Nigeria’s central bank chief’s radical intervention in his country’s financial sector at a time of crisis helped prevent an even bigger collapse – and, with any luck, forestall the next one
It’s been a baptism of fire. Sanusi Lamido Sanusi – one of the most energetic and tenacious figures in Nigerian business – took office as Nigeria’s central bank governor in June 2009 at the peak of the country’s banking crisis.
The oil price crash – and subsequent stock market tumult – triggered a wave of defaults on banks’ margin loans to stockbrokers. Asset values across the board slumped in value. The result? Half of Nigeria’s indigenously owned banks posted a negative capital base.
Since his appointment, Sanusi, the former head of First Bank of Nigeria, has been catapulted into the global limelight. His bruising efforts to save, and reshape, his country’s financial system have received international and domestic acclaim – as well as controversy.
Sanusi’s first move in the job was to keep the inter-bank lending markets functioning. He slashed interest rates to 2%. In August, the governor bailed out five of the leading banks to the tune of $2.6 billion and fired its chief executives. A second audit of the banking system led to further capital injections and the sacking of three more bank bosses.
This year, Sanusi has established an Asset Purchase Facility to buy government securities in order to boost domestic liquidity, while new regulations to dismantle the universal banking model will come into force shortly.
After legislative approval, an Asset Management Company has been established that will buy toxic assets and strengthen banks’ balance sheets. Although the strategy has yet to translate into a strong resurgence in credit growth, accolades for the banking reforms have poured in. “Without the governor’s aggressive intervention, we would have had an even bigger collapse in the banking system, and the system is now much stronger for it today,” says Stephen Olabisi Onasanya, CEO of the First Bank of Nigeria.
The manner of Sanusi’s reforms – as much as the pace and substance – has been uncompromising. Last year, for example, Sanusi published a list of debtors to leading banks. This was aimed at exposing “the politically connected individuals who would ordinarily undermine the reform process,” he tells Emerging Markets. “Many were forced to pay off their debts to get off the list as the publication of it undermined their credibility.”
Sanusi’s moral distaste for bad bankers may appear populist. But his reformist zeal is genuine and constructive. “From the beginning I saw my job as a war; I have to be intelligent, strategic and fight regressive economic and political forces.” On a personal level, he has paid the price: armed security guards now accompany the governor, as his anti-corruption drive has triggered threats of reprisals.
Sanusi has also benefited from a degree of luck.
Late president Umaru Yar’Adua, who was propelled into power in the 2007 elections, gave the governor the power to enact a root-and-branch overhaul of the financial sector. Astonishingly, Sanusi says Yar’Adua issued a fiat last year that granted the central bank’s lawyers the power to prosecute corrupt financiers. This gave Sanusi the power to control the prosecution process, and even an element of control of the security forces.
However, Sanusi says he lacks the “temperament for political office”. Nevertheless, the manner of his radical overhaul of the banking system – which has to-date successfully navigated vested economic and political interests – could serve as a springboard for a flourishing political career once his term ends.
Source: emergingmarkets.org
