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1 November 2018
On the 21st of September, 2018, the Central bank of Nigeria (CBN) revoked the operating license of Skye bank (the eighth largest bank in the country) for failing to meet the regulatory capital and liquidity thresholds. A bridge bank, Polaris was established to assume both the assets and liabilities of the failed bank. The CBN first intervened to rescue it from imminent collapse in July 2016.
Bad corporate governance, a euphemism for corporate corruption was fingered as the primary cause for the collapse of the lender by the regulator. As with the past cases of failed banks in the country, the ousted chairman and other directors were alleged to have abused their positions to avail themselves and their cronies unsecured loans that were not performing amongst other malfeasance.
It was alleged that Mr. Tunde Ayeni (erstwhile Chairman) and Mr Fadeyi (a former director) contributed to the downfall of the firm by borrowing a huge amount of money that was never repaid. While Mr. Ayeni was said to have borrowed billions of Naira from the bank to fund the acquisitions of the Ibadan and Yola Electricity Distribution Companies; NITEL/M-Tel; and an energy services firm known as Ascot Offshore Nigeria Limited; Mr Fadeyi, was accused of using the Pan Ocean to obtain loans to fund the firm's oil and gas upstream projects which were considered as one of the major non-performing loans amongst.
Incident like this is not uncommon in the Nigerian banking sector. According to the Nigeria Deposit Insurance Corporation (NDIC), N700B out of N2.4 trillion Non-Performing Loans (NPL) as at the end of December 2017 were insider related loans. More worryingly, Ahmed Kuru, MD/CEO of AMCON disclosed that only 350 businesses accounted for almost 85% of N3.7 trillion NPLs in its books. Indeed, the published list of debtors is a roll call of captains of industry in the country.
While the public account is bleeding and social spending is diminishing; the mega debtors are flying private jets and being rewarded with tax breaks, "juicy" over bloated contracts, import duty waivers, and political appointments.
After ten years of dolling out over N2.2 trillion of public funds to salvage mismanaged privately owned banks by the government through the central bank; and the adoption of risk-based supervisory framework, creation of Banking Sector Resolution Cost Fund (Sinking Fund) to absorb cost of crises and the establishment of Asset Management Corporation of Nigeria (AMCON) amongst other regulatory initiatives; another banking crises is just another recession away.
If the country slides back into recession as predicted by the CBN governor, Godwin Emefiele, more banks would be in trouble waters and might need to be bailed out with public resources. Already, at least four banks are barely meeting the key regulatory ratio requirements. Most bank's NPL ratio - a ratio that measures the percentage of non-performing loans booked by banks - is above the 5% regulatory limit and it has remained high for over three years. As at the end of 2017, it stood at 15%. Same can be said of Capital adequacy ratio and liquidity ratio for the industry. Hence, another the season of bailout of private banks is upon us.
Under the pretence of saving jobs and depositors' funds, the CBN has again through AMCON (at the end of December 2016, the net carrying a value of AMCON's outstanding liabilities was N4.5 trillion) injected almost N800 billion to salvage the wreckage of Skye bank. For emphasis, the total projected FG's revenue from company income tax in the 2018 budget is N794.7 billion. It, therefore, meant that the amount deployed to save one bank would be equal to the total projected company income tax for FGN in 2018. Effectively, the public finance has a gaping hole of over N5.3 trillion debt as a result of bailing out banks.
In a country where petty thieves are killed extra-judicially; the high profile economic rogues and robbers are presented as poster men/women of success. After two years of putting Skye bank on public feeding-bottle, the directors that caused the country to divert N800 billion that could have been deployed to provide education for the 13.5 million out of school children are walking freely. But for as long as the banks are running on the basis of satisfying the greed of the few, the banks will always be in crises and the public made to pick the bill of the carcass.
In capitalism, for every problem solved is a new problem is created. The Asset Management Corporation of Nigeria (AMCON) created to "save" the ailing banks and other privileged private ailing companies a decade ago has now become a fuse that might detonate the kegs of gunpowder the economy is sleeping on. AMCON is living to fulfil its appellation as a "bad bank". It is becoming more evident that AMCON has now become the reserve bank that assumes the liabilities of corporate Nigeria. This, of course, is not sustainable in the long run. The outstanding liabilities of AMCON is presently about 50% of the 2018 national budget and it is still growing.
Recently CBN revoked 154 Microfinance Banks over insiders abuse and corruption recently but has failed to revoke the license of any commercial bank over similar insiders abuse and corporate corruption because it will affect the business interest of key members of the ruling class and the very rich. For instance, depositors at the Microfinance Banks are mostly small and medium traders while commercial banks have big investors.
What the unending banking crises in Nigeria have demonstrated is that the logic that the private sector interest can unlock the potentials of the economy is a fallacy. What we have gotten from private sector-led management of the banking industry are; unending public bailouts of failed banks; precarious working conditions of workers (according to the NBS, 42% of bank employees are now contract-staff); over-concentration of credit in few hands and enablers money laundry by the political and economic ruling class.
Only a socialist transformation of the society can stop the crises of capitalism. Banks must be nationalised (deposits of small servers and businesses will be protected) and put under the democratic management of elected workers, customers and other mass-based organisations to end corporate corruption, bring about efficiency in the banking industry and play roles of financing economic activities, including industry and agriculture, and infrastructural development with cheap credits.