The Nigerian banking industry and regulatory issues

Donald

From the days of John the Baptist to this day, the kingdom of God suffereth violence and the violent taketh it by force'[Matthew,11;12]. While Christ was talking of the violent beginnings of the church, we are here discussing the violence that has infested the banking industry in the past 25 years; specifically since the days of Structural Adjustment Programme. We can thus reconfigure the biblical passage to read that ‘from the days of SAP to the present day, the banking industry has suffered violence and the violent has taken it by force’. I am not referring to physical violence inflicted by sophisticated robbers which has led to multiple deaths[bankers, customers, policemen and passersby] and occasional closure of banking halls across the land, the latest of which happened in Ijebuode, Ago-Iwoye and Oru in Ijebuode-North LGA of Ogun State two weeks ago.

I am also not referring to financial and economic violence inflicted by those who are saddled with the responsibility for the economic wellbeing of these banks but who turn around to serially rape and violate them, behaving like the typical hired hands[as against the good shepherd]. Page 65 of Thisday of 14/8/10[Page 65] contains a list of some of those who recently inflicted financial violence on the banking industry; people who are apparently possessed by the spirit of acquisitiveness.

My interest in this treatise is on ‘regulatory violence’; the violence inflicted on the banks by the regulatory authorities. These regulatory quakes which have come in rapid successions started in 1986, with the enthronement of SAP by the self-styled evil genius; the same one who is desperate to return to Aso Rock so as to repair the system that he destroyed.

Before the advent of SAP, the Nigerian banking industry was characterized by an admirable calmness and the only worry then was whether the monetary policy regime was tight or loose. It was a control-prone era and the banks operated as dictated by the annual monetary policy and foreign exchange circulars. These circulars controlled everything-interest and exchange rates; credit ceilings and sectoral allocations; branch expansion quota under the rural banking scheme and other related issues.

Some people have argued that what we experienced then was not actually banking. SAP changed all that by introducing a regime that shook the banking industry to its foundation. Every aspect of banking, except opening of branches, was deregulated. New institutions and laws were introduced and an unholy trinity of privatization, commercialization and deregulation became our economic gods. More banks were licensed with some of them operating from hotels and breaking even in a matter of months. Efforts were also made to wean the banking sector from dependency on public sector deposits to the extent that MDAs were ordered to open retail accounts with the Central Bank of Nigeria.

The entire banking system was turned ‘upside down’ as banks made efforts to comply with the new strange regime which also unleashed a competitive volcano within the industry especially between the old brigade which wanted to protect their territorial integrity and the new generation banks which wanted to prove that new brooms sweep cleaner. The process led to riotous competition and regulatory laxity as several initiatives were being introduced simultaneously. The operators allowed their greed to overrun their sense of judgment while people got to positions they were not qualified for because of the dearth of capable professionals and people were promoted beyond their competence. Policy summersaults and government indebtedness and interference in banking operations were also very prevalent and all this culminated in distress that ravaged the industry and the entire economy

The process of managing the contagious distress led to a lot of regulatory interventions in form of hitherto unknown rules and actions especially by the NDIC, which itself was the outcome of SAP and allied developments. By the time the banking distress ended and the remaining banks tried to pick up the pieces of what was left of the industry, the problem of round-tripping and other unholy practices emerged. Again another round of regulatory quick-fixes was introduced to contain the situation. But the next major regulatory violence was unleashed in 2001 in the form of the universal banking policy. Again, the Nigerian banking industry was turned ‘upside down’ as a wholesale reconfiguration was ordered and banks had to scramble to meet the new operational imperatives. Under this scenario, banks had the right to engage in all or some of the activities: normal banking activities[current, savings, & deposit accounts, cheque collection and payment, credit facilities and forex transaction] to be regulated by the CBN; clearing house activities to be regulated by Nigerian Interbank Clearing System & Nigerian Automated Clearing System; Capital Market Activities[issuing, underwriting and advisory services] to be regulated by Securities & Exchange Commission and the Nigerian Stock Exchange; and insurance activities[agency. brokerage, underwriting; lost adjusting and reinsurance] to be regulated by National Insurance Commission. The Central Bank was the overall regulator. By this policy, the banks had actually become all things to all men and the pigeonholing of financial services into several compartments was abandoned and the financial supermarkets model became operative.

Of course, it must be agreed that the merchant banks had lobbied relentlessly to be allowed to collect retail deposits so as to access ‘cheap funds’-just like the commercial banks and this clamour was satisfied by the Universal Banking framework. This was also in tandem with developments in the global banking industry. Banks had to brainstorm and run helter skelter to conform to this requirement and that was just as they were just emerging from the tremor caused by distress and related problems. By this time, the classification of the banking industry had taken complicated and confusing dimensions as we had the old generation banks, new generation banks, millennium banks,[like Platinum and Reliance Banks] converted banks[Like Intercontinental and Metropolitan banks], and resuscitated banks[like National & African Continental banks]

Before the banks become fully attuned to the universal banking mode, Professor Soludo emerged with his 13-point agenda which included the thousand-fold increment in capital requirements and which resulted in consolidation and the reduction in the number of banks from 89 to 25. While this was a strategic and comprehensive initiative to overhaul the Nigerian banking industry and equip it for the emerging challenges, it was still another regulatory tsunami inflicted on an industry that was just trying to settle down to the dictates of the recently introduced universal banking. Banks and bankers were once more thrown into incalculable confusion in an effort to meet another round of strange and hitherto unimaginable regulatory requirements [To be concluded]