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One year after banking tsunami: ‘Why we were ruthless with ex-bank MDs’ – Sanusi

REMEMBER August 8, 2010.  That was the day Central Bank of Nigeria (CBN) Governor, Mallam Lamido Sanusi Lamido fired five banks chiefs and their management.  A move that has changed forever the way Nigerian banks operate. 

One year after, Sanusi is beating his chest, insisting he took the best decision, painful as it were, to save poor depositors as well as the entire banking industry.  ENCOMIUM Weekly was at the maiden edition of Business Hallmark Roundtable where the CBN Governor delivered a keynote speech on The CBN Reforms and Future of the Banking Industry.  Held on Friday, July 30, 2010, at Golden Gate Restaurant, Ikoyi, Lagos, the Special Guest of Honour was Senator Nkechi Nwaogu, Senate Committee chairman on Banks and other Financial Institutions.

The CBN Governor later had an interactive session with the participants.  Excerpts…

 

Sanusi
Sanusi

There are concerns that your reforms have not yielded the best of results so far.  Some are even confused about your approach and what informed your action in August, 2009?

There isn’t a single model of central banking that applies to all central banks in the world.  And if you go back to my interview in Financial Times shortly after I became Governor, I made it very clear I will not approach my work with the mindset of IMF or World Bank policies.

I am a strong believer in the importance of micro-economic stability.  Before we intervened in the banks, we stabilized the micro-economic environment.  As a result of the policies we took, we have reduced the gap between the official and BDC rate under two per cent for one year.  We crashed interest rate and inter-bank rate have been under six per cent for months.  The rate of inflation in June 2009 was 15.6 per cent. By June 2010, it had come down to 10.3 per cent.  So, we have delivered on our mandate on micro economic stability 100 per cent.  And we have never taken our eyes off that.  We take credit for the slowdown in the rate of inflation.

In August 2009, we decided to save Oceanic, Intercontinental and Union Banks in particular.  I have no doubt in my mind that if we had allowed those banks to go under, we would not have a banking system today.  The bailout was not for Oceanic.  It was for the banking system.  If these banks had collapsed, it was only a matter of time for First Bank, UBA and GTBank to follow.  So, I told the bankers that we bailed out the entire banking system.  People were selling shares of all Nigerian banks.  People were taking their money out of all Nigerian banks.  People were accusing every Nigerian bank of fabricating numbers.  What we did was to save the system.

It was like everybody knew there was a ticking time bomb that was going to blow up and take all of us.  What we did was to identify that bomb, detonate it.  There were casualties, but they are nothing to compare with what would have happened if that bomb had gone off with us.  And to that extent every bank understands it has a responsibility to make sure that the general public is not saddled with that burden.  How many bank MDs were speaking up about the things happening?  Now the banking industry understands that it’s future is linked and intertwined. And we need to save the entire system. And we are collectively responsible.  This is an era of co-operation.  We are also being socially responsible.  Our shareholders took all the profits.  Now they should pay, we have the moral responsibility to protect depositors.  The bank bailout for me is not for shareholders, it is not for management.  The shareholders have suffered with the loss of share prices.  In fact, some of them are suffering because their banks would be taken over.  The management has suffered loss of job and some of them for criminal prosecution.  So who have we bailed out?  The only people we have truly bailed out are the poor depositors who have been the victims of bank failures in Nigeria forever. And this time we say they will not be a victim.  So, it was moral decision.  Do I protect the powerful CEOs and the rich shareholders and allow the bank to fail so that the ordinary depositor loses his money?  Or do I protect the depositor and inflate the losses on the shareholders and the management?  There is no neutral ground. It is ideological. It is a moral question.  And I took a moral decision and the clarity is given by the CBN Act because my primary responsibility is the protection of depositors and creditors.

Another issue is the question of International Finance Corporation (IFC) intervention in the financial sectors.  This is against the fact that IMF has never succeeded anywhere in the world?

IFC is not IMF.  IFC is just an investment banking arm of World Bank.  The decision to merge or not to merge is the decision taken by the board and management of the banks.  We encourage IFC to come into financial institutions because they are coming from environments where the standards are high.  We are welcoming foreign investment because it is not just about money, it comes with skills, it comes with governance, it comes with risk management.  It comes with products and innovation. I personally I’m not a big fan of IMF and I don’t think they are a big fan of mine as well.  We agree on some of their policies. I think what is important for us as policy makers is to listen to them.

Intelligently, analyse what they say, you take what we like and what is consistent with our national interest.  What is not you refuse, that is what the Asians have done.  The problem was the period when people took what IMF gave them hook, line and sinker.  Whatever IMF said was like the word of God.  And in these days and age, even the word of God given by your Pastor or Imam, you question.

It appears you are changing your stance on the banks?

I am not an idealist. I am a pragmatist and my approach changes with circumstances.  There are times when you come out smoking and fighting.  There are times when it is not necessary, we have won all the big battles.  The system is stabilizing.  The banks have liquidity, we have the AMC bill.  We have the support of the National Assembly.  So, there is no point continuing in June 2010 the way we were carrying on in August 2009.  If the circumstances were to resurface, then I will go back to where I was a year ago.

To take you back to the reforms, good generals win war by maneuvering more than slaughtering.  So, why did you choose to slaughter?

Unfortunately, there are some battles where you only win through maximum slaughter.  I must be honest with you, I am a great student of Sun Tzu (the Art of War).  Sun Tzu says the victorious army is victorious first and does battle later.  And the army that loses, does battle first and seeks victory later.  I had to win this war on August 14, 2009.  Everything that happened after that is battle.  We needed to remove people and to put money on the balance sheet of banks.  And we could only do that by being ruthless, taking them by surprise because you are dealing with extremely rich and powerful people that will decimate you if you give them a chance.  They have defeated everybody that confronted them.  And I had to defeat them.  I told my team, that if you want this to succeed you have to be ruthless.  You have to be thorough and you have to be total.  Today, Oceanic Bank has third party deposit of N650 billion.  That is Oceanic, a bank that had negative capital of over N100 billion. People know the problem with the bank but they are assured it is backed by people who are committed to saving it.

Why didn’t you sanitise the CBN before kicking off the banking reforms?

Still on Sun Tzu, he said you go to battle, the ground on which you stand must be secure.  There is no way I could have started this with the cleansing of the CBN at the same time.  I don’t want to talk about what was happening in CBN before I came in as governor.  I am not interested in going after what somebody did before me.  I have a problem, I should fix the problem and move on.  So, there are many things that banking supervision talked about.  There are things that NDIC spoke about, there are things that SEC and National Assembly spoke.  Maybe, when I write my memoirs or when there is a public hearing at the National Assembly, but no purpose is served for me to go and say that former CBN governor X or Y or Deputy Governor X did this.  I would have wasted my time fighting issues that were not important.  For it is a war, you can now see that I am not such a bad general (laughs).

What are you doing to arrest the trend of ignorance amongst the public as regards the operations of banks and financial institutions?

Ignorance on the part of consumers and investors is a problem.  In Malaysia, there is a centre that every Malaysian can walk in to understand bank products, get advice on pricing, and know whether his bank is cheating for free.  And it’s something we are working on in CBN.  For enlightening and protection of consumers, we are going to issue a guideline to banks for protection of consumer interest.

What are the factors you consider in recruiting staff and consultants in CBN?

I am a strong believer in merit.  I also believe in federal character because in every part of this country you find merit.  So, the two are related.  We would go for the best that reflects our national diversity.

 

THIS INTERVIEW WAS FIRST PUBLISHED IN ENCOMIUM WEEKLY ON TUESDAY, AUGUST 3, 2010

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