Fresh plot against bank consolidation

By Our Reporter - 27.01.2008

Unease has gripped the financial sector following credible hints that the Yar’Adua government is considering the reversal of banking consolidation. The consolidation exercise, which was engineered and supervised by the Dr. Charles Soludo-led Central Bank of Nigeria, was successfully concluded on December 31, 2005.

But in a move that is geared towards reversing the gains of this exercise, highly placed sources close to a presidential working group, disclosed to Sunday Tribune that the group has almost concluded work on a proposal to be presented to President Umaru Yar’Adua on “Banking Reforms”. This working group is charged with working on the details of the seven-point agenda of the Yar’Adua administration.

The chief economic adviser to the president, Tanimu Yakubu Kurfi, Sunday Tribune learnt, is coordinating the process. Although, our source revealed that Kurfi was sick recently and had to be flown abroad but could not confirm if he was back in the country.

The case against consolidation, our sources revealed, is based on the view that “Northerners” lost out in the consolidation process, which was believed to have “placed the banking sector more in the hands of the Southerners”. This ethno-regional view of things, sources stated, is largely responsible for the move, even though it is being clothed in the “language of economics, fiscal policy and even development”. The working group is said to have considered the statistics indicating that consolidation shrank northern ownership of the banking sector to only eight per cent. Members of the inner circle of the Yar’Adua government who consider this “totally unacceptable” have resolved that the best way to reverse this without risking a backlash from the south with the resultant political crisis is to effect regionalisation of the banking sector which would enhance greater northern ownership.

Although a few voices in the group were said to have warned that the reversal may create un imaginable crisis in the economy and destroy growing confidence in the Nigerian economy, particularly the Stock market, the hawks in the group were said to have dismissed the predicted crisis on the basis of the fact that access by Northerners to the commanding heights of the economy through the banks, including bank directorship and its associated pecks, have been lost through consolidation and would have to be regained “anyhow”.

The deconsolidation that is being proposed as a policy response to the perceived “southern domination” of the banking sector include effectively limiting banks to strict zones of operation, that is regions. Despite the boom in the number of branches which has resulted from consolidation, deconsolidation will be advertised as the best method for achieving the aim of multiplying the number of banks in the country, and filling the landscape with supposedly smaller but nimbler banks.

The working group will also recommend that should the government consider regionalisation unattractive, it might be desirable for the public sector to acquire distressed banks such as Societe General Bank and Savanna Bank which would then be recapitalised and unleashed to compete in an altered financial landscape. Such acquired banks can then be used as instruments of reversing the “loss” of the “northern” region in the last consolidation, reasoned the members of the group.

Sunday Tribune gathered from informed actors in the financial market that this plan to insert government as an owner and operator of banks reflects the statist inclinations of the leading lights of the Yar’Adua administration. It is argued by the core of this group that a government whose hands have been removed from the commanding heights of the economy would have less “largess in the area of economic activities that it can distribute to its own supporters”.

Sunday Tribune learnt that bank chiefs, who already have hints of this proposal, are worried by the severe disruption that deconsolidation and regionalisation would cause and the ethno-regional undertones that are believed to be behind this. It is feared that it would endanger the health of the banking sector as the banking regulators would be overstretched. A financial expert added that there is nothing in the new plan that can guarantee the safety of so many small banks.