Four Years Of Sanusi:The Making Of New Banking Era

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