How We Saved 50 Banks, By Soludo
From Cletus Akwaya Oyebuchi Ezigbo in Abuja and Kunle Aderinokun in Enugu
Governor of the Central Bank of Nigeria (CBN), Prof. Charles Soludo, yesterday in Abuja said the N25 billion minimum capitalisation requirement introduced last month by the apex bank has averted the collapse of about 50 banks.
Soludo who was Special Guest of Honour at the closing ceremony of the 45th annual conference of the Nigerian Economic Society (NES) said by the time the new policy was being unveiled, 11 banks were unsound while 14 others were marginally sound.
"By 2003, 11 of the banks were unsound and we could have taken them out the next day. If you do that, there will be a massive run on the healthy ones and they would have gone with them (unsound), we were on the verge of a major banking crisis, we would have had 40-50 banks collapsing," Soludo said.
While further justifying the new capitalization policy, the CBN Governor disclosed that none of the nation's banks could successfully fund a business of $400 million unlike in other countries where banks had capitalization in excess of their country's GDP. He cited two cases in France and Japan where two banks had capitalization in excess of 70 and 40 per cent respectively of their country's GDP.
Soludo said the country's largest bank, First Bank of Nigeria Plc had admitted two years ago that it was still not big enough and had set up a target of N100 billion capitalization before the advent of the new policy.
"There was a time when the three biggest banks in Nigeria were among the 500 biggest banks in the world, today, none is among the first 1000," he added.
The Governor disclosed that of the country's 89 banks, 59 controlled about 20 per cent of the business while the remaining 30 controlled 80 per cent of the businesss. This, he noted, was a clear indication that most banks are rent seekers.
"There is one parastatal which has N20 billion in banks, N15 billion and $50 million is in one bank with a capital base of N1.1 billion. What this means is that you can buy treasury bills at 14.5 per cent and in one year, make billions of naira and then you can start playing Golf," he stated. Soludo added that, "a time has come we decided, painful as it might be as individuals, to say enough is enough."
The new policy, according to the Governor, has been endorsed by a lot of groups for its potential to make the banking sector more reliable. He named the groups which had expressed support for the new policy to include the NES, Institute of Chartered Accountants of Nigeria (ICAN), Nigeria Labour Congress (NLC), Manufacturers Asso-ciation of Nigeria (MAN), National Association of Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA), among others.
"Even the banks themselves have seen it at last and have pledged to co-operate with us," he further said.
He said the reforms in the banking sector were also a response to years of complaints by manufacturers who have often cited cost of finance as impediment to the growth of the real sector.
The Federal Government, he noted, had commenced efforts to address the other problems bedeviling the growth of the productive sectors such as poor infrastructure and security of lives and property.
In the area of power, he said the power sector reform bill due for passage by the National Assembly would revolutionise the power sector and attract fresh investments as government funding through the budgetary framework alone had proven inadequate.
Also, he said the number of police men had multiplied by about four times since 1999 as part of government's effort to improve security service. He, however, acknowledged that something needs to be done in the area of training and provision of equipment.
Soludo also disclosed that about 250 fraudsters were currently being detained by the Economic and Financial Crimes Commission (EFCC), an indication that something is being done in the area of sanctions for crimes.
For Nigeria to industrialise, he said the country must move on to identify how to accomplish set targets in areas where she has competitive advantage.
He spoke of a new strategy where the Federal Government is considering a deliberate policy to encourage the emergence of about 50 outstanding businessmen cum industrialists in the mould of Alhaji Aliko Dangote.
"We must be able to create a conglomerate of Nigerian champions in today's globalised world," he stated, recalling that with a turnover of N15 billion in 1998, Dangote had expanded his conglomerate to a turnover of N169 billion by the end of 2003 with over 70 per cent of that coming from the real sector. He said Dangote's sugar cane plantations alone are employing about 11,000 people.
However, chairman of Senate Committee on Banking, Insu-rance and Financial Institutions, Senator A.Z. Sunday, yesterday wrote letters soliciting the support of other members of the Senate for the passage of the Bill which seeks to uphold the principle of categorization of banking institutions in the implementation of the N25 billion capitalization ceiling for banks in the country.
The Senator held that the proposed amendment is not intended to interfere with the operations of the CBN but to effectively allow the legislature perform its oversight functions on such issues as empowered by the constitution.
He said the amendment "is a straightforward save for the issues of capitalization and categorization of banks which has generated a lot of controversy nationwide".
According to him, the Banks and other Financial Institutions (Amendment) Decree No. 40 of 1999, Sub-section (1) recognizes categorization of banks but CBN by implication is asking for outright cancellation of categorization in its proposed amendment.
He said there are several relevant issues which his Bill is seeking to stimulate, such as the issue of whether the categorization will take the form of national or regional banks, categorized in terms of functions or based on their sizes as proposed by the Senate Committee.
On the argument that CBN is supposed to be independent and autonomous, the lawmaker however said the degree of such independence all over the world is a direct function of the level of economic and political development of a particular country.
Other key elements of the amendment Bill also had to do with appointments, accountability, and the issue of currency.
While commenting on the bill, Senator Jonathan Zwingina said he is opposed to the way the CBN is going about the reform, saying it might bring about chaos.
Senator Ken Nnamani said the matter should be handled cautiously so as not to squeeze smaller banks out of existence.
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