As Hurricane Sanusi Makes Landfall

Anyone who has experienced the hurricane season in the US and Caribbean will attest to the fact that before the eye of the hurricane reaches its destination, very strong sustained winds travelling at several miles per hour and heavy downpours occur several hours, or even a day or two before the hurricane proper makes landfall. Depending on the strength of the hurricane, rated by meteorologists as Categories 1 to 5, 

this tropical weather system is capable of leaving severe havoc in its wake, leading to the deaths of hundreds of people, destruction of property and severe flooding. 

As studies on hurricanes have shown, it is not actually the eye of the hurricane making landfall that is the most devastating consequence of this weather system. The eye at the hurricane’s centre is an incongruously calm, clear area that is approximately 20 to 40 miles wide. As such, experts focus more on the track that a hurricane is most likely to follow because they are immense systems that can move in complex patterns almost impossible to predict, and can change in size, intensity, speed and direction without warning.
The Central Bank (CBN) Governor, Sanusi Lamido Sanusi, in many respects, is similar to a hurricane, or more like its centre. Slim-boned almost to the point of fragility, Sanusi with his debonair three-piece suits and bow ties cuts the impression of a calm, trustworthy, geeky college professor better suited to the beautiful lawns of Harvard and Princeton Universities postulating on new economic theories and hypotheses, than the shark infested waters of finance. But his utterances and actions, no matter how well intentioned, belie that calm exterior, leaving devastating consequences in their wake. And unlike George Herbert Walker Bush Snr., his lips cannot be read with absolute certainty.
Each and every one of us, directly and indirectly, has felt the effect of Hurricane Sanusi in recent months. Indeed, Proshare, a market research advisory firm, in an 83-page market report last month described Sanusi, rightly or wrong, as The Bull in the China Shop. It was therefore not surprising last Friday when the market heaved an audible sigh of relief – this hard to predict weather system had finally made landfall – allowing us to pick up the pieces and start the road towards rehabilitation.
Like all tropical cyclones, the heavy thunderstorms and gale force winds that accompanied Hurricane Sanusi washed off a lot of the debris and garbage that had accumulated in the banking landscape. To be quite honest, a cleanup was long overdue. But it also raised a lot of questions that remain unanswered and brings to the fore our lack of preparedness to clean up in the aftermath of a hurricane. For one, could the banking cleanup have been handled in a much more orderly fashion devoid of the drama, alterations in speed and direction, and devastating theatrics characteristic of a wild storm? Two, could the two-phased approach adopted for the joint audit exercise not have been coalesced into a single industry-wide audit that would not have given the first five banks cleared six weeks ago an unfair advantage over their peers? Did the CBN have to subject the 14 banks that had to wait for the result of the audit exercise under the second phase to rumours, innuendos and having to calm the frayed nerves of depositors uncertain about the safety of their deposits?
Although Sanusi may want to argue that the CBN was compelled to take over first five banks found to be in a “grave condition” in August because they posed a systemic risk (based on off sight and on sight inspection) and had to be ring-fenced, can he honestly say that the addition of a few extra weeks to wrap up an industry-wide audit for all the 24 banks would have led to the total collapse of Union Bank, Oceanic Bank, Intercontinental Bank, FinBank and Afribank?
Five, given Sanusi’s preference to sell the eight banks taken over by the CBN to new investors, not necessarily foreign as a lot of people have alluded to, where do the rights of existing shareholders end and that of the regulator take over? Sanusi cannot be unmindful of the fact that the lawsuits instituted by the current shareholders of the banks against the actions of the CBN (and they are well within their rights to do so), could serve as a deterrent to prospective investors wanting to take equity in the affected banks. An addendum to that is to who do the interim managing directors/CEOs and executive directors appointed by the apex bank owe their loyalty to? Surely, it cannot be the shareholders and depositors of banks in which they have no direct stake in.
Seven, can the CBN truly say it has been fair in its decision on Unity Bank? Granted that it must be commended for not succumbing to pressure that must have brought to bear just because the family of President Umaru Musa Yar’Adua holds some interest in BankPHB.  However, Section 14 of the Banks and Other Financial Institutions Act (BOFIA) provides stiffer sanctions for banks that fail to meet the minimum capital adequacy ratio as stipulated by the apex bank, which could include the withdrawal of the bank’s licence, than insufficient liquidity. Moreover, Unity Bank, a financial institution and publicly quoted company, has failed for two successive years to publish its audited/unaudited financial accounts, and yet, it was deemed by the CBN not to have “poor corporate governance practices”.
On a much wider scale, how prepared is the CBN to work in concert with the executive arm of government and the National Assembly for the speedy enactment of the law for the establishment of an Asset Management Company (AMC)? The AMC or “bad bank” as it is known in other climes has been on the cards for five years, having been first mooted by the former governor of the CBN, Chukwuma Soludo, during the consolidation era in 2004. It was meant to take over the legacy debts of the emergent 25 banks, post-consolidation and clean up their balance sheets.
Unfortunately, the debts on the books of the banks, just like their balance sheets, have most certainly quadrupled in size since 2004 and will be more difficult to evaluate (aside from the debts linked to margin loans). A bigger question is where will the money even come from to buy up the bad assets on the books of the books? And what guarantees are there that the exercise will not be fraught with political considerations, other than sound commercial considerations?     
Last and not the least, how prepared is the Ministry of Finance to reflate the economy? A fiscal stimulus, like Tunde Lemo, the apex bank’s deputy governor, Operations, admitted last Friday is absolutely necessary so that the banks can resume lending. Through the quantitative easing (printing money) embarked on by the CBN, N620 billion has been injected into the banking system, and should be sufficient to ensure that broad money supply (M2) becomes positive (broad money supply was negative in the third quarter of this year). Nonetheless, the preparedness of the finance ministry to release monies owed to contractors is another ball game all together.
Sources within the finance ministry confirm that N550 billion in unspent capital votes for the first, second and third quarters of 2009 have been lying in the vaults of the apex bank. Yet, the ministry says that the payment of contractors is easier said than done because contractors can only be paid if there is a budgetary provision for them. Contract sums not factored into this year’s budget will have to wait till next year and beyond.
What this essentially points to is the lack of institutional capacity within the ministries, departments and agencies of the Federal Government to plan ahead of time and ensure that the so-called infrastructure projects earmarked in their annual budgets are implemented or implementation is commenced within the fiscal year. Some MDAs are quick to blame the Office of Due Process for the snail-paced execution of projects, but the truth is that most of these projects are slowed down due to vested interests on the part of government officials in determining the outcome of the contractor-selection process.
So even as Hurricane Sanusi makes landfall and begins to ebb, the economy still has some way to go before embarking on the road to recovery. Besides, with the common year end looming and the adoption of international financial reporting standards by more banks, we should expect more monetary tightening and that credit will remain frozen for longer than anticipated.
To make it worse, the National Meteorological Centre (NMC) has just warned that another hurricane may be looming in the form of Hurricane Muhtar. If not, how can one explain the comments that came from Istanbul, Turkey yesterday that the Federal Government might take over the N620 billion in the form of Tier II capital injected by the CBN into the eight banks and convert it into equity. No matter the semantics and explanations by Sanusi, this is tantamount to nationalization of the banks, even if temporary.

Ijeoma Nwogwugwu – THISDAYONLINE