Three trillion naira to save sick banks?

CBN


It may be necessary for those who lead this country at all levels to freeze politics somehow and look at the governance system of the country’s Central Bank, whose role has always come under fire – notably when regulatory framework comes to be discussed. There have been recent questions about commercial banks’ dubious preference of credit facilities to the public sector instead of the real sector. Just as the regulator, the CBN has been criticized here for daring to usurp some commercial banks’ role in lending to the same real sector.

That is why it is again curious that the same Central Bank of Nigeria (CBN), other banking sector regulators and supervisors, have noticeably changed the strategies for the management of distressed banks in Nigeria. Prior to year 2000, distressed banks in the country were in the main, liquidated without qualms; and the economy faced the negative outcomes of such actions.

However, the authorities have, post 2000, developed and are implementing a different strategy to address cases of distressed banks. The new strategy encompasses first, provision of liquidity lifeline to enable a troubled bank to continue in business and the establishment of a ‘bridge bank’ that takes over the bank’s assets and liabilities, if the first remedy proves unsuccessful.

This second step (bridge bank) of bank distress resolution management, though more pragmatic as it has so far been, is costing innocent Nigerians huge financial outlays that would have been invested in critical infrastructure and human capital development areas.

According to a report the other day, CBN and Asset Management Corporation of Nigeria (AMCON), have spent “as much as N3.83 trillion since 2009 rescuing sick banks” in Nigeria. That is, in the last nine (9) years, Nigerian tax payers have used that humongous amount to seek the healing of banks whose sicknesses were occasioned essentially by the actions and inactions of their directors and management. This is insufferable.

The ailments of the banks according to the CBN, centred on corporate governance lapses, inability to meet critical prudential ratios, unethical and unprofessional practices, insider abuses and non compliance with regulations. For such self-inflicted scandals to have caused the ultimate demise of banks, they must rather be recognized as serious and ought to have been probed by the regulators.

Unfortunately, operators of the affected banks who knew or ought to have known the adverse consequences of allowing or causing their banks to be afflicted with such criminality nevertheless, gave them away to death.Why should the taxpayers face consequences of failure of some investors? The price being paid for the preventable problems caused by banks’ officials is indeed, very high and daunting. Imagine the number of new banks that could have been set up with the N3.83 trillion given that the subsisting minimum regulatory capital for the highest category of banks in the country is N25 billion. And if the dead banks had remained alive and the government used the N3.83 trillion to set up new banks, the gains in the minimum, would have included enhancement of the economy for improved and sustainable economic growth that would have resulted in tolerable level of welfare for the citizenry; creation of more employment opportunities with drastic reduction in unemployment rate; and significant improvement in financial inclusion being pursued by CBN.

That such large amount of money has been utilised to salvage bad situations caused by individuals entrusted with the affairs of such important institutions as banks is sad. Though the intervention served an equally exigent need of protecting customers’ deposits, sustainability of confidence in the banking system and ensuring systemic health of the entire economy, the regulator’s rescue operations still exemplify poor financial management.

Nevertheless, given the size of funds used for remedial solutions and pains inflicted on the nation and its citizens, it is regrettable and, of course, unacceptable that the government has not found it auspicious to disclose the names, parade and shame all harbingers of the deceases that consumed the failing banks. It is also nauseating that despite these corporate frauds, the authorities fighting corruption have not arrested any of the perpetrators of the frauds for prosecution – to serve as deterrence.

Specifically, Nigerians and indeed other stakeholders in the country’s financial sector and the economy, need to know, for instance, not just the individuals responsible for the death of the banks that regulators used public funds to rescue, but also the role played by such bodies as the Economic and Financial Crimes Commission (EFCC), Nigeria Financial Intelligence Unit/Centre (NFIU), the apex regulator, supervisor and examiner of banks, Central Bank of Nigeria, External Auditors of the banks and critical bad-debtors.

It will also be of national interest to interrogate the actions or otherwise of the National Assembly where bills with promise to impact positively on management of the banking industry are yet to be passed into law; the Judiciary where settlement of financial matters linger for many years because of ‘legal technicalities’ and law enforcement agencies that have the responsibility to rigorously investigate and diligently prosecute suspects.

There is a lot to be done to strip this nation of the ugly hoods of bank distress and failure. This newspaper believes that it is time to deal with the traditional sacred cows in corporate Nigeria. They are the cankerworms that should be dealt with for corporate failures in the banking sector. They do not deserve any amnesty, as their prosecution will not breach national security.

In the main, the fight against corruption should not be limited to only public officers and politically exposed people. There will be no progress unless the organised private sector too delivers services and create wealth according to the global best practices. Corporate fraud is a cancer that has ruined nations too. In the 1990s, many banks failed. Less than two decades thereafter, bank failures are re-emerging. Before a systemic resurgence of this hydra-headed problem, stakeholders should be interested in finding out, if there are still doubts, what the actual causative factors are and what must be done by each involved stakeholder to put a total stop to bank failures in our clime.

No doubt, the most critical factor that sustains sporadic incidences of bank failure in this country is failure of government to show deterrent examples with those who caused the demise of banks. Specifically, the minister of Finance should make good her recent promise to deal with those who caused the mysterious failure of Skye Bank as a starting point, as we pointed out the other day. Nigerians will certainly hold government responsible should the country be embroiled in a financial crisis from preventable bank failures. Thus, government needs to bring to book all those involved in looting of the banks that have failed and have been rescued. The rescue operations have been too expensive to be left alone. The criminals should be prosecuted. That will remove the current impression that dubious characters can set up banks, ruin them and walk away without dire consequences.

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