It has been a while since a single subject dominated the media the way the current banking reforms are doing. The media has been feeding fat on the frenzy the CBN Governors actions has caused and many a public commentator has lent his voice to the debate. Of all the various issues raised, the primary point of contention appears to be whether the action of the CBN Governor is a Northern orchestrated agenda or is an objective and independent mission to sanitize the banking system.
However, rather than play the typical North/South political game with the issue, I ask myself- based on the available facts, is the effort to cleanse the system the right thing to do? I have been privileged to work in a Bank before and in the Treasury department at that, as an inter bank trader, so at least I am qualified to say a thing or two on the subject matter. Like almost all people who have made one comment of or the other, I have not seen the findings of the CBN special audit. Therefore, my comments, like theirs, are based on available information.
I am well aware that of the 5 banks sanctioned, 3 of them have been absolute net takers of funds at the inter bank market as far back as 2002-2006 when I was an inter bank trader. Now, being a net taker of funds is in itself not a bad thing, but when it becomes a perpetual day in, day out, year in, year out thing, then there is obviously a problem. The inter bank is meant to be a market where banks borrow/lend for their short-term deficit/surplus clearing positions. It is absolutely not meant for long term financing. A bank can only be in a perpetual long term clearing deficit when there has been a gross mismatch of its assets and liabilities ie short term liabilities have been used to finance long term liabilities or assets that are not returning any cash flow (non performing loans). This may not have been an issue if it involved say 3-10% of existing loans, but when it involves half of a banks loan book, when never ending commercial papers are continuously rolled over and sold to generate liquidity, when ALCO (Asset and Liability Committee) meetings- arguably the most important top management meeting in any bank- are turned into meetings where the management chat about how much deposits their staff have brought in and whiplash those who have failed to meet their targets, then it is obvious that the CEO’s of these banks have no clue what they are doing and thus their removal from office by the CBN is well and truly justified.
So many of us have lost money or at least know someone who lost money to the failed banks of old. We have all wondered as to how the banks could continue to declare outlandish profits in a country where the manufacturing sector is almost dead and buried and most other businesses are experiencing declining fortunes. I’m therefore surprised that in spite of this, I hear so many negative comments about this reform exercise. While the approach of the CBN may have been better, I expect to hear more of constructive criticism as to how the process can be better facilitated, rather than outright condemnation of the exercise.
Anything that can reform our banking system and get it to effectively contribute to capital formation for meaningful economic growth and development is welcome and should be embraced by all, be it in the North or in the South.
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