Market Date: 21-05-2013
The Guardian’s interview transcript: Sanusi Lamido -
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Published: March 18, 2010 14:43
The Governor of Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, has, since his assumption of duties in June, last year, ruffled quite a lot of feathers, under his own brand of bank reforms.
Consequently, he has attracted a legion of critics, who stressed the non-relevance of his agenda, to the promotion of the county's economic wellbeing. But the slim pint-sized risk management expert came out smoking on Sunday, saying that his initiatives were the ultimate "bitter pill," required to sanitise the banking sector, which he described as relatively wobbly, given the assessed grave insolvency of some of the financial institutions. He spoke with The Guardian’s Business Editor, ADE OGIDAN, MERCEL MBAMALU AND BUKKY OLAJIDE.
Below is an edited transcript.
G: When you were coming in as the governor of CBN, what actually was your value added target for the banking industry?
SLS: I had really stated extensively my mission during the Senate screening exercise for my appointment.
I made it very clear that in addition to the traditional monetary policy objectives of price stability, I was going to focus on two things. I was going to focus on financial system stability and turning the Central Bank into a catalyst for the economic development.
Every single thing I have done has been targeted at establishing financial stability and contributing to economic development.
G: May be that will illustrate the issue of bailout. Do you recall that when you introduced the bail out for the assessed failing banks, you said the rescue loan would be for a seven-year term? But now, it seems that the apex bank is asking for a refund of the loans, just under one year of its tenor. So, what is happening?
SLS: A bank can get into a liquidity problem from a number of sources. It could be a short-term liquidity issue as a result of differences between the losses and payments.
The bank may have a lot of short-term liabilities and which might have affected its liquidity. That is short term.
But a liquidity problem could be a fundamental symptom of another problem. I knew even before I became governor the situation and what the audit confirmed was that these banks did not have a single liquidity problem but they had insolvency problem.
They had taken their money, to the capital market and were never going to come back. Those who got the loan, to buy for instance, shares at N25, which later cashed to N3, are never going to get back that money until the stock market goes back to N25, because that money is in those shares. It has wiped out.
G: Is there no possible hope of recovery?
SLS: How long do you think it's going to take Afribank to go back to N25? Are we going to wait for five, six, seven years? The money has gone.
If you take depositors' funds and you buy shares at N25 and the shares crashed to N3, which is depositors fund wiped out. So, the money had disappeared and so, the money had disappeared, that is the point. It wasn't that it was there. It's different from lending to, say a contractor who has confirmed and who is waiting for payment from government.
So, there was insolvency problem. By the time you take proper account of that loss of value, capital has been wiped out. So, what the banks need in that situation is capital. It's simple accounting. If you take a huge loss, it hits your net worth.
Unfortunately, we have a banking system but the nation does not have legal instrumental for handling financial crisis. When I became governor of Central Bank, the only tool available to the governor of Central Bank for handling the banking distress was to hand over that bank to NDIC (Nigerian Deposit Insurance Corporation).
G: And what would happen to such banks?
SLS: Liquidate them. Liquidate eight of those banks. We would not have had the banking system. If I should liquidate Oceanic or Intercontinental, UBA, First Bank and GT Bank will fall, because, they too would be shaken to their foundations. There had been so much hype about these banks, they were so big as part of the system, I could not allow these banks to go under. This is an important point. The only tool available to the Governor of the Central Bank for dealing with a distressed bank, even as I speak now, is to hand it over to NDIC. Under BOFIA (Banks and other Financial Institutions ACL Act) the Central Bank cannot acquire equity in banks directly. So, I cannot even nationalise a bank. That was an option opened to the United States government, when it took over Northern Rock.
We do not have an Asset Management Company, so there is nobody that can buy those loans today.
So, short of going to the capital market to raise money, and with the situation in the capital market, there was no way we could raise N1 trillion even if the amount will come from public offers. The only way I could provide the banks with succour was to take what was being given to them by the Central Bank under the Expanded Discount Window (EDW) but I recognised that, these banks will never pay this back.
Because, what was happening was that even at the time Central bank were saying these banks were safe, CBN was giving them money.
At one time, CBN had given N182 billion to Intercontinental Bank. It had N120 billion with Oceanic Bank. In addition to what they took at interbank facility in relation to what they took on the standing lending facility, on Expanded Discount Window. But that money was never to be paid back unless drastic measures were taken to address the fundamentals of the problem. So, there was no point deceiving ourselves. They needed long term money. Give them that money and tell them "forget about paying me back for the moment. Sort out your depositors. This is the Central Bank money, hold it for seven years. Just focus on making sure that every depositor that comes to your branches, every customer that has an account and issues a cheque is paid."
Now, we have not given the banks a deadline to pay. I don't know why every time we make clarifications, this people refuse to listen to us, it's a very simple matter. We have a bill before the National Assembly for setting up Asset Management Company, the House or Representative has passed the bill. It has gone through second reading in the Senate. We believe we'll get Senate approval this month. When the legislative process is concluded and we get presidential assent, this AMC is going to buy off non-performing loans from the banks and by buying off loans that are bad, that are being provisioned, what you are doing is putting some capital back into these banks and it is that money that will then be used to pay off the exposure, because we had blocked a hole. We have provided them with ample capital in the sense that, even though, it has not lost bearing, we have said 'don't pay us now". But when they get their money back from the sale of the assets, they pay us back.
So, by the time the AMC comes up and the assets appreciate, these banks will be able to pay us back by the second quarter. That is different from saying I've given them a deadline of May, to pay back.
G: Before going to the AMC issue, which situational factors actually gave indications foreclosing the ability of these banks to pay back, because it was contrary to the disposition of the former chief executives? It was like the CBN governor was just trying to call a dog a bad name in order to hang it.
SLS: Okay, let me give a few examples. There's going to be a public hearing by the National Assembly on what went wrong and when that public hearing is heard, documents will be made available. And I will tell you; first of all, there is sufficient evidence that long before I became the governor of Central Bank, regulators have information about the state of the banking industry. I have a letter written by the MD of NDIC after a meeting with SEC to the governor of the Central Bank, telling him that there was a serious problem of banks manipulating their shares, of banks using depositors money to buy their own stocks and with the pressure in the capital market, these banks had issues and asking that a technical committee be set up to look at this matter.
I have a letter written by the Minister of Finance at that time, advising the governor of the Central Bank to act on the letter given by NDIC, and this was as far back as March 2008.
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