Second phase of Nigeria bank reforms starts

Nigeria’s central bank has outlined the next step in reforms which could change the landscape of its financial sector by limiting the risks banks are allowed to take with depositors’ funds.

Central Bank Governor Lamido Sanusi said his banking reform programme was going “full steam ahead” with the support of acting Nigerian president Goodluck Jonathan, dismissing concerns that President Umaru Yar’Adua’s absence could stall momentum.

Jonathan assumed full presidential powers on Tuesday more than two months after Yar’Adua -- who had offered Sanusi strong public backing -- left for medical treatment in Saudi Arabia.

“The acting president has always been part of the decisions we have taken. He was always in key meetings, I have always briefed him, we are on the same page,” Sanusi told reporters on the sidelines of a banking conference in Lagos.

The reforms aim to overhaul a banking sector until now characterised by swollen institutions concerned primarily with outstripping their rivals’ asset growth at the expense of creating loans and growing their business.

Sanusi questioned the universal banking model and said an obsession with rapid growth without the right risk management frameworks had been at the heart of problems which led to last year’s $4 billion bailout of nine weakly-capitalised banks.

“The CBN outline of the next phase of the banking reform programme could not have come at a more important time,” said Razia Khan, head of Africa research at Standard Chartered.

“Given the (political) events of this week, and investor uncertainty about how things might play out, this will act to reinforce the view that reforms will continue,” she said.

Sanusi said he wanted to separate banks’ core lending business from more speculative capital markets activities -- such as stockbroking, asset management, private equity and venture capital -- to protect depositors’ funds.

“They should risk their own funds,” he said.

The central bank would introduce different capital requirements for banks depending on the activities they wanted to pursue and could regulate proprietary trading, he said.

“The question we are asking ourselves is must every bank compete in the same space, must every bank be an international bank. Can we not have regional banks, can we not have specialised banks,” Sanusi said.

Last year’s bank bailout sent shockwaves through a corporate Nigeria which had been basking in the glory of being among the world’s best performing frontier markets just 18 months earlier.

Sanusi acknowledged he had won powerful enemies by sacking bank chiefs responsible for reckless lending and publicly naming bad debtors including politicians and top businessmen.

But he urged other regulators of the Nigerian economy to follow suit.