CBN stirs market confidence with shifts in banking policy




After a series of harsh words which depressed the banking industry, the recent recant of the Central Bank of Nigeria (CBN) on some core issues in its industry reforms is set to blow some desperately needed air of optimism over traumatised operators.


A succession of policy reviews by the apex bank, especially that on the controversial proposal to sell the bailed out banks, may have been designed to send positive signals to the Nigerian financial markets to ease what has been described as a year-long tension that kept them in slow motion. At a meeting last week with the shareholders and management of the troubled banks, CBN had agreed to leave their recapitalisation in the hands of the shareholders, effectively jettisoning the plan to sell the banks to new investors.


Similarly, it withdrew the requirement that banks disclose executive compensations and bonuses in their annual accounts. The limit on credit to directors and significant shareholders, and the general provisioning of one percent for all loans were also relaxed. In what observers saw as a major volte-face, Lamido Sanusi, CBN governor, told the shareholders that having secured depositors’ funds with the reforms and other measures instituted within the last few months, the focus now is to salvage some value for the shareholders.


“The move is excellent and in the right direction,” Bismarck Rewane, chief executive officer of Financial Derivatives Company, told BusinessDay at the weekend. He said the fact that Sanusi has brought all the stakeholders together is a commendable move, as it shows that he truly cares about the industry and wants its growth.


Rewane, however, expressed reservations about the existing shareholders’ ability to meet the recapitalisation requirements. He doubted their ability to raise $200 million to recapitalise the banks. “Do not forget that these banks’ capital base was not only eroded, but was also in the negative. So, how do they hope to do it?” he asked.


According to Johnson Chukwu, managing director and chief executive, Cowry Asset Management Limited, the policy review may be an indication of a  “a change in regulatory style from combative to consensus approach. I think that at the current stage of the ongoing banking industry reform, the CBN has realised that for its reform process to be successful, they need to work with the operators, the shareholders and other stakeholders.


“Besides, the action was mostly in response to the concerns expressed by operators on the negative implications of its earlier policies. For instance, it is obvious that no serious investor will invest in the affected banks without the consent of existing shareholders. Recent judicial decisions restoring the ownership of Savannah Bank and Societe General Bank clearly confirm this position.” “I think he now realises that due process was not followed,” Victor Ogienwonyi, managing director, Partnership and Investment Company, said of Sanusi’s earlier decision to sell the banks. “It is a case of doing the right thing wrongly. No one can dispute the fact that there was rot in the banks.”


‘’After the stress test, the boards should have been called and given the report and asked to recapitalise within a time frame of not more than 180 days, and the management sacked in exchange for the cash infused by the CBN to save depositors’ funds. I think he meant well, he was only a bit hasty. I congratulate his courage to reverse himself. Only a smart man knows that, sometimes, he may be wrong,” Ogienwonyi said. Victor Ndukauba, investment research unit, Afrinvest, said: “If indeed the CBN has back-pedalled on its earlier directive to banks to disclose executive compensations and bonuses, it is a welcome development. It’s rather curious to expect that the break-down of compensations to employees be made public, given the obvious security implications and attendant concerns in the country today. What a company agrees with its employees as regards compensation remains a private affair, especially where the recipient is not a public official,” he said.


“The impact of these on the industry and economy remains limited though. However, it should be more beneficial to the ongoing reforms as it would reassure concerned industry watchers and stakeholders of the listening ears of the regulator.”He was of the opinion that until the banks are handed over to the shareholders, the CBN governor cannot be talking about leaving the recapitalisation of the banks in their hands, adding that the present development is akin to blackmailing them. However, Boniface Okezie, president, Progressive Shareholders Association, said that the position of the CBN did not meet the large demands of shareholders.


Okezie said they had demanded that foreign or local investors desiring to inject funds into any of the troubled banks must negotiate only with the board and not the CBN appointed management. “I told him during the meeting that shareholders’ opinion should be sought but he said no”, he said.






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