Banking Industry And Nigeria’s Economy

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The crisis that rocked the global financial markets in 2007 will not be forgotten in a hurry.

  Nigeria’s banking sub-sector was not exempted from the adverse economic consequences of the crisis, though its apex bank, Central Bank of Nigeria had put in place measures to ameliorate the crisis.

Many economic analysts believe that development in the nation’s banking sub-sector had been unsettling since then and they note that such a situation had not augured well for the economy. Since independence, however, the banking sub-sector in Nigeria had experienced some mixed fortunes.

Observers recall that the situation became critical in the mid-1990s, when the then military regime of late Gen. Sani Abacha clamped down on failed banks and sent their chief executives to the Failed Banks Tribunal to face trials.

It was then perceived that the banks’ boards and managements had displayed financial recklessness, disregarded rules of corporate governance, while misappropriating depositors’ funds, as the banks were liquidated.

Mr Joseph Iwinosa, a stockbroker in Lagos, says that the era marked a “dark side” in the nation’s banking history.

On the antecedents of Nigeria’s banking sector since independence, Mr Wale Abe, the Executive Secretary, Financial Markets Dealers Association, says that the sector had performed relatively well in aiding the nation’s development.

He says that although the sector had witnessed some ups and downs, like any other sector of the economy, it had remained sturdy, while growing steadily.

“Despite the global recession, the financial sector recorded some measure of successes and worldwide recognition, which had ranked some of the banks among the best in the world,” Abe says.

Mr Hamed Rasheed of the CBN’s Legal Department says that the sector over the years had improved its operations, especially with the introduction of electronic banking.

He adds that as date, most banking activities are carried out online via e-dividend and e-bonus payments, e-deposit and e-withdrawal transactions, thus eliminating long queues in banking halls, which made transactions difficult in the past.

Rasheed calls on Nigerians to be patient with the CBN as it continues with its banking reforms programme, adding that on the long run, the sector, and the nation by extension, will experience some transformation.

Dr Mashud Fashola, a Senior Lecturer in the Department of Economics, University of Lagos, says that the banking sector had performed relatively well since independence, especially with the CBN’s ongoing reforms.

He stresses that the sector is a very important aspect of Nigeria’s economic development and a key factor in efforts to promote the citizens’ welfare.

Fashola, however, identifies political instability as a real threat to the economy, adding that it had also stimulated a multiplier effect on all sectors of the economy, including the banking sector. “The banking industry does not have any choice than to be disciplined and focused in discharging its responsibilities to customers,” he, nonetheless, says.

For Mr Shaibu Sunday of the Treasury Operations Department of the First City Monument Bank (FCMB), 50 years of successful banking is not a small achievement.

“Year 2010 is a golden year and I think we have done well so far, compared with other developing countries, bearing in mind some indices,” he says.

Many financial analysts readily recall CBN’s recent reforms, which included the banks’ re­capitalisation in 2004. It was initiated by the former CBN Governor, Prof Chukwuma Soludo, although it is now being consolidated upon by the current CBN Governor, Malam Sanusi Lamido Sanusi.

They see the reform package as salutary and timely in order to redeem the nation’s financial sector. Analysts also recall that late last year, the CBN sacked some chief executive officers of banks, while adopting stringent measures to curtail perceived sharp practices in the system.

Sanusi said that the affected banks, under their chief executives, had engaged in unethical practices, resulting in non-compliance with laid-down banking rules and the piling up of debts in circumstances that were suspicious.

It is noteworthy to recall that Soludo’s re-capitalisation therapy had required the existing banks to raise their capital base to a minimum of N25 billion. This demand inevitably led to mergers and acquisitions of banks, resulting in the successful re-capitalisation of 25 banks.

Many citizens saw the banks’ re-capitalisation as good and of great advantage to the nation’s economy.

Analysts also recall that after the sacking of the bank chiefs, the CBN injected N400 billion as bailout funds to the banks. The money is expected to be returned to the CBN after a specified period of time when the banks would have consolidated.

Abe says that while Soludo’ s panacea of re-capitalising the banks was good, there is still the need for “Project Planning” in the sector, which should run on a short, medium and long term basis. This, he stresses, should include thorough supervision of banks and enforcement of rules by the regulatory authorities, while unemployment and poverty reduction must be addressed by the Federal Government to reduce crime in the country.

“The regulators of the Nigerian capital market and financial sector must ensure that reform efforts in the two sectors are hinged on better regulation, risk management and good corporate governance,” Abe says.

On his part, Dr Samuel Nzekwe, the immediate-past President of the Association of National Accountants of Nigeria (ANAN), expresses the viewpoint that ongoing CBN reforms had succeeded in eliminating risks from the sector, while making banks to operate with high ethical and professional standards.

“The CBN has by these ongoing reforms helped to minimise the risks in the sector and reposition most of the banks for sustainable growth and profitability,” he adds.

Nzekwe wants the Federal Government to give tangible support to the CBN to enable it to carry out the reform package to its logical conclusion.

Sunday again says that the CBN reforms essentially aim at curtailing all the illegal activities in the banking industry over the years.

According to him, some of the banks gave out loans without proper collaterals and documentation. “I believe that the CBN is doing well with the regulations so that we can be like other countries. Our financial system has done well so far,” Sunday stresses, adding that” at the moment, no one needs to be carrying cash about because of the effective e-banking system”.

Analysts have also mirrored the performance of the nation’s capital market, expressing worries that the virtual collapse of companies’ stocks in the last two years had been of great concern.

They also acknowledge ongoing sanitisation efforts at the Nigeria Stock Exchange (NSE).

Mr Benson Esomojumi, a journalist and financial analyst, believes that Nigeria has come a long way, both in terms of banking and the development of the capital markets.

He insists that the achievements call for celebrations.

“There is indeed much to celebrate; 1960 to date is not a bad period for Nigeria. As a growing nation, we have our own problems but that is why you see that the government of the day is trying to put everything in place, especially in the financial sector of the economy,” Esomojumi says.

No doubt, the citizens, by the sentiments expressed, do acknowledge the modest strides attained in the banking sector and capital market within five decades of a sovereign Nigeria.

They only hope that these gains will be consolidated upon in the years ahead to make Nigeria one of the world biggest economies by 2020.

Opara and Ashafa write  for News Agency of Nigeria (NAN).

 

Chidi Opara And Wunmi Ashafa