Recently, the CBN Governor, Mallam Sanusi Lamido Sanusi had an interaction session with financial journalists, in Benin-City, Edo State, where he explained the rationale behind some of his actions and the roadmap for the nation’s economic growth. Our Money Market Correspondent, ODIDISON OMANKHANLEN, who was there, reports.

COULD you give us the background of what happened?
We have spent a long time talking about what happened. The world changed about two years ago with the Lehman Brothers’ collapse, the sub-prime markets, excessive leverage and concentration. Banks take a lot of money relative to their equity and excessive risks in some assets. There was a moral hazard in banking and with the regulators. When shareholders set up a bank and put in N25 billion and come to the CBN for a banking licence, what they were asking for is a piece of paper to collect money as deposits without collateral. It’s not a complex accounting principle but simple deposit takings, without questions asked by depositors to give bankers their money on trust. That licence is the quickest way to collect money without any question asked. Depositors know nothing about the bank managers and staff but know the banks only by a name. That is a moral problem. If your (bank) balance sheet is N300 billion, you have a balance of N250 billion to trade with and N25 billion in capital. People who control the N25 billion are running the institutions and they are organised, maybe core investors and top managers and they can manipulate the balance of N250 billion in their own selfish interest. Depositors don’t decide how lending is done, nor bank salaries or bonuses and contributions for socially responsible activities. So, who is to make sure that those that hold the N25billion does not place your (depositors) N250billion at undue risk in their quest for profit? Who has that moral responsibility? It is the one that gave the banking license, the CBN. So you expect us, the CBN, to keep to our responsibility. If we believe that the people are managing the money at variance to what we gave them the licence for, in plain terms, we have to act. That is what has happened.

There are insinuations in some quarters that most of your action, particularly the sacking of the bank chiefs last year, were pre-determined. Do you agree with that?
It depends on what you mean by pre-determined. If by pre-determined you mean, do I know who was going to be guilty before investigation or whatever, that will be a wrong presumption. If by pre-determined you mean, did I know there is a problem and was I determined to find and fix the problem? The answer is yes. Any person, who is a risk manager in the banking industry and did not know that at least some of those banks have problems, should not be a risk manager. The signals were clear. I have said this even before I became CBN governor.  The signals were there. When a bank has to borrow at 22 per cent, unsecured, compared to eight per cent with treasury bills, when a bank is unable to get other banks who have liquidity to lend to it and it has to go to CBN, because at that time it was not a major systemic liquidity issue, even at the time that these banks were at the expanded discount window; you have six or seven banks having huge balances sitting with the CBN, why were these banks not lending to those banks? Of course, I said it then and it got me into trouble with the CBN. I said it to everybody that there was trouble in the banking system, that the CBN was not looking into this issue and that the banking system would implode in the faces of all of us. I also told the governor, then, in the bankers’ committee, that he had no business asking banks to restructure margin loans and not provide for them, he was not happy with it.

So, if by pre-determined, what you mean is, did I know that, like what we did, in military parlance, like controlled explosion; you are aware that there is an explosive device somewhere, now you can wait and pretend that it does not exist and when it explodes it takes down everybody, or you can bring in bomb explosion experts, to detonate it, there will be some casualties, but those casualties would not be compared to what would have happened if you had not done it. Now, that is what happened in the banking industry.

You have to isolate the problems and make sure that we identify those institutions that potentially could bring down the entire banking system and address them. Is that pre-determination? Yes.
If by pre-determined you mean did I say I was going to remove any bank CEO, I didn’t even say I was going to remove any one of them, because I did not know the extent of the rot in the banks. I just knew that they had problems. I thought that it was just a simple problem of just identifying the margin loans, make them take provisions, disclose their losses and raise capital; if they cannot raise capital, make them find a way of injecting capital and getting them to merge with other institutions. I thought it was just a simple problem, I did not know that the problem was beyond margin loans.

What is the current state of the 10 rescued banks?
All the ten that you have, the eight banks that were sanctioned, including Wema and Unity Banks all have negative capital. The total negative capital in all of those 10 banks is about N1.5 trillion, and by the time we finish, we check the non-performing loans, in recapitalizing the banks, those that are doing rights issues, conclude their rights issues, those that are talking to investors, find investors, those that will merge, merge; every bank in Nigeria will meet the minimum capital requirement. This is a process that is ongoing.

What is the update on Savannah Bank and Societe General Bank?
It is not for the CBN to do anything about it. They went to court; the court said that the CBN should never have withdrawn their licences and that it was done in bad faith. The CBN did not appeal; they have to come with a programme on how they are going to open their doors. This would involve raising capital, obviously. We have the Asset Management Company; it is taking off non-performing loans (NPL) from banks. If they have NPLs and they have collaterals, the AMC would buy the NPLs, if they want some support, similar to the support we are giving other banks, we will give them - because, they have a licence and they are banks. Since we give them a licence, we have an obligation to help them so as to protect depositors. If they have a valid licence, the CBN will give them all the support that they need to open their doors for business, that is reasonable and that is consistent with the support that we have given other banks in difficulties. But it is not for the CBN to be working towards bringing SGBN and Savannah back in business, it is the duty of the shareholders and directors to go and look for their partners and business models and decide whether they want to continue in banking, even when they have the licence.

Some people are beginning to wonder when you will start kicking out CBN officials the same way you did to the bank MDs aftermath of the audit report?
If you are in a battle, the ground on which you stand should be secured. I have to make sure that the CBN is strong and secured while I fight. If, for instance, and I am not saying that this is the case, and it could be the case, if I had documented evidence that junior officers had escalated warning signals across to senior officers and nothing was done, why should I sack the junior officers? Is it fair? And if the people that is supposed to have acted have already left the bank, what should I have done.

We would still look within the CBN and if there are people who ought to have said and done things and they didn’t, they will face the consequences. There is no way you would go into a war and light a fire that will consume your own troops. But it will happen, because if you look at the four pillars we talked about, it is not just enhancing the quality of banks, we talked about governance issues within the CBN itself.