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September 25, 2011

 

I have a personal story to share—and, please, do not make fun of me. A little over two years ago, after so much dilly-dallying and praying, I said the hour had come for the son of man to be “glorified”. The time had come for me to build a house! I went in search of land in a suitable location. I was intimidated by the prices, but I refused to be discouraged. My time has come, I said. Finally, I saw a very good plot. The price was bad, but not too bad. I didn’t have that kind of money. So I decided to do something I had never done before—I approached my bank for a loan. I was to be given certain concessions which would lower the interest but by the time the manager calculated how much I would pay in the first three months—in addition to the fees and charges—I started shivering. I faked a smile, cracked a few jokes, thanked him for his “consideration” and promised to get back. I never went back!

 

The story is not finished yet. I decided I would take private loans from friends (which would be interest-fee) with the promise that I would pay back in “a few months”. The “private placement” option failed as well. Almost everybody said there was no money. Because I had “claimed” the land, I said I would never give up. While I was busy trying to sort things out, the owner of the land received a better offer from—you guessed right—a bank executive! I learnt he was the MD of a mortgage institution. Of course, he had unfettered access to depositors’ money. I could not compete with him in any way. The bankers have a way of taking care of themselves while the rest of us would be complaining of lack of money.

 

The landowner, who had been calling me his “brother” during the transaction, suddenly changed towards me. He started disputing some agreements we had reached and became unfriendly. Quickly, he sold the land. In one month, the MD had started developing the land. My plan was to buy and keep the land and then begin to develop it after “recovering”. Anytime we drive past the place today, my driver always looks lustfully at the property. I would knock him on the head and say: “Stop looking at another man’s wife!” He would laugh. “But Oga, I just love this location,” he once said, to which I replied: “Don’t worry, God will provide another one for us.”

 

While I was busy talking about God providing another place (I actually got a cheaper one later), inwardly I was cursing the bankers. I hold them responsible for the troubles in the banking hall. The recklessness with which they spent money (especially depositors’ funds) between 2005 and 2007 did untold damage to the economy. They turned the stock market into a gambling house, pumped a hell of speculative money into it and, while the bazaar lasted, forgot themselves. They diverted depositors’ funds into personal business (property development being one) while the mortgage market suffered. They were ready to pay anything to acquire property either for branch expansion or personal use, thereby pushing up the cost of land and property. They lent recklessly to fuel importers, edging against high oil revenue, because that seemed to guarantee them fast bucks. But other businesses that needed money were allowed to bleed to death.

 

The end result was that as soon as the oil boom blew up and the global economy melted, the chickens came home to roost. The stock market took the hit. The bears moved in. Share prices fell dramatically. Share certificates were no longer worth the paper on which they were printed. Margin loans dried up. With oil prices crashing, fuel importers could no longer repay their loans. Many of the importers bought the products at high prices. As the ships headed for Nigeria, crude oil prices dropped and the naira was devalued. So the importers were losing on all fronts—lower fuel prices, higher interest rate on loans, a falling naira, which invariably affected the repayment terms (the loans were secured in dollars). Bad loans kept piling up. Armageddon beckoned menacingly. And then…

 

Honey, I saved the banks! Malam Sanusi Lamido Sanusi, who came in as governor of the Central Bank of Nigeria (CBN) in 2009, immediately took on the banking crisis headlong. He has taken a lot of critical, and very controversial, steps in trying to resolve the crisis. He acted largely on the reports of the joint examination of 10 banks carried out by the CBN and the Nigeria Deposit Insurance Corporation (NDIC). The audits revealed overexposure by banks, insider abuses, huge non-performing loans, issues of corporate governance, and, alarmingly, spurious claims to huge capital base. Something had to give. There was no papering over the cracks any longer.

 

Sanusi rolled up his sleeves. First, he sacked the MDs and boards of eight banks for mismanagement. Two, he provided bail-outs to save the troubled banks. Three, he published the names of bank debtors to help in debt recovery. Four, the Economic and Financial Crimes Commission (EFCC) began prosecuting former bank executives. Five, the Asset Management Corporation of Nigeria (AMCON) was set up, mainly to buy over the toxic assets (non-performing loans) of the banks. Six, the rescued banks are being asked to find new husbands that will marry them and inject new capital into them.

 

All these things I have summarised in one paragraph are not as easy as they sound. We have gone through turbulence in the process. Sanusi has been a subject of attacks and fierce criticism. The good news, however, is that there is light at the end of the tunnel. You can question Sanusi’s style, query his motive, disparage his methods—but one thing will always stand out: we needed the banking reform. We need medication. And while it remains a work in progress, there is certainly more stability today than we had last year or the years before.

 

I was at the THISDAY conference held in Washington DC last Thursday. The theme was: “Nigeria after the Banking Reform”. Sanusi, presenting an overview of the progress so far, declared that by September 30, 2011, we will draw a line under the banking crisis in Nigeria. Phase one of the rescue mission will have been completed. The AMCON MD, Mustafa Chike-Obi, assured us that non-performing loans would be about 5 per cent by then. The next phase, then, is the consummation of the marriages between the rescued banks and their suitors—for recapitalisation. When that is completed, all the banks in Nigeria will be adequately capitalised and those on life support will breathe without the oxygen mask. This is expected to be done by December 31, 2011.

 

But that is the critical stage we have entered now. In the next one week, five rescued banks will place their schemes of mergers and acquisitions before their shareholders at the extra-ordinary general meetings for approval. Oceanic Bank is seeking combination with Ecobank Transnational Incorporated; Intercontinental Bank has opted for Access Bank; Finbank is going with FCMB; ETB wants to go out with Sterling Bank; and Union Bank is seeking the hand of the African Capital Alliance (ACA). It’s been a long, tedious process. The banks that failed to find suitors have been nationalised and are now owned by AMCON. Significantly, no depositor has lost money. I think we have not wasted this crisis at all.

 

Will shareholders see wisdom in approving the merger and acquisition schemes at their EGMs this week? Analysts, both local and foreign, are agreed that this option holds a win-win for the shareholders, the banking sector, the capital market, the financial services regulators, the government and the economy. We have muddled through the crisis without losing focus. But if the shareholders fail to approve the business combination arrangements, government may have to nationalise more banks, as it did PHB, Afribank and Spring. Nobody wants that, I’m sure. More so, recapitalisation and an exit from the crisis can only have a constructive effect on the performance of the markets. We can expect a born-again banking sector to lead gradual and stable recovery in the stock market.

 

The final stage starts tomorrow with the Intercontinental EGM. Access Bank is hopeful of a good outcome and has been commended for its foresight and preparedness for the deal, having built expertise in M&A and engaged the world-class advisers. Oceanic Bank, Ecobank, FCMB, ETB, Sterling Bank, Union Bank and ACA can also hope for better outcomes in the days ahead. It’s been a long and painful journey to sanity. But all is well that ends well.


Source: This Day/ Simon Kolawole Live!, Email: simonkolawole@thisdayonline.com

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