneven and inadequate enforcement by the Bank.
Enhancing the quality of Banks
As a way of improving the quality of banks, the CBN has since commenced series of corrective measures in the industry. Since 2009, the Bank has been carrying out risk-based supervision as well as reforms to regulations and regulatory framework. The organizational structure of the CBN has also been streamlined to enable the regulatory bank to better supervise and regulate the banking industry. The CBN has also enhanced provisions for consumer protection. To underscore its readiness in this regard, the CBN Board approved the creation of a new department of Consumer Protection, which is already functioning as an advocate for the consumers. The department is responsible for educating consumers on financial products and responds to major consumer concerns. In fact, as at May 2013, the Bank had received 3,050 petitions from customers against Money Deposit Banks (DMBs) and the sum of N 8,781,957,260.19 had been refunded by the DMBs following interventions made by the apex Bank. The CBN has also ensured that commercial banks implement the International Financial Reporting Standards (IFRS) that was recommended by the federal government. Yet another major feature of the Sanusi reforms is the retirement of Chief Executive Officers (CEOs) who have served for 10 years as well as the 12-year tenure limit for non-executive directors.
Establishing financial stability
In a bid to sustain stability in the country’s financial sector, the CBN has continued to focus on improving its reporting infrastructure, internal controls and risk management framework. Particularly, the Bank, in the past four years of the Sanusi Governorship, has made positive effort at strengthening the Financial Stability Committee, which hitherto was inactive.
The Monetary Policy Committee (MPC) has also continued to ensure price stability.Consistent with the aspirations of the Government and management of the Bank, the CBN has succeeded in designing an exchange rate regime, which has limited the volatility of the exchange rate. As a result of this, the Naira (N) has remained stable for over two years with very minimal fluctuations. There has also been a consistent foreign reserve accretion approximating $50 billion mark, the first in the past three years. The significance of the build in foreign reserves is readily measured by the increase in the flow of Foreign Direct Investments (FDIs) and portfolio investments into the Nigerian economy.
During the past 48 months, the economy posted the fastest growth rate (6.5%) above the global growth rate of 3.5% and is projected to grow at about 7% in this current year (IMF/WB).
Headline inflation rate has also remained stable and actuallyfell to a single-digit rate of 8.6% only to rise to 9.1% by April 2013. This has remained within the target range for five consecutive months. Food inflation in the country has also remained stable. According to the latest MPC communiqué of May 2013, the inflation outlook remains relatively benign with projections of headline inflation remaining in the single digit range for another five months. This, according to the Committee is a combination of base effect and the success of tight monetary policy.
As at April 2013, there were 10,832 Automated Teller Machines (ATMs) deployed across Nigeria, while 117,412 Point-of-Sale (PoS) machines had been deployed. The volume of Mobile Money Transaction stood at 5,409,429, while the cumulative transaction value was N 64,273,503,096.33 with 47,034 agents.
The CBN, under Sanusi’s leadership has since reviewed Prudential Guidelines to encourage lending to the real sector. In December 2009, the Chief Executive Officers of all the 24 commercial banks in Nigeria met to strategize for growing credit to the real sector. Three major sectors (Agriculture, Power and Transport infrastructure) were identified and it was agreed that a group would meet with willing State Governors in order to find bankable projects that they are sponsoring.
Some of the key interventions in the real sector under the Sanusi Governorship include theN 200 Billion Commercial Agricultural Credit Scheme (CACS); the N200 Billion Refinancing/Restructuring of SME/Manufacturing Fund;theN300 billion for long term funding of Power and Aviation; and the Small and Medium Enterprises (SME) Credit Guarantee Scheme (SMECGS).
Commercial Agriculture Credit Scheme (CACS).
The Scheme was introduced in March 2009 by the CBN in collaboration with the Federal Ministry of Agriculture and Rural Development (FMA&RD) to finance commercial agricultural enterprises for a seven-year period. The scheme is funded through the issuance of aN200 billion (three-year-tenored) Federal Government of Nigeria Bond, floated by the Debt Management Office (DMO) in September 2009.
The CBN has since released the sum ofN199.12 billion to 19 Deposit Money Banks for 269 projects made up 239 private projects, which received N160.12 billion and 30 State Governments and the Federal Capital Territory (FCT), which accessed N39.0 billion from inception to December, 2012.A total sum of N6.83 billion had been repaid in respect of 33 expired facilities under the scheme as at end-December, 2012.
Through this scheme, both the State Governments and Private sector created a total of 32, 801 new jobs, made up of 2, 417 skilled, 13, 042 unskilled and 17, 342 indirect jobs, in 2011. Also in 2012, CACS projects generated a total of 100, 301 new jobs, made up of 362 skilled, 2, 346 unskilled and 97,593 indirect jobs.
Intervention Fund
The Monetary Policy Committee (MPC) at its 213th Meeting on March 2, 2010 approved the investment of the sum of N500 billion in debentures to be issued by the Bank of Industry (BOI) in accordance with Section 31 of the CBN Act 2007. The N500 billion facility was distributed in the three investment portfolios: N300 billion for Power and Airlines projects, and N200 billion for restructuring/refinancing of the Small and Medium Enterprises and loans from the Manufacturing sector.
The facility was extended to the airlines industry in view of the heavy exposure of the domestic airlines to Nigerian banks, which was observed to have constituted great risk to the banking sector.
Power and Airlines Intervention Fund (PAIF)
The PAIF was designed as a Quantitative Easing Monetary Policy (QEMP) measure to simultaneously address the two key constraints of real sector development, namely the unavailability of appropriately priced long-term credit facilities and the acute shortage of power supply in the country. The PAIF has helped to improve liquidity in banks, reduced the cost of doing business and saved the airline industry from imminent collapse.
The sum of N181.42 billion was released to 36 projects made up of 21 power projects that receivedN90.49 billion and 15airline projects that received N90.92 billion from inception to the end of December 2012.
SME and Refinancing/Restructuring Facility (RRF)
The N200 billion was for restructuring/refinancing of the Small and Medium Enterprises and loans from the Manufacturing sector.The RRF improved the liquidity of banks as bad loans to manufacturing sector were refinanced. The non-performing loans (NPLs) also reduced from N84.8 billion toN 22.97billion.
The sum of N235.0 billion was released to 535 SME projects through the Bank of Industry (BoI) at an interest cap of 7 per cent, which also resulted in generating 13, 886 new jobs and creating 971, 247 indirect jobs. It also sustained the operation of 257 projects and resuscitated nine moribund companies. The Capacity utilization of benefiting companies was increased from 25 to 36 per cent and with an increased turnover of 80 per cent.
SME Credit Guarantee Scheme (SMECGS)
The N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) was established in April 2010 to fast-track the development of the manufacturing, and SME sector of the Nigerian economy by providing 80 per cent guarantee on credit by banks. The activities covered under the Scheme include Manufacturing, Agricultural Value Chain, and Educational Institutions. The Scheme is managed by CBN.
Forty projects valued N1.93billion funded by nine Deposit Money Banks and a Development Finance Institution, have so far been guaranteed under the Scheme. Analysis of the distribution of the 40 projects that were guaranteed showed that services sector accounted for 32 projects, followed by Manufacturing with seven projects and only a project in the health sector.
In addition, the CBN established the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL). The programme is a demand-driven credit facility that would build the capacity of banks to engage and deliver loans to agriculture by providing technical assistance and reducing counterparty risks facing banks. It also seeks to pool the current resources under the CBN agricultural financing schemes into different components of the programme.
The Bank in partnership with Alliance conceived NIRSAL for a Green Revolution in Africa (AGRA). It was developed as a de-risking mechanism to unlock financial resources from the banks for agricultural value chain development in Nigeria. The initiative is hinged on five pillars, namely: Risk Sharing Facility (RSF), Technical Assistance Facility (TAF), Bank Incentive Mechanism (BIM), Bank Rating System and Insurance Facility (IF).
As part of its efforts to create employment, empower people, accelerate growth of the Nigerian economy as well as complement the efforts of other relevant government agencies, the CBN established the Entrepreneurship Development Centres (EDCs). The EDCs provide such interventions through training, skill acquisition, capacity building and consultancy.
In the light of this, the EDCs approved have all taken off in Onitsha, Kano, Lagos, Makurdi, Maiduguri and Calabar.
National Financial Inclusion Strategy (NFIS)
The National Financial Inclusion Strategy (NFIS) was borne out of a survey on access to finance in 2010 by Enhancing Financial Innovation and Access (EFInA),which revealed that about 46.3 per cent of Adult Nigerians were excluded from various forms of financial services.
This discovery led to the packaging of a draft National Financial Inclusion Policy along with Developing Partners with a view to reducing the exclusion rate to 20.0 per cent by 2020.
Other reforms initiated under the Sanusi Governorship at the CBN include the mandatory change of external auditors after 10 years; the abolition of universal banking and issuance of graduated authorization for licenses of international nature and regional levels; and the introduction of the cashless policy.
The Sanusi era has also witnessed the introduction of shared services by the banks geared towards reducing costs by about 30 per cent over the next three years;Financial Inclusion, which is aimed at reducing the number of adults excluded from access to financial services from 46.3% to 20% in 2020.
There has also been the enhanced coordination with other regulatory agencies in the capital market, pension administration and insurance in order to institutionalize system stability;restoration of stability in the foreign exchange and money markets; and improved investments in capacity building and process efficiency in the CBN.
Since 2009, the CBN has equally been in the vanguard of managing environmental and social risk in business decisions; managing the bank’s own environmental and social footprint; safeguarding Human Rights; and promoting women’s economic empowerment, among others.
The contributions of the CBN, under Mallam Sanusi’s leadership,to financial stability have earned the CBN Governor accolades and recognition both at home and abroad. The latest award conferred on the CBN Governor is the 2013 Africa Central Bank Governor of the Year given by the renowned IC Publications groups, in collaboration with Business in Africa Events, as a side event during the African Development Bank (AfDB) Meeting held in Marrakech, Morocco.
Other awards received by Sanusi before now include the following: the Nation Newspapers Man of the Year Award, 2009;Leadership Newspapers Man of the Year Award, 2009;National Honour of the Commander of the Order of the Niger (CON), 2010;Fellow of the Chartered Institute of Bankers of Nigeria (CIBN), 2010;The Sardauna Leadership Award, 2010;Central Bank Governor for Sub-Saharan Africa, 2010, 2011;Silverbird’s Man of the Year, 2010;Tribune Newspapers Man of the Year Award, 2010;Vanguard Newspapers Man of the Year Award, 2010;Times of London Global-African Central Bank Governor of the Year, 2011;African Leadership Person of the Year, 2011;Forbes’ Africa Magazine Person of the Year, 2011; and he was listed in Time Magazine 100 Most Influential People of 2011.
Similarly, in recognition of his contribution to the stability of the Nigerian economy, academic institutions from across the country have conferred Honorary Doctorate degrees on Mallam Sanusi.
For Sanusi, who is always quick to attribute the successes of the CBN to the staff of the Bank, he can lift his head high for a job well done in the past 48 months. Majority of industry watchers are unanimous on the point that the banking industry is stronger today and that the banking public is more assured of the safety of their funds. We all look forward to more bold reforms that will guarantee the continued safety and stability of the Nigerian financial system.
Though Sanusi, who also holds the traditional title of Dan Majen Kano, has insisted he will not seek reappointment as CBN Governor, the Nigerian banking public will continue to have kind words for him and his team for extraordinary reforms they initiated in the Nigerian banking industry, which has earned them slots in the Central Banking Hall of Fame.
