Nigeria’s top banker to boost transparency

Not long ago, Nigeria’s banks seemed to be enjoying an almost miraculous renaissance. Once perceived as a swamp of currency scams and money-laundering, the sector had given birth to national champions with plans to march across Africa. In gleaming towers in Lagos, chief executives plotted to go global.

In the past year, the miracle has begun to look more like a mirage.

Stock prices for Nigerian banks crashed, eroding confidence throughout the system. Rumours swirled that a bank – or banks – might be at risk of insolvency. This month, President Umaru Yar’Adua replaced Chukwuma Soludo, the architect of the transformation, with Lamido Sanusi as central bank governor.

Respected both for his risk management skills and heritage as a grandson of the 11th emir of the ancient city of Kano, the new governor has a stark message: the days of loose accounting and cosy relations with regulators are over.

“I think it’s also important to send very clear signals to bank executives that it’s not a crime to make a loss, but it’s criminal to lie about it,” he told the Financial Times. “If at any point in time I have reason to believe that a bank chief executive is not fit to be chief executive, I will remove him.”

Such a warning will cheer analysts who argue that Nigeria’s banking sector had fallen into an “Emperor’s New Clothes” syndrome, where regulators celebrated rapid growth while refusing to acknowledge concerns about supervision and transparency.

Such concerns are among the biggest obstacles to Nigeria’s 24 banks channelling the country’s oil wealth into long-term finance for African businesses.

Mr Sanusi, sporting his customary bow tie, said his long experience in the banking sector, latterly as chief executive of First Bank, Nigeria’s biggest by market capitalisation, had equipped him to diagnose and treat such problems.

His plans to enforce greater disclosure may place him in conflict with politically connected banking magnates who lobbied to retain Mr Soludo. Nigerian oligarchs have mounted stiff defences of the status quo in troubled sectors such as oil and power.

But Mr Sanusi has some strong cards to play. In his most significant step, the new governor said he would allow takeovers by foreign banks, breaking a long resistance to outside control.

He hopes international acquisitions will spur a second round of consolidation among banks that may otherwise struggle to cope with bad debts from share-related loans. “I wouldn’t force any consolidation, but I think it’s important to send out signals to the banks that may have difficulties that merging with stronger banks is certainly a very good possibility for saving themselves,” he said. “My sense is that we might end up with 15 banks.”

It is unclear how long – or short – the queue of foreign suitors might be. In 2007, hedge funds rushed into Nigerian banking stocks, and Actis, the private equity fund, took a stake in Diamond Bank. Standard Bank of South Africa acquired IBTC in a merger deal before Mr Soludo barred outsiders from taking controlling stakes.

South African banks such as FirstRand and Nedbank are now seen as among the most likely contenders, while HSBC and Barclays have long been viewed as other possibles. Yet the global financial crisis, and the breakdown in trust among Nigeria’s own banks may blunt foreign appetite.

Much will depend on how quickly Mr Sanusi can implement his pledge to tackle the overhang of bad loans. Banks are wary of lending. Interbank rates are at 17-18 per cent, while 90-day Treasury bills trade at 4-5 per cent.

Mr Sanusi said he had begun a two-month audit process to ascertain the size of the bad debts before deciding on the best option to tackle them, perhaps by creating a state-backed asset management company. “What banks need to understand is that banking is a business,” he said. “They’ve got to take their losses, and then we will do everything we can to make sure they don’t go under.”