Last week, I gave a vivid image of the situation of the banks – at least as seen by ordinary eyes – when Sanusi II came on board. That was necessary so as to adopt a compare-and-contrast strategy in our analysis. Two years after Sanusi’s accession to the CBN throne (by 31/12/11), the average liquidity ratio in the industry had risen to 69 percent and all the banks met the minimum liquidity ratio of 30 percent; the cash reserve ratio was 8 percent; the average capital adequacy ratio was 18 percent, while one bank failed to meet the minimum CAR of 10 percent. By 2012, the capital adequacy ratio was 18.07 percent; all the banks met the minimum liquidity threshold of 30 percent, while the ratio of non-performing loans to total loans decreased to 3.51 percent (4.95 percent in 2011). The banking industry also recorded a profit before tax of ₦525.34 billion (loss of ₦6.71bn in 2011).
By June 2014, the industry NPL ratio was 3.5 percent (3.23 percent on 31/12/13). Although the industry ratio was within the regulatory limit, six banks failed to operate within the prescribed threshold. Total NPLs also grew to N379bn in June 2014 (N324bn, 31/12/13). All the banks exceeded the minimum liquidity ratio of 30 percent, with the industry average of 42.66 percent. A stress test conducted by mid-2014 revealed that the banks were more sensitive to credit concentration and exchange rate risks than to other risks. Liquidity and interest rate risks had tolerable effects, except in a few cases where volatility in interest rates produced a large impact on account of duration mismatches. Overall, the banking industry stress tests suggested that the industry was considerably resilient.
On the whole, given the circumstances in 2009 and looking at the figures, just the figures, one may well give a standing ovation to Sanusi. He wouldn’t even wait for the standing ovation from anybody; he gave the ovation to himself, profusely and severally. Hear him: “I met a third of the banking industry’s collapse; we saved it; in my tenure as a governor, not a single Nigerian or foreign depositor or creditor lost money in any Nigerian bank; we brought inflation down from 15 percent to 7 percent, we built up reserves, we started financial inclusion, we are getting banks to lend to agric, we started Islamic banking” (Guardian, 10/1/14, p.20).
He further said: “As at the time I came into office, several things had collapsed. From banks to stock exchange, they had crashed. Inflation was at 15.6 percent three months before I became Central Bank governor; there was already instability in every sector of the economy … When I look back, I can point to several things that have changed after our arrival and till date … As far as instability and exchange rate is concerned, we have worked tirelessly to ensure things work out well for the economy; we also introduced cash reduction in the system … against all odds, the cashless policy has worked and it’s still working today. In 2012, CBN spent N38bn on mint printing, down from the N49 billion spent in 2011. In 2013, we spent N35 billion and, in my 2014 budget, my plan was to spend N30 billion. So we have been bringing down the cost of printing. Under the Fiscal Responsibility Act of the CBN, we contribute 80 percent into the Federation Account. In 2008 before I became governor, CBN contributed N8 billion into the Federation Account. In the first four years of my term as CBN governor, we gave government about N279 billion. The National Assembly called to commend me. We have been able to give N600bn from surplus alone and the money is made from prudent finance, cutting down currency expenses; every over headline has gone down” (Sanusi interview, 23/2/14).
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“My legacy is given; my legacy of low inflation, stable exchange rate, reformed and well-governed banking system, robust reserves; the legacy of an independent CBN, a legacy of financial inclusion. I am happy and I am proud of what I have done” (Guardian, 21/2/14).
So, like my brother Maurice Iwu, Sanusi has already graded his own scripts and the score is AA. Some commentators also scored him highly, citing MPR consistency which engendered stable business environment and enabled firms to plan, the banking reform which reduced corporate rascality in the banking system, the corporate governance project aimed at eliminating ambiguities and help stakeholders tie up to scratch with global practices and ensuring that banks become banks, performing traditional banking services instead of merely buying government bonds, establishment of AMCON which played a significant role in containing the NPL crises and pushing financial inclusion to the front burner; a process driven by agent and cashless banking, consumer protection and three-tiered KYC rules (Arize Nwobu, “Sanusi and the art of central banking”, BusinessDay, 27/1/14, p. 23).
Actually, if we look at the figures in 2009 and in 2014, we should actually join Sanusi in singing his CBN praises. But development and performance are not just about figures and statistics. That is why economic growth is different from economic development. Furthermore, when these figures are examined within the context of his four pillars (Enhancing the quality of banks, Establishing financial stability, Enabling healthy financial sector evolution, and Ensuring that the financial sector contributes to the economy), they may not be as attractive as they are when they stand alone. Even the figures have started wobbling slightly as indicated by the Financial Stability Report of June 2014. The general figures in June 2014 were not as exciting as at they were on 31/12/13 and, most unfortunately, the report lamented: “The key challenges in the banking industry remained weak corporate governance and inadequate risk management practices. The rating of the control functions generally trended towards ‘needs improvement’, owing to non-implementation of some previous examiners’ recommendations. Improvements were, however, noted in the internal audit and financial analysis functions of most banks.”
Thus, the corporate governance and risk management on which Sanusi devoted most of his attention still have some k-leg. This issue is not just the outcomes, but the process. We shall look at some of these process-related issues and how they took the shine off some of the fine figures that were recorded by the Sanusi regime. (To be concluded)
NB: For technical reasons, we were unable to publish this article in Ik Muo’s Tuesday column this week. The regular Tuesday publication resumes next week.
Ik Muo
