NOT
many could ever imagine that Chukwuma Soludo’s imposing figure in the
banking sector would fizzle out within the same five years he made that
dazzling reputation. But suggesting that an equally big name, Sanusi
Lamido Sanusi rattled the banking sector with his unprecedented sacking
of chief executives of five commercial banks few months after his
appointment.
Even before his confirmation, experts had suggested that Sanusi,
being a banker, would usher in an era of “real” banking regulation. But
the scale at which he moved against established players was not
envisaged.
The rumble of the first batch of ‘distressed’ banks brought to the
fore the sheer courage the then new CBN governor brought with him. It
also marked the beginning of debates and legal fireworks that would last
for his entire regime. Without any notice, five chief executives were
ousted while CBN’s appointees too charge of the interim management.
Three more banks fell not long after the first shocker.
If the intervention was controversial, the bailout package Sanusi single-highhandedly administered to the banks was more contentious. Many
sought to know whose responsibility it was to extend such assistance —
CBN or the Ministry of Finance? That the special injection was a loan
that would be repaid did not go down well with the majority, including
the National Assembly, which invited the governor for some explanations.
Where was the money sourced? Was it a form of quantitative easing?
Shouldn’t there be recourse to the lawmakers for approval?
Indeed, issues around the guarantee were addressed except that many
believed such balance sheet expansion could be avoided if the CBN
exercised a little more patience and caution.
Having burnt their hands in margin trading following the capital
market crash of 2008, the banks were said to rely excessively on the
expanded discount window (EDW) to meet daily obligations to customers.
Sanusi said the practice amounted to postponing the evil days while
shareholders of affected banks said the institutions were only passing
through a phase and that the global financial meltdown was partly
responsible for their predicaments.
Of course, a new brand of rhetoric on “why we intervened” pinned
to Sanusi’s deftness and prominence resonated across the country: at
financial symposiums and other public fora where he spoke. The governor
carried on with his defense, while those who suffered the brunt were
subjected to prosecution, alleged constant harassment and sometimes
violation of human rights. Shareholders and sundry stakeholders, in
turn, went to courts to challenge the actions of the apex bank.
The first impression Sanusi’s intervention gave was that Soludo’s
recapitalization was a fraud or that the equally bright chief regulator
mismanaged the process. That argument is one debate that might last
forever, as the ongoing reforms that seem to cast shadow on the
propriety of the much-celebrated Soludo’s consolidation are also being
faulted.
One-by-one, Soludo’s scorecard that was once celebrated seems to
shred just as every policy he instituted or sustained has been reversed.
Prominent among the policies that have given way to new thoughts at CBN
is specialized banking.
Soludo ran a one-size-fits-all model described as universal banking.
Under his regime, banks, fueled by consolidation, exploded in sizes and
operations leading to emergence of institutions could harness
opportunities across the financial system with a single license. The
era was characterized by increase in financial innovations, number of
financial products and aggressive invasion of banks into insurance,
mortgage, capital market and bureau de change
The system generated huge opportunities for banks to create
additional value for shareholders and contribute more to national
economy. Amid enormous opportunities, there were questions bordering on
skill inadequacy on the part of management. There were also allegations
that several banks explored unintended loopholes created by the system
for financial malpractices. The banks were also accused of abandoning
their core mandates for ancillary services.
The rapid inroad of banks into different financial markets gave
birth to the notion that the banks “are too big to fail” with attendant
compromises. But Sanusi felt he needed to establish new boundaries.
Hence, he went further to categorize banks into regional, national and
international, with many choosing to play national. But he did this not
without facing criticism of how the regional format merely duplicates
the roles of micro-finance institutions.
Besides, the leverage the banks lose in universal banking, they
gain through holding company structure. And that has become a practice
with more and more operators establishing holding companies, a situation
many analysts say is a return of memory of humongous universal
operation.
Also, not many banks have started doing real inter-mediation since
the policy has come to stay. They rather mop up funds from the public
and pour it on government vault through bonds. The next most lucrative
business is foreign exchange trading (both legal and illegal).
The introduction of specialized banking amounts to policy
recycling. Universal banking was introduced in 2000 based on impression
that it was the needed option. Soludo sustained it because of
overwhelming confidence in its efficiency. But Sanusi changed it on identified “weak regulation” of the approach.
In about four months time, there will be crucial changing of guard
at the apex bank. The overall assessment of the performance of the new
model or what seems to be the easiest solution to probable challenges
will determine whether the policy will stay or not
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