Is Governor Addison singing from Sanusi’s hymnbook?

Mr. Gershon P. Anumu

Sanusi Lamido Sanusi was appointed the Governor of the Central Bank of Nigeria (CBN) in 2009 when the Banking sector in Nigeria was facing serious difficulties. This was due to large exposure to the stock market in the form of bubble capital and excessive margin on lending by some banks, including the concentration of credit exposures to other areas like petroleum marketing.

On the assumption of office, he presented his blueprint for reforming the Nigerian Banking Sector. This was built around these four pillars: enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring that the financial sector contributed to the economy. The Central Bank under his governorship moved swiftly with brazen confidence and implemented far-reaching reforms to address the root causes of the crises in risk management practices, poor corporate governance, management fraud, insider abuses, weak regulation, supervision and enforcement.

His reform-initiative was christened by some industry watchers and analysts as the Sanusi tsunami. In fact, he took decisive steps in a bid to rescue the then Intercontinental Bank, Afribank, Union Bank, Oceanic Bank and the Finbank with 400-billion-naira bail-out and dismissed their chief executives.

In one of his public interviews, he is reported to have said that we had to move in to send a strong signal that such recklessness on the part of bank executives will no longer be tolerated. He also noted that there was no choice but to attack the many powerful and interrelated vested interests who were exploiting the financial system. He had support from other state authorities like the Economic and Financial Crimes Commission. As a result, sixteen (16) senior bank officials faced court charges that included fraud, lending to fake companies, giving loans to companies they had a personal interest in and conspiring with stockbrokers to boost share prices. While a school of thought considered his reforms as an agenda for personal vendetta and a ploy to denigrate some of the bank’s MDs/CEOs, there were others who indeed admonished him not be intimidated and succumb to undue pressure from interested parties but strive hard to bring sanity into the banking system.

Though his relentless pursuit to correct the wrongs in the system requested the full support from the functional departments of the Central Bank, he was not short of admitting the fact that the

Central Bank from 2005 was lax in its routine examinations of the commercial banks. Later in a joint audit exercise carried out by the Bank and the Nigeria Deposit Insurance Corporation (NDIC), it was revealed that eight (8) out of the twenty-four (24) deposit-taking banks in the country at the time were in a grave situation. The key findings of the audit report also led to the removal of the management of those banks by the Central Bank.

 

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Governor Sanusi did not only stand his ground but also made a set of interventions in terms of policies and implemented new regulations to protect the banking sector. These included: review of the prudential guidelines to encourage lending to the real sector, compulsory adoption of financial reporting and enhanced reporting standards, compulsory retirement of CEO’s who have spent over ten years in office, compulsory change of external auditors after ten years, enhanced coordination with regulatory agencies like the Securities and Exchange Commission (SEC), restoration of stability to the foreign exchange and money markets and the capacity building for staff of  the Central Bank. In effect, his efforts strengthened and to a large extent restored confidence in Nigeria’s banking sector. By dint of hard work, he was awarded the Central Bank Governor of the Year 2010 by The Banker, which is published by the Financial Times Ltd (U.K).

 

Financial Sector Cleanup Exercise

Here is the Governor, Dr Ernest Addison, an unassuming person made of sterner stuff. So far, by his conduct in office, he has proven himself as the chief banker of the country. In what could be called his financial sector cleanup exercise”, the Bank of Ghana under his leadership revoked the licences of two banks (UT/Capital Banks) due to severe impairment of their capitals while other ailing banks were placed under comprehensive capital restoration plans.

He announced the new minimum capital of Gh¢400 million and suspended the issuance of new banking licences. Thirty (30) microfinance companies have been dragged to EOCO”-Economic and Organised Crime Office for investigation while an estimated number of 272 microfinance institutions have been identified to be in distress. The EOCO is also deeply investigating the directors of the erstwhile UT/Capital banks regarding the collapse of the two banks. Other investigations into related cases imminent.

On the 20 March 2018, he announced the appointment of KPMG, an accounting firm to take over the official administration of uniBank for 6 months. According to the Governor, the appointment of the administrator was because the bank is currently insolvent. The decision came against the backdrop of the fact that uniBank is one of the ailing banks the Central Bank supported under the Emergency Liquidity Assistance (ELA) to the tune of GH¢2.2 billion. The Governor has also given the strongest indication that the exercise will continue but the recent action against uniBank has set tongues wagging with many insinuations (motives behind it). It is in this light that I would like to re-emphasise the issue of the CAMELS.

The CAMELS             

This acronym stands for Capital Adequacy, Asset Quality, Management (senior managers and boards), Earnings, Liquidity, and Sensitivity. It is a recognised international rating system that central banks use to gauge the health (solvency) or determine the overall performance of financial institutions. The whole reading and understanding of our Banking Act 738, 2007 (as amended) and the new Banks and Specialised Deposit-taking Institutions Act, 2016 (Act 930) reveals that the chapters (key provisions) of these legislations, in fact, were largely developed on the memory of the CAMELS.

Apart from the management element in the CAMELS, the rest are quantitative and in exception to earnings(profitability), banks are required to maintain certain percentages at all times when in operation or face sanctions from the regulator. After they have gathered the relevant information from the banks’ periodic returns through their off-site and on-site supervisions, the BoG looked at the CAMELS (figures/ratios), established the facts (reasons) behind these figures and classified some banks as ailing. These banks inflicted severe injuries on the brains of their CAMELS. Therefore, acting in accordance with the laws, the BoG until now took impartial and sweeping decisions against UT/Capital Banks at one side and uniBank at the other end.

The legislation, to my mind, should be considered blind and unable to see whose ox is being gored. As bankers and managers of the companies, we know the root causes of our problems and appreciate them better than others do. Clearly, we can see that some of the instances the Governor revealed to the public could have been easily avoided if not self-inflicted.  At worst, we are caught up in our overblownintegrity to extremes until the reality exposes the wrongs in the system.

Refrain                

During his recent press conference on the state of the financial sector in Ghana, the governor reiterated the problems confronting Ghana’s banking sector. It came to light from his brief that the deep-rooted ailments in our banking sector are virtually the same in relation to Nigeria’s Case. As it was with Sanusi, Governor Addison exposed the following: lack of good corporate governance structures, the co-mingling of board and management responsibilities which undermined credit and risk management policies, CEOs/Directors breached related party transaction limits by extending credits to themselves and relations, approval of fictitious placements with related and connected companies. The most worrying part of the situation he revealed is that these activities were usually rubber-stamped and sanctioned by the boards and board chairs.”

What is more, the Governor also said, poor banking practices, coupled with weak supervision and regulation by the Bank of Ghana has significantly undermined the stability of the banking and other non-bank financial institutions”

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Some of the measures the Bank of Ghana has resolved to implement to restore stability and confidence in the finance sector include: review of guidelines, directives and regulations to the industry, to roll-out the Basel II/III supervisory framework, roll out implementation of the deposit insurance scheme, ensure implementation of IFRS 9 by banks; and issue directives on risk management. To tame what he termedbad behaviour is not recycled within the financial sector, the Bank of Ghana under his watch will enforce Fit and Proper Guidelines for Shareholders, Directors and Key Management Personnel. Already, the Banking Business–Corporate Governance Directive 2018 has been issued.

Again, the governor plans to strengthen the regulatory and supervisory framework by strengthening the capacity of the Banking and Supervision Department. Like a replica of Nigeria’s case, the Central Bank plans to improve collaboration with other regulatory bodies to prevent regulatory arbitrage. Having looked at the chronicle of events during Sanusi’s period, vis-à-vis Dr Ernest Addison’s performance since he assumed office, can we say that he is religiously singing the melodies in the ex-governor’s hymnbook?  Coming events cast their shadows before them.