Nigeria was not alone in undergoing a major banking crisis in 2009, but the authorities acted with remarkable speed and determination to punish bad management and tighten regulation.
Nigeria’s banking industry is still undergoing major restructuring following the 2008-09 banking crisis when several of the nation’s lenders almost collapsed, risking the entire financial system. Dramatic interventions by the authorities, spectacular bail-outs, sackings, prosecutions of bank bosses and the nationalisation of some institutions characterised the biggest shake-up of the system since the 2005 consolidation exercise that had reduced the number of banks from 89 to 24.
The monetary authorities are hoping that this second wave of reforms will result in a much healthier banking sector, one that is far more willing to lend to the private sector and promote national development.
The nation’s better-managed banks have returned to profit after many declared losses in 2009, partly as a result of the global and domestic financial crises as well as tougher loan-loss provisioning requirements imposed by the central bank. Many of these banks have resumed suspended programmes to open more local branches and to expand abroad, particularly in West Africa. Some are introducing technological innovations intended to transform financial services in Nigeria and the region. Recently, First Bank of Nigeria was the first in the country to introduce biometric automated teller machines.
But not all Nigerians banks are out the woods. The governor of the Central Bank of Nigeria (CBN), Lamido Sanusi, said in June that that eight of the nine rescued in 2009 were still in trouble. Even Union Bank of Nigeria, one of Nigeria’s oldest financial institutions, and Intercontinental Bank, a ‘new generation’ lender and a star performer before the crisis, continued to record operating losses and remained technically insolvent with negative assets.
The 2009 bail-outs became necessary when financial regulators found the banks to be grossly under-capitalised and burdened with high levels of non-performing loans. Bad management, corruption and speculation in the oil and gas sector and capital markets were blamed. Several senior bank executives were charged for offences that ranged from recklessly granting loans to share price manipulation.
New regulations and guidelines are now in place in an effort to improve governance, ensure greater transparency and accountability, and strengthen risk management. The changes include more stringent disclosure requirements for financial statements, limiting capital market lending by banks and imposing restrictions on the tenures of bank directors, as well as the adoption of international financial reporting standards by the end of 2012.
After an $11 billion cleansing of the balance sheets of the troubled banks, the state-owned Asset Management Corporation of Nigeria (AMCON) paved the way for them to find new investors. By August this year, five of them had signed merger and acquisition agreements with new investors. Equitorial Trust Bank, Finbank, Intercontinental Bank and Oceanic Bank will merge with healthier banks, while Union Bank is to be recapitalised by a group of institutional investors led by the private equity firm African Capital Alliance.
AMCON has now fully taken over a further three banks with the intention of selling them to new investors in the coming years. “We believe we have drawn a line under the banking crisis. By 30 September, all banks in Nigeria will be fully capitalised,” said Kingsley Moghalu, deputy governor of CBN.
Nigeria’s banks are in the midst of reorganising their operations following CBN’s decision last year to separate core-banking from non-banking businesses such as insurance, asset management and stock market dealing, and to divide banks according to their scope of operation.
The monetary authorities believe the reforms will better focus banks on performing core banking functions, particularly channelling money to businesses, and help to ring-fence depositors’ funds from speculative trading as well as ensure more effective regulation of the entire financial sector. It is too early to say whether the changes will achieve these objectives.
