What's next for Nigeria's banks?

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Africa Confidential, May 2010

NIGERIA

Exclusive interview with Mallam Lamido Aminu Sanusi, the Governor of the Central Bank of Nigeria

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Nigeria's banks are emerging from a frenetic and nearly fatal systemic crisis following a a programme of sweeping reforms. The man behind the rescue plan, Central Bank Governor Mallam Lamido Aminu Sanusi has spoken openly to Africa Confidential about the risks and prospects for Nigeria's financial institutions as the after shocks from the 2008 financial seizure spread around the global economy. 'The Nigerian banking sector lost 66% of its capital, it's a miracle that it's still standing and lending at all', he said.


Last year, Sanusi ordered industry wide audits and then in August sacked the chief executives in six banks deemed to have been chronically mismanaged. Sanusi pledged that the Central Bank would shore up all the ailing financial institutions and files on several senior officials in commercial banks were then passed on to the state prosecutors. Two of the chief executives are still refusing to respond to charges against them, almost nine months after the orders were made.

Sanusi's list of bad debtors to the leading banks included some of the country's most prominent businessmen and politicians. His move shocked Nigeria's establishment but it convinced many outsiders that he was a serious reformer. The result sheet so far is positive: Sanusi has purged the banks with minimal collateral damage. No banks have gone under and no deposits have been lost, he told Africa Confidential. The biggest question remains what this operation has cost the government.

The bill may run into billions of dollars but it is still far less than many Western governments have spent propping up their own badly weakened financial sectors. The next part of the rescue plan – the establishment of the Asset Management Company – is currently going through the National Assembly. That will allow for a state-backed restructuring of the distressed banks. The end result should be that Nigeria has a stronger and more accountable banking system, one that is likely to attract substantial investment from Asian, European and American banks seeking a foothold into one of Africa's biggest markets.

'I think the economy needs a mix of foreign and local banks,' Sanusi told Africa Confidential. 'I don't think we should hand over all the banks to foreigners, it's not a practical proposition. But 25-30% of the industry being in the hands of foreigners would be a very good target.'