Background
August 14, 2009 will remain indelible in the annals of banking reforms in Nigeria.
The date marked a turning point in the nation’s banking sector as the new CBN Governor,
Malam Sanusi Lamido Sanusi, in one fell-swoop, sacked the MDs/CEOs of five top banks,
namely Oceanic Bank Int’l Plc, Intercontinental Bank Plc, Afribank Plc, Union Bank Plc and
Fin Bank Plc, in the first phase.
The second phase of the gale on October 2, 2009 hit three more banks whose MDs/CEOs
were equally removed. The banks are: Bank PHB, Equatorial Trust Bank Ltd and Spring Bank
Plc. Two other banks – Wema Bank and Unity Bank Plc which escaped by the whiskers were
asked to recapitalized by June next year. The affected banks whose chieftains were removed
have since been replaced by caretaker boards.
Moreover , whilst the first five banks that fell under the CBN hammer were bailed out to the
tune of =N=420 billion, the other three banks that suffered the same fate, including Wema
Bank that was also adjudged to be facing liquidity risk , were also bailed out to the tune of
=N=200 billion. In addition, the legislation for an Asset Management Company (AMC) to
soak up bad loans is expected to be in place by the end of the year, according to the CBN
helmsman.
In the words of the CBN Governor, the reform became necessary “on account of complicity
in granting of non-performing loans and gross unprofessional practices”, amongst others.
Whilst the stress audits of the banks appear to have come and gone, the shock waves and
the reverberating effects of the CBN induced tsunami in the sector will remain with us for a
long time to come.
The aftermath of the banking reform had seen not only the affected banks’ shares
and fortunes plummeting to an all time low, but other banks which were given
clean bills of health were also affected as their share prices and overall fortunes
nose-dived as they declared severe losses in profits having made billions of naira
provision for bad / toxic loans.
Whilst the reform had since been supported by the Federal Government and also
endorsed by the International Monetary Fund (IMF), majority of Nigerians who
have invested considerably in stocks and shares of banks and other sectors have
been biting their fingers and regretting investments in these sectors, having
suffered and continuing to suffer diminishing returns.
It is in the light of the predicaments of the banks vis-à-vis the overall effects on the
economy that this study was undertaken.
Principally, the study sought to examine respondents’ perception of the recent
banking reform in Nigeria.
The study was carried out in the first two weeks of January, 2010.
Sample Design
We utilized the modified, multi-stage random probability sampling approach for
this study. The rationale for this is to obviate any known form of bias that may
affect the accuracy of data collected.
The sample selection involved a 5-stage design as depicted below:
Stage 1 - Delineation of each area to be sampled into smaller units of
near equal proportions known as sectors.
Stage 2 - Random selection of sectors.
Stage 3 - Random selection of dwelling structures.
Stage 4 - Random selection of household units (i.e. residential units
within each dwelling structure).
Stage 5 - Finally, random selection of individuals to be interviewed.
Achieved Sample Structure (Respondents’ Profile)
GENDER
LOCATION (LAGOS)
 Ikeja/Ojodu
– 97
 Surulere
– 78
 Yaba/Ebute Meta – 77
 V.I/Ikoyi
315
Respondents
– 63
AGE
 16 – 25
–
64
 26 – 35 –
95
 36 – 45 –
81
–
75
 45 +
 Male
– 168
 Female
–
137
Achieved Sample Structure (Respondents’ Profile)
SOCIAL CLASS
 AB
–
 C
– 172
 D
–
EDUC. BACKGROUND
56
315
Respondents
87
 OND/Dip. ,,
– 107
 HND/BSc. ,,
– 159
 MSc./PHD
–
OCCUPATION
 Self Employed
– 73
 Professionals-Lawyers,
Engineers, Doctors, Bankers etc – 115
 Company Managers/ Directors
– 91
 Others
– 36
49
Executive Summary
• The current banking reforms were largely seen as timely to address the low capital
adequacy of banks.
• Some however canvassed for caution by the regulators in handling the exercises
as doing otherwise may worsen the already beleaguered economy .
• Poorly enforced regulations were perceived to be the bane of the rot in the banking
sector.
• CBN and the NDIC were also berated for indirect complicity in the crises facing the
sector.
• In the short run, the exercises may engender lull in banking/savings/investment
activities and may heighten fears of the collapse of the real sector.
• The long run however promises regained confidence in the banking sector, restoration
of strong corporate governance and the emergence of strong and formidable banks,
leading to a robust banking sector.
• Strict financial discipline is strongly recommended as a panacea to restore public
confidence in banks.
22%
Ensuring that caretaker
Boards/CEOs are not there to
milk the banks dry
25%
Restore strict corporate
governance
38%
Develop the real sector
that is presently comatose
47%
Increase
capitalization
63%
Keep close watch/
Clamp down on
gluttonous CEOs
Financial
Prudence…
How to Restore Public Confidence in Banks
17%
• Strict financial discipline / closing down non-profitable branches / cutting down on large overheads of
these banks, were canvassed, so were keeping close watch / clamping down on gluttonous CEOs and
recapitalization of the affected banks, as panaceas to restoring public confidence in the banking sector.
• In conclusion, from the findings of this study, it becomes clear that though the
effects of the banking reforms appear to be bitter pills to swallow, the economy may
have been the worse for it if the reforms, though thought to be rather belated in some
quarters, were not carried out
• The salutary effects may not be immediately evident, but promised to hold a better
future, not only for the banking sector, but for the entire economy as a whole.
DETAILED FINDINGS
General Thoughts on the Banking Reforms
42%
31%
27%
17%
10%
8%
4%
Addresses the May worsen the CBN did not Exposes the rot
low capital
already
show enough / robbers in the
adequacy in
beleaguered
discretion...
system
banks
economy
Makes the
banks more
transparent
2%
Gives banks
Exposed the
Brings hope
more respect & unprofessional and confidence
Int'l standing attitudes in the to the sector
system
• Quite a sizeable proportion (42%) were taken aback by the revelation of the pitiable size of the
capital available in the distressed banks to stay in business, hence the reforms were seen as timely
exercises to address the low capital adequacy of the indicted banks. On the flip side, 31% were
worried about the ominous signal the reform agenda is sending to the already stressed economy ,
Moreover, (27%) berated the CBN for not showing enough discretion in the wholesale sacking of
the indicted banks’ top guns.
Factors Responsible for The Rot in the Banking Sector
Poorly enforced regulation / weak regulatory framework /
unsound in-built risk management
… 59%
Considerable loopholes in banking operations / most CEOs
operate as tin gods / unbridled greed on the parts of CEOs
and Boards / inability to play by the rules … 34%
Large non-performing loans /granting of uncollaterized loans/
collapse of the stock market
… 24%
• The regulatory agencies, namely the CBN and the NDIC were roundly berated for their
indirect complicity in the crises rocking the banking sector in “poorly enforced
regulation…”. Some (20%) actually surmised that the NDIC and CBN are undeniably parts of
the crises rocking the financial industry due to their lackadaisical attitudes. They themselves
need one form of reform or the other”.
Things Done Rightly or Wrongly By the CBN
Things Done Rightly…
Self
Employed &
Others
(N=109)
 Low risk on savings and
investment
 Currying some level of
public sympathy
… 56%
… 44%
 Promoting fiscal stability
and strong financial system … 52%
Professionals  Frantic restoration of
Lawyers, Doctors,
foreign investors’ confidence … 48%
Engineers, Bankers, etc (N=115)
.
Coy Managers /
Directors
(N=91)
 Timely intervention to avoid
fatal / total collapse
… 41%
 The bail out/stimulus package
for banks
… 34%
 Restoring the health/ confidence
of the banking sector
… 25%
Things Done Wrongly…
 Unprofessional ways of publishing
the names of debtors
… 52%
 Poor debt reconciliation before
publication
… 49%
 Piecemeal sacking of CEOs &
Boards
… 54%
Allowing other banks to put their
houses in order against the ‘evil
day’
… 46%
 Unprofessional / selective
approach
… 58%
 Giving the banks’ fraudsters
ample time to run out of the
country
…32%
 Erosion of confidence in the
banking sector/capital market … 18%
Likely Effects of the CBN’s Actions on the Economy
… In The Short Run
Self
Employed &
Others
(N=109)
Professionals Lawyers, Doctors,
Engineers, Bankers
etc
(N=115)
Coy Managers /
Directors
(N=91)
•
•
•
•
•
•
•
•
•
•
•
Veritable lull in banking/savings/investment activities
Palpable fear/foreboding fear of the unknown/distressed banks
may ultimately collapse due to customers apathy to them
Guard against collapse of banks
High retrenchment / unemployment in the sector
… 37%
Fear of the collapse of the real sector
Destabilized business activities/shock waves here and there
in the economy
Difficulty in accessing loans / cynicism by investors
Deliverance from banking destruction
… 31%
Disincentive to savings and fund mobilization
Retrenchment across the banking sector
Difficulty in financing imports and meeting other financial
obligations
… 25%
… 23%
… 21%
… 27%
… 22%
… 15%
… 35%
… 31%
… 26%
Likely Effects of the CBN’s Actions on the Economy
… In The Long Run
Self
Employed &
Others
(N=109)
Professionals Lawyers, Doctors,
Engineers, Bankers
etc
(N=115)
Coy Managers /
Directors
(N=91)
•
•
•
•
Regained assurance in the banking sector
Buoyed confidence of both local and foreign investors
Tight fiscal policy / no longer business as usual
Stability/in-built mechanisms against future collapse
… 41 %
… 32%
… 23%
… 21%
•
•
•
•
•
Restoration of strong corporate governance
Divestment of local investors for foreign ones
More transparency/accountability in the sector
Probable emergence of regional banks
Merger with/take over of smaller banks by bigger ones
… 33%
… 29%
… 22%
… 20%
… 17%
•
•
•
•
Emergence of strong formidable banks
Robust banking sector
Banks that lack ideas and strategy will step aside
Men will be separated from the boys ultimately
… 46%
… 31%
… 21%
… 15%
Lessons to Be Learnt
Good corporate
governance
13%
Borrow and pay back as at
when due (10%)
Professionalism should
not be compromised
(15%)
The fear of Sanusi is the
beginning of banking
operation wisdom / no
hiding place for banking
operation rules’ defaulters
(33% )
Strict accountability
(16%)
Clear dichotomy of
family / personal interest
from overall public / national
interest / customers
interest first (17%)
Playing by the rules /
no longer business as usual
(25%)
•
Aside from the aforementioned, other veritable lessons to be learnt, according to them, are that “not all that
glitters is gold, in terms of spurious capital base, profit before and after tax, etc. being declared by virtually all
the banks”, and “the exposures of bogus millionaires who lives on poor people’s funds”; calling all millionaires /
billionaires and pretenders alike to live within their means.