Nigerian Bank Nigeria CBN Central Bank Of Nigeria – Are Foreign Buyers Real?

Source: Compass, 30 August.2010

Despite spirited efforts of the Central Bank of Nigeria (CBN) to stabilize the financial system through fresh injection of funds to the ailing banks, especially those slated for recapitalization, emerging facts are proving that a combination of foreign and domestic circumstances may scuttle the laudable desire of the apex bank, TOLA AKINMUTIMI writes.

The CBN Governor, Mallam Sanusi Lamido Sanusi, had on August 14 last year laid bare the rot within the financial system that had plunged about 10 of the existing banks into operational abyss and also unveiled plans to get the affected banks to their feet through a combination of monetary policies and regulatory guidelines.

According to his script on the holistic reforms of the financial system, the long term plan of the initiatives would ensure the survival of the ailing banks through effective recapitalization, restore investors’ confidence into the system and also make sure that the Deposit Money Banks (DMBs) fulfill their statutory roles of providing credit to the real sector, the most crucial sector in national developmental matrix.

Moving in a crusading zeal that suggested he was bitten by a patriotic bug, the agile banker explained the thrust of his agenda as he moved from London through Basel and other global financial nerve centres to show the reasonableness of his transformational adventure in the nation’s financial services sector. On November 4 last year and June this year, he announced the successes of the initiatives and came with a verdict that within the next three months after June, the needed financial lifeline would have been extended to the beleaguered banks.

For instance, he announced in June in Basel, Switzerland that at least three foreign companies had indicated interest in some banks and gave assurance that by the middle of this month the true picture of the process would be clearer.

Sanusi came again two weeks ago singing the same tune with a slight modification of its tenor. He disclosed that four institutions had come in, carried out due diligence on the banks and were on the final lap of taking necessary decisions.

However, some experts who included Dr. Samuel Nzekwe, Dr. Obadiah Mailafia and Dr. Boniface Chizea amongst others opined that no substantial mileage had been covered by the crusade despite the signing into law of the AMCON bill and other strategic steps taken by CBN to take the toxic assets from the banks, entrench good corporate governance, minimize credit risks and strengthening of the regulatory guidelines as desired.

A seasoned accountant and investment analyst, Dr. Samuel Nzekwe told the Nigerian Compass in a telephone chat that there was no way the reforms could have stimulated foreign investments flows into the country in view of the crisis of confidence in the financial system, the agitations of old investors and exited chieftains of some of the banks against the reforms process and more importantly, the recent rumours bothering on financial impropriety at the highest levels at the Nigerian Stock Exchange (NSE) and its regulatory body, the Security and Exchange Commission.

Nzekwe, the immediate past President of the Association of National Accountants of Nigeria (ANAN) noted that even when issues of litigation must have made foreign investors to be cautious in their moves to enter the domestic banking industry, the revelations at the NSE and SEC remain what could be seen as the most devastating blow to the CBN beckoning hands to foreign and domestic investors.

One other factor considered by him and other analysts as also responsible for the calculated and slow steps on the slippery terrain had to do with credit and liquidity assessment reports of both foreign and domestic rating agencies that reflected that the effects of the damage done by the past managements of some of the banks may take longer time to heal than CBN had anticipated.

“Let me say without equivocation that the moves have not really impacted on prospective investors who seem to be at a loss on the real direction of the reforms. The CBN Governor has done fairly well but I think his penchant for confusing statements on the process has not helped at all. We are also aware of the litigations in the various courts of law by aggrieved parties, especially the shareholders of some of the affected banks, all of which give the impression that all is not well with the process.

“I can also say that the reports on the state of the banking sector released recently by globally acclaimed rating agencies also could mirror an ugly picture to the international community about the investment climate in Nigeria. As we know, security of investments is a primary consideration in funds movement across borders. So, the foreign investors may not likely come in to pump funds into the banks.

“In addition, the endemic problems of corruption in the country, particularly recent disclosures at the NSE and SEC which are yet to be fully investigated are national embarrassment that cannot attract financial investors to look this way in their search for save havens for their funds. I want to feel that in the long run, the best option for the CBN would be to call together the shareholders to find ways of reviving the troubled banks. AMCON is a laudable project but we are yet to see how well it will take off,” Nzekwe said.

Dr. Mailafia, who was more restrained in his comments, noted that although the reports by rating agencies may indirectly affect the progress of the recapitalization drive but that more troubling to the mind is the problems at the highest hierarchies of the NSE and SEC.

The renowned investment expert expressed serious worries over the alleged financial profligacy at SEC which, he said, although still remained to be substantiated by the group that petitioned the Presidency, but further showed that the Chairman and the Director General were at loggerheads.

According to him, “when this type of face off happens at the highest regulatory organ of the capital market there is no way any investor would consider the system as good enough for investment, adding that these and the pending cases in the law courts seeking to challenge most steps of the CBN may hamper the speedy conclusion of the recapitalization and make those who ordinarily would have invested to lose interest in the process.

“The investment climate does not seem to give much support to the entire process as the impact of the reforms is not yet seen just as the risk issues have not been really tackled. The policies of the CBN have been good but domestic problem of litigations is also relevant. When one appraises the system the assurance of stability is not yet there and this is a big problem in investment.

“Yes, the rating agencies’ reports could also be a constraint, but I feel very strongly that the problem in SEC could be likened to when leaders who are expected to work together are at war, it is like a house divided against itself. It is disturbing that the Chairman and Director General of SEC could allow their personal disagreements to rob off on the integrity of the institution they are supposed to build. Although the allegation still remains a rumour but the truth of the matter is that something is really happening there that is not good for the entire Nigerian economy in terms of its implications for foreign and domestic investment flows”, Mailafia said.

Expressing his opinion on the issues, Dr. Boniface spoke similarly on the imperative of a secured investment climate in the country, adding that security, macro economic stability, competitive of returns and other climatic variables determine how prospective investors view any country and that in the case of Nigeria, particularly in respect of efforts targeted at recapitalising the banks, the odds are against Nigeria.

“Foreign direct investment; portfolio or otherwise is critically dependent on the perception of investors regarding the investment climate of the destination in question. This perception is coloured by multifarious considerations; macro-economic stability, how friendly to investment the environment is, the competitiveness of the returns on investment expected and the assurance that when there is the need to repatriate either capital or yields that it could be done seamlessly in a predictable manner and without unanticipated losses or costly delays.

“You will agree with me that on all counts as enumerated the Nigerian investment climate cannot score a pass mark no matter how patriotic we seem to be. There is chronic instability in the macro-economy, there is an entrenched lack of basic infrastructure which makes production cost high. As economic agents proceed to make provisions for such non-existent infrastructure and there is little or no comfort for the investor considering the unpredictability of the rate of exchange even though this is one of the economic indices that has remarkably shown a healthy measure of stability and there is no assurance of the availability of the required quantum of foreign exchange. In the particular situation of the banks there is uncertainty which is not helped in any way by the unguarded comments and utterances of the Regulator,” he added.

Expatiating further, Chizea pointed out that “in an attempt to discredit operators to justify some of the actions that have been taken the economy at large is ipso facto unfortunately also discredited. For the ‘rescued’ banks there is some uncertainty about the role, stance and position of the former shareholders and some have in fact taken the Apex Bank to court to seek justice and equity making the horizon very cloudy as the unfolding scenario is unpredictable.

“The Asset Management Company if and when it becomes operational should help to detoxify the balance of sheet of some of the affected banks by buying over some of the toxic assets to result in a healthy balance sheet which potential investors will be in a position to assess for the purposes of their investment decisions.

“Therefore the ratings recently released by the Rating agencies are not to blame. Such ratings simply mirror the condition on ground and cannot be the cause of the unwillingness to invest even if it is true that it contributes to a psychology which is patently inimical for the attraction of investments. There is nothing the rating agencies have indicated which was not known to the average investor,” he argued.

According to him, there were a lot of measures that should be put in place by CBN and other relevant agencies before the ongoing efforts to sell the banks can succeed, noting that urgent attention should be given to the multi-dimensional macro and micro economic indices that currently discourage new investments generally or that tend to continually stifle the existing ones in the country.

His words: “For the initiative to succeed we would have to address the whole gamut of issues that have assailed the investment climate of the country and that is a tall order as there is no quick fix to the solution of this problem. How long will it take you to make electricity supply regularly available, fix the road net work, cure the malady of kidnapping, armed robbery, unpredictable changes in policies?

“As you can see investment dollars have come into sectors of the economy where there is an unusual prospect of very high returns such as the extractive sectors or lately telecommunications. The Stock market attracted foreign investment dollars because the yield was compensating and such high volatile money could be taken out at the drop of a hat as we witnessed recently as a result of the fallout of the global financial crises.

“The Regulator would have to give specific as well as general guarantees in critical areas to intending foreign investors if we are going to have any chance of succeeding in this venture. Except as has been claimed, the investors are fronts acting as proxies for local investors in attempt to correct the alleged marginalization which the Consolidation exercise is reputed to have left in its wake”, Chizea concluded

Another dimension that analysts pointed to as partly responsible for the seeming apathy of global big financial institutions like BNP Paribas, HSBC, Merrill Lynch, Baclays, UBS, Societe Generale and others had to do with the deeper crisis which the European and Asia countries had been plunged in and accentuated by the Greece lingering debt burden.

Like a summer fire outbreak in deciduous forest, the debt crisis in Greece later spread with raging destructive potential to other countries in Europe and emerging Asian markets that were fairly stable in the immediate aftermath of the 2008 global economic depression. After an age of dithering, the political gladiators in Europe, including the reluctant Germany’s Chancellor, Angela Merkel, came together to raise $145 billion rescue package for the ‘dying sick country’ of Europe sometime in May this year.

The Greece debacle later reflected that most other weak members may be sooner than later be consumed by the Greece-triggered raging debt inferno with as much devastating havoc it left in its wake in Greece. Determined to shield their countries from the serious threat, the various regulatory bodies of financial institutions in Europe and America later embarked on a rather hasty stress tests on their banks.

For instance, last month report prepared by the London-based Committee of European Banking Supervisors indicated that seven of 91 banks do not have enough cash to survive another recession.

According to the body of regulators which is made up of representatives from banking authorities and Central Banks of the European Union, “the tests were designed to help reassure investors and the public about the stability of the financial system even as many countries confront rising debt levels. Investors worry that many banks have loaned money to European governments and could fail if governments begin defaulting.

Similar tests were carried out in China, South Korea and other Asian countries with a view to determining the health of their banks. For instance, China’s banking regulator, China Banking Regulatory Commission (CBRC) sought to reassure markets following reports that it had ordered lenders to do stress tests assuming a 60 per cent drop in housing prices, even as separate reports in July this year said such tests were being expanded to include credit risks from the cement and steel sector.

CBRC ordered commercial banks to conduct a round of stress tests to gauge the impact of a fall in house prices of about 50 to 60 per cent in cities that have seen sharp gains.

Earlier in 2009, the United States conducted its own so-called stress tests of its major banks last year to “reassure” the public about the economic strength of key institutions. 10 banks were told to raise funds so that they could survive in case the U.S. economy declines further.

Most analysts agree that the crises in the euro-zone, Asian continent and the US could not but have indirect implications for the ongoing drive for foreign investment in Nigeria’s banking sector in view of their being the financial nerve centres of the global economy.

Nigerian Bank Nigeria CBN Central Bank Of Nigeria, World Bank