By Odilim Enwegbara

There has been confusion since the announcement of the government policy that nationalised three ailing banks: Spring Bank, Bank PHB and Afribank. These banks have now renamed as Enterprise Bank, Keystone Bank and Mainstreet Bank, respectively with almost N700bn of taxpayers’ money sank into them in a life-saving adventure.

First, there is no clear policy explanation why government took the action; why it injected such huge amount of taxpayers’ money; why rebranding these banks (should it be to confuse unsuspecting customers or new banks with new names?); and why hiring the immediate past CEOs of Diamond Banks and First Bank.

There is also no clear cut explanation why depositors shouldn’t put up a run on these three banks; and most importantly, what are government’s exit strategies (that is, how to make sure that besides depositors cashing out that at the same time public money would be safe at the end of the day), when eventually these unhealthy banks precipitate into financial comas? Are we being made to believe that the present management would eventually be firmly held responsible for these banks’ eventual demise?

We need these kinds of policy statements from those who are handing hundreds of billions of our public money to the new management teams, who have no risk responsibilities toward the money handed over to them if and when government removes the present financial life-support machine that keeps these banks presently afloat.

Why is no one posing a question as simple as: if these banks could not compete when they were not singled out as very unhealthy banks to the extent that they now need government financial support to remain alive, how sure are we that they are going to be turned around? This is especially now that everyone is reading on the pages of national newspapers that they are sick to the extent that without government life support machine they would have since gone down the drains.

I am concerned because without first addressing the root causes of their problems, we have gone ahead in our usual fire brigade style to give them such expensive doses of life-support medication. And we did so without first being clear about how we are going to cash out should their insolvency continue to drag on and on.

Now that they are government banks with all the short-sighted government decision-making, these quasi-parastatals have to follow the rules handed to them for political exigencies. Since he who pays the piper always calls the tune, their new management will not have a free hand running these banks. Moreover, now that they are government banks, it is going to be difficult for the CBN to regulate them the same way it regulates other competitors in order to safeguard government money.

So, whether we like it or not, not only is the inevitable run on these banks going to happen, but of course, in a fractional banking system like ours which fully depends on public confidence, it is going to be almost an impossibility to believe that depositors will go ahead patronising these banks when it is obvious that there is no single thing that makes them more attractive than their counterpart banks publicly assumed ‘healthy’.

Since product offerings are the same, interests charged the same, healthier banks will only be where everyone would like to keep their hard-earned savings and incomes if they want to go to bed every night with their eyes closed.

Correct me if I’m wrong, why is the government injecting such huge public money into private firms like it did in the three banks, without thinking first, considering that liquidation options in the future would be more costly than if they are liquidated right away? Also, I am concerned that no one is disclosing at what costs government has loaned to these banks our money. Who, if any, are we going to hold responsible should (and when) these banks finally go down the drain with such huge public money?

The earlier we realise as a people that our banking industry is still built on faulty foundations, which require full overhauling before loading it with more weight to carry, the better we should be clear about the imminent restructuring of the industry itself. Universal banking as we operate here is today so obsolete and disjointed that it is obvious that failures like these should be inevitable from time to time.

Reforming our current universal fractional banking (that is banking based on the belief that it is only a fraction of the money depositors keep with a bank that they would come from time to time to withdraw, which should give the banks enough deposits to play around with, especially in loan facilities) is now just necessary. It should make sure that the banks no long go into financing imports of cheap Chinese and Indian made goods, which displace and strangulate our local infant industries. The policy thrust here should be the banking industry that works hand in hand with local manufacturers and industrialists in providing the support investments that help them grow and become competitive in their productive activities and generate jobs for millions of unemployed citizens.

If a bank, like any other private business, is unable to compete in a level playing field referred by the CBN, of course, there is no better thing to do that starting the painful process of allowing it undergo a natural death. All we need to do is to ensure that unsuspecting depositors have their savings rescued from the bank before allowing it to finally go under. That is what economic and financial democracy should be all about. This is better than trying to keep the bank alive enough to help the big boys and girls, who have made wrong investment decisions, to first cash out before allowing to go under.

* Enwegbara wrote from 33, Lord Lugard Street, Asokoro, Abuja. He can be reached via basil_enwegbara@yahoo.com, (07038501486)

Source: Punch