The banking consolidation exercise carried out by the then governor of the central bank Prof. Charles Soludo has come under fire from the current CBN Governor Sanusi Lamido Sanusi who said the exercise was a sham and that many of the banks never raised the capital which they claimed they did.
Sanusi in a 23-page convocation lecture titled, “The Nigerian Banking Industry: What Went Wrong and the Way Forward” he delivered at the Convocation Square of Bayero University Kano on Friday said the consolidation helped to create bigger banks while it failed to overcome the fundamental weakness in corporate governance in many banks.
The governor said, “A lot of the capital supposedly raised by these so-called ‘mega-banks’ was fake capital financed from depositors’ funds. 30 per cent of the share capital of Intercontinental Bank was purchased with customer deposits. Afribank used depositors’ funds to purchase 80 per cent of its IPO. ”
He added, “The CEO of Oceanic Bank controlled over 35 per cent of the bank through SPVs (Special Purpose Vehicles) borrowing customer deposits. The collapse of the capital market wiped out these customer deposits amounting to hundreds of billions of naira.”
Sanusi also disclosed that while all the unethical practices were going on in the banking sector, the CBN which had a process of capital verification at the beginning of consolidation which was targeted at avoiding bubble capital stopped the check mechanism for unexplained reasons.
He noted that SPVs furnished bank executives with a leeway to lend money to themselves for stock price manipulation or the purchase of estates all over the world. “One bank borrowed money and purchased private jets which we later discovered were registered in the name of the CEO’s son. In another bank the management set up 100 fake companies for the purpose of perpetrating fraud,” he said.
He further said that some banks even engaged in manipulating their books by colluding with other banks to artificially enhance financial positions and therefore stock prices, adding that practices such as converting non-performing loans into commercial papers and bank acceptances and setting up off-balance sheet special purpose vehicles to hide losses were prevalent.
According to the CBN boss, the unethical practices took place under the watchful eyes of the former Governor Soludo, whom he said conducted governance at the apex bank in a “laissez-faire” fashion. He said under Soludo’s reign, internal processes were unstructured and this compromised the CBN’s ability to supervise the industry. Board agendas were set by the governor and consequently reflected his priorities, and there were inadequate committee structures and processes to ensure the CBN board’s independence in assessing whether the CBN was fulfilling its mission. He also explained that of the 373 circulars issued by the CBN since 2008, only 44 addressed issues relating to the crisis, stressing that “none addressed the issue of corporate governance.