Central bank governor promises to clean up the banks
Nigeria has been drifting. In the two years since president Umaru Yar’Adua took office, much has been promised in the way of reform. Little has been delivered. Progress in tackling corruption has reversed. Measures needed to address flaws in the electoral system are blocked.
And new legislation aimed at re-energising the oil industry has languished in parliament.
Excitement in investor circles about the country from which one in five black Africans hails has given way to unease.
The banking system, which was beginning to leverage Nigeria’s oil income and fund businesses across Africa, is now hobbled by toxic assets. Regulation and disclosure lagged behind explosive growth of the sector. But until now regulators sought to shield themselves by blaming the collapse in the local market on the global meltdown.
Restoring confidence is a priority if the foreign capital needed to sustain Nigeria’s development is to flow again.
There are, at last, some hopeful signs. Lamido Sanusi, the new central bank governor, has been refreshingly honest about mistakes made and bold about the measures needed to address them. His appointment could help to resolve one of Mr Yar’Adua’s main weaknesses the lack of a cohesive team of technocrats to drive a reform agenda.
Read Also: Umaru Musa Yar’Adua: Remembering a great statesman
Mr Sanusi, a former risk control expert, aims to lay bare the extent of bank exposure to the stock market through margin loans. This is estimated at between $6bn and $10bn or a third of the capital base of local banks. Enforcing disclosure is a necessary first step. In a welcome sign that the new governor will adopt a more market-friendly approach than his predecessor, he has also pledged to ease interest rate and foreign exchange restrictions and to lift a 10 per cent cap on foreign ownership of banks.
Foreign investment will be no panacea. But the institutional knowledge that foreign banks bring should improve competitiveness in the sector.
Until it is clear that Mr Sanusi can drive through change, foreign banks are likely to remain wary. Individuals with reformist ambitions have frequently emerged in the 10 years since the end of military rule. Yet high hopes have been dashed repeatedly. The governor, like others before him, will no doubt face resistance from vested
interests. If he is to succeed in cleaning up the system, the president must back his independence and the IMF should step in, as requested, with technical assistance.
