Economics - West Africa - Nigeria - Finance - Bank
Nigeria: Financial system under reconstruction
Nigerian state governors, company chiefs and business gurus face arrest and imprisonment should they fail to pay up their debts to troubled banks, as Nigeria’s central bank struggles to rebuild the country’s financial system. Nigeria’s Economic and Financial Crimes Commission has began negotiations with other law enforcement agencies to secure the country’s borders to prevent the high-profile debtors from escaping the country.

A program, which began during former president Obasanjo’s term in office, saw the consolidation of a large number of little banks into large ones. To survive under the program, banks had to attain a certain capital threshold. Most banks borrowed money to reach the required capital threshold. Some later invested the borrowed monies in stocks, while others dished them out as loans, recklessly. Those Banks that invested their borrowed monies in stocks were severely affected when the financial crisis occurred, hitting the Nigerian stock market hard. For those who loaned out funds, it was realized after an extensive forensic probe, which began in June, that most had dealt irresponsibly with highly risky borrowers.

Incompetence, bad luck and sheer infringement of the law in certain cases have been blamed for the state of Nigerian banks. According to Central Bank governor, Mr. Lamido Sanusi, “what happened in the past was to allow the banks to fail and then the depositors and creditors end up paying the price, while the management and debtors get away with all the money they’ve made… what we do now is saving the institutions, protecting the depositors…” he said.

"If the individuals and companies involved refused to pay up, the government will be left with no alternative than to prosecute them immediately," Chairman of the anti graft commission, Mrs Farida Waziri, is quoted as saying. Among a list of debtors published by the central bank are high profile public and private entities including, Transcorp and fuel distributor African Petroleum, Ministry of Finance and Economic Planning, state governments of Delta and Ebonyi, Billionaire tycoon Aliko Dangote, listed among the world’s richest by Forbes magazine last year.

Rescue

The five banks guilty of dishing out outrageous loans have been rescued in a $2.6bn bail out package by the central bank of Nigeria (CBN). CBN governor, Mr. Lamido Sanusi, claims that the banks were undercapitalized and posed a risk to the entire Nigerian banking system. Mr. Sanusi embarked on a clean up exercise of the banking system as soon as he took office and is reported to be living up to expectation. "It has become necessary to use this medium to request the following defaulting customers of the affected banks to pay without further delay their indebtedness, failing which the banks will take all appropriate legal actions to ensure repayment," a statement from the central bank reads.

The unprecedented action against the banks has reduced the value of the Nigerian Naira currency, but given hope to a crumbling financial system. The CBN action is also expected to affect several ongoing projects. For example one of the companies listed by the CBN as being indebted to Intercontinental Bank disclosed that power projects being handled by the company will be further delayed as a result of the steps taken by the Central Bank. Reports also claim that since the CBN action was taken, no foreign correspondent bank is willing to honor letters of credit from their Nigerian counterpart banks anymore, and the confidence built up by the era of consolidation has been frittered away over-night.

The chief executives of the guilty banks, including some high-ranking officials have been sacked, and are in custody of the Nigerian police to be questioned over bad loans totalling $7.6bn taken on by their banks. The Director General of the Nigerian Stock Exchange, Mrs Ndi Okereke-Onyiuke has also been given a week’s ultimatum by the Securities and Exchange Commission (SEC) to explain her involvement in the accumulated non-performing loans in the five banks.

Jail

The the Securities and Exchange Commission has also directed that all the affected bank managing Directors be suspended from the council of the Exchange. According to a statement by SEC, "the Board of the Commission at its 43rd meeting held on the 19th August, 2009 noted the recent developments in the financial market and affirmed its full support of the action so far taken by the Central Bank of Nigeria (CBN) in sanitizing the banking system and has mandated its management to intensify surveillance of the Capital Market and its Operators."

Meanwhile, Mr. Lamido Sanusi has indicated that he will "continue with the audit and find evidence of what they’ve done…" and prosecute. "I would love to see them (those guilty, ed) go to jail" he said. Observers have argued that although the exercise is laudable it could prove difficult if the whole banking system is not revamped. "Corruption in Nigerian banks starts with the bank teller, you have to pay them a bribe to get your own money out of your own account", an observer noted.


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