Global financial flu finally catches up with Africa

The result of Soludo’s tough reforms was a massive consolidation of the banking sector that saw the number of commercial banks reduce from 89 to 25 with an aggregate capital base of $5.9bn (Sh442bn) from the pre-consolidation base of $3bn, virtually double the amount of capital.

This meant that there was literally $3bn (Sh225bn) of new investment in 2005 which was the single largest non-oil sector investment in one year.

Comparatively, the Kenyan banking aggregate capital base was approximately Sh168 billion or $2.2bn as at December 2008 which is $800m shy of the Nigerian aggregate capital base before consolidation took place.

Soludo’s reforms had made the Nigerian financial industry the darling of emerging market investors with over $500m of the new investment coming from foreign institutional investors. As stated earlier, margin lending was only one of the problems facing the Nigerian banks.

A poor lending regime, some say, which had elements of cronyism, to borrowers who did not have the ability to pay for their business loans also brought the chickens home to roost.

To the Central Bank of Nigeria’s credit, they have maintained an extremely tough stance on their commitment to reform and maintenance of corporate governance principles.

Tough decisions
After providing the $2.5bn capital injection to the five banks in question, the CBN proceeded to sack the CEOs of the five banks, some of who were significant shareholders in the banks themselves.

The regulator has also published the names of the top 200 borrowers of the defaulting loans.

What can we learn from the Nigerian experience? Firstly, that it is possible to have a Central Bank that not only talks the talk, but walks the walk.

It is one thing to publish papers and issue statements about commitment to financial sector reform, but it is quite another to make tough decisions like injecting capital and looking for new investors to take over problematic banks rather than the mundane act of putting a bank under statutory management.

While injecting capital, the Nigerian government was quick to clarify that it was not looking to nationalise the five banks, but was ensuring that the banking sector stability was maintained as it looked for new investors to take over the banks. Continuity: that is what the Nigerians are committed to.

Capitulation: that is what statutory management does. Kindly show me any bank that has ever come out of statutory management and continued to do business and I’ll be pleasantly surprised as will the big depositors of such a bank.

Secondly, Soludo’s successor, the current Governor Lamido Sanusi has displayed a remarkable tenacity and exceedingly thick skin by publishing the names of the top 200 defaulting borrowers.

Such a list invariably will have names that can pick up the phone and direct dial to the Nigerian State House seeking censure of the Governor at the highest level for such abject humiliation.

Not to mention the fact that the chairmen of the boards of the five banks whose CEOs have been fired will probably be in the reception of the same State House waiting to hand over their appeals for the regulator’s decision.