NIGERIA - Sanusi Lamido Sanusi was appointed governor of Central Bank of Nigeria (CBN) on June 4, 2009 and since he assumed office, Nigeria's banking sector has known no silence. He came to power when the global financial and economic turmoil was over-boiling and Nigeria's economy severely affected. Former managers of the country 's economy said Nigeria was insulated from the crisis. Sanusi put that to test and the result was not just revealing but rotten. On August 14 2009, the banking sector was taken to the theatre and eight out of the 24 banks were diagnosed of serious contamination and marked for treatment to avoid further infection to the relatively healthy ones.

Depositors hitherto thought that all was well with their monies.

Governor Sanusi, who was just about four months old in office then, exposed the rot in the sector and earnestly commenced reforms on it.

He said the affected banks were found wanting in the areas of poor corporate governance practices; overt and undue exposure to the capital market, oil and gas sectors; poor risk management practices; distress signs through the banks' frequent resort to the interbank market and the Expanded Discount Window (EDW) at the CBN for financial accommodation; as well as inadequate disclosure and transparency about the banks' financial positions.

The Group Managing Directors/Chief Executives of the eight affected banks were stripped of their positions and taken to courts for prosecution, and CBN injected N620 billion into the banks to shore up their capital base.

To also aid the banks in recapitalisation, an Asset Management Corporation of Nigeria (AMCON) was created to mop up their non-performing loans. AMCON recently took over about N1 trillion risk assets from the banks and the banks now have healthy balance-sheet as a result of that, according to the CBN.

The reform which is still ongoing is not without resistance. Some interested groups and persons loyal to the former bank chiefs have continued to criticise the Central Bank governor, saying the reforms were based on some agenda.

Nevertheless, the reform in the sector has gone and is still going through structural and systemic transformations.

From the universal banking model which pegged the minimum capital base of banks to N25 billion in 2006, the new banking reform came out with different models and varying capital bases.

Banks are now to be categorised as national, regional or specialised banking. The Central Bank has approved provisional licences to nine banks to operate as commercial bank with international outlook. Their capital base is pegged at N50 billion.

Six other banks have also gotten approval to operate as commercial banks with national outlook and they must have a minimum capital of N25 billion. Two other banks received provisional licences to operate as regional banks. They are Equitorial Trust Bank and Wema bank.

As for the eight banks that were considered systemically very sick and bailed-out with N620 billion in 2009, they must either come up with a Memorandum of Understanding (MoU) on or before September this year for Merger and Acquisition or close shop and be sent to the Nigeria Deposit Insurance Corporation (NDIC) for liquidation.

The banks are Union Bank of Nigeria Plc, Afribank Nigeria Plc, Finbank Nigeria Plc, Oceanic Bank International Plc, Bank PHB Plc, Spring Bank Plc and Equatorial Trust Bank Ltd and Intercontinental Bank Plc.

Not satisfied with the dominance of cash in Nigeria's economy, and the need to make it cashless and modernise it, the Central Bank has given the public up till June next year to limit their banking transaction to N150, 000 per day or pay penalties.

The World Bank has described the move as necessary in modernising the economy as well as attaining the Vision 20:20:20.

"If Kenya can do it why not," the World Bank Country Director Onnoh Ruhl said on the cash limit policy.

Specifically, Sanusi's banking reform were predicated on a 4-pillar which include; enhancing the quality of banks; establishing financial stability; enabling a healthy financial sector evolution; and ensuring the financial sector contributes to the real economy.

Besides these measures, the Central Bank also rolled out other strategies to mitigate insiders' abuse and instill discipline for proactive and risk-oriented supervision through a new code of corporate governance for the banks and the implementation of risk-based and cross-border supervision in Nigeria.

Other measures include the limiting of the tenure of CEOs of banks to a maximum of 10 years, know-your-customer directive and the comprehensive review of 'Fit and proper persons' as managers and directors and major shareholders of banks. All these have helped to minimise the overbearing influence of the CEOs.

CBN's intervention in real sector

In the past two years as governor, Sanusi has performed his role as adviser to the President on economic matters in ensuring that there exist some measurable relationship between the real economy and the financial sector.

The CBN in its determination to ensure that there is no disconnect between the banks and the economy, adopted a hybrid monetary policy - a combination of market-based monetary policy measures and direct intervention of fiscal-like measures in some critical sectors of the economy.

The CBN in collaboration with other stakeholders took concrete steps to improve banks lending to the real sector; empower small scale entrepreneurs; create employment opportunities; alleviate poverty; ensure food security; and promote youth entrepreneurship

In order to achieve these, the CBN initiated a number of schemes and programmes.

In March 2010, the CBN approved the provision of N500 billion Infrastructure Intervention Fund as part of the bank's quantitative measures to create liquidity and support the development of the real sector of the Nigerian economy.

Out of the N500 billion, N300 billion is being applied to power and aviation financing, while N200 billion was to be utilised for Re-financing and Restructuring Facility (RRF) of banks' loans portfolio to manufacturing entities.

The Fund is financed through a debenture instrument issued by the Bank of Industry (BOI) and subscribed to 100 per cent by the CBN.

As at February, CBN said a total of 30 applications valued at N222.50 billion were received and processed by the technical Advisers, the African Finance Corporation (AFC).

Out of these, 21 projects valued at N185.172 billion made up of 16 airline projects valued at N147.542 million and 5 power projects valued at N37.629 billion were recommended for further funding under the initiative by the AFC.

The Central Bank approved the release of N185.172 billion to BOI on February 9, for onward disbursement to the participating banks.

Under the N200 billion Refinancing and Restructuring Facility (RRF), a total of 516 projects valued at N199, 671.4 billion or 98 percent of the approved N200 billion RRF had been utilised by banks through the BOI to refinance and restructure their outstanding manufacturing exposures.

Under the Commercial Agric Credit Guarantee Scheme (CACS), N101.38 billion out of the N200 billion has been released to finance 109 projects made up of privately-owned projects/promoters. Nineteen state governments received N1 billion each for disbursement to farmers' cooperatives and unions within their constituencies.

Impact of the reform

So far, analysts are of the view that Sanusi's initiatives have served as catalyst for actualising the vision of the government of Nigeria in bridging the infrastructural gap. Modest impact has been made in the last six months and it is envisaged that much impact would be attained by the end of the year.

Analysts believe that macroeconomic environment has improved considerably with inflation rate moderating to a low double digit. Inflation rate is currently 11.3 per cent as against about 16 per cent before Sanusi came on board.

The operation of AMCON has started to strengthen the balance sheet of the deposit money banks.

There is remarkable improvements in corporate governance and better risk management profile which engender a healthy and stable financial system, leading to restoration of confidence in the banking system.

There is increased financing of agric value chain in Nigeria from less than 1 per cent to 2 per cent of the loans portfolio of banks.

There is also stabilisation in the aviation industry which saved thousands of jobs and enhanced safety.

Analysts are watching to see whether Sanusi will continue to reform and regulate the sector or allow himself to be regulated by the operators in the next two or three years.

The expectation from the Central Bank governor is that he remains focused and committed to the goal of bequeathing a stable financial system that will oil the wheel of economic development on a sustainable basis.

Whether Sanusi will attain this or not, time will tell.

Idris Ahmed

Daily Trust/08/06/2011