On June 3 2012, curiously named Mallam Sanusi Lamido Sanusi marked his third year in office as Governor of the Central Bank of Nigeria (CBN). He is seen in Nigeria as “a dream maker driven by the desire to succeed” while others are not comfortable with his “loquacious and abrasive personality” according to Obinna Chima of THISDAY LIVE.
Yet others have described him “as a man who is in a hurry to make history”. Named World Central Bank Governor of the Year 2011 by London-based The Banker Magazine, Sanusi casts himself as a radical reformer driven by the desire to transform the Nigerian financial landscape.
What caught my attention is not so much Sanusi’s public persona; I was intrigued by some similarities in the development trajectories of the Nigerian and Zimbabwean banking sectors. I must admit though — for what it’s worth — that it is tempting to compare Sanusi with our very own Reserve Bank Governor Gideon Gono, for they appear to be cut from the same cloth. Both became central bank governors at times when the banking sectors in their respective countries were severely stressed and teetering on the verge of collapse; both are credited with restoring stability to the financial systems; and both have been accused of sometimes resorting to unorthodox means to achieve their objectives.
Sanusi and Gono have also in the past been criticised by the IMF for abandoning the central bank’s core mandate of ensuring price stability, choosing instead to pursue a development mandate through quasi fiscal operations. While Sanusi has at his disposal instruments such as Monetary Policy Rates (MPR) and Treasury Bill auctions with which to carry out Open Market Operations (OMO), his Zimbabwean counterpart currently has no such luxury. Interestingly, despite the huge disparities in the sizes of their economies, Zimbabwe ($7bn) and Nigeria (over $250bn) have almost the same number of banks at 25 (post–Genesis) and 21 players respectively, something that no doubt puts in perspective whether Zimbabwe is over-banked or not. Sanusi’s August 14 2009 dramatic removal of chief executives of eight banks at the height of the Nigerian financial crisis is reminiscent of the unceremonious exit of several banking executives from the likes of Trust Bank, Royal Bank, and Barbican Bank Limited during the 2003/2004 banking crisis in Zimbabwe. In both cases, financial accommodation was an integral part of the rescue package, conditional upon the dismissal of incumbent management. It is said that after firing incumbent CEOs of the affected banks, Sanusi immediately dispatched replacements with armed guards to their head offices! Talk about the element of total surprise!
Stress tests carried out on the Nigerian banking sector then unearthed $10 billion worth of toxic assets and exposed corporate governance weaknesses, leading to the creation of the Asset Management Corporation of Nigeria (AMCON), jointly owned by the Ministry of Finance and the CBN. The local equivalent of AMCON would be ZABG, until recently 92,8% government-owned, though they were formed for entirely different purposes, the former to clean up the Nigerian banking sector by purchasing its Non-Performing Loans (NPLs) and the latter to consolidate troubled banks into one stronger institution. Since its creation, AMCON has bought Eligible Bank Assets (EBAs) from the industry in three tranches. The first NPLs purchase in December 2010 enabled AMCON to buy all toxic assets linked to the capital markets and to the then eight rescued banks. The next purchase took place on April 6, 2011 and the last purchase to clean up all the NPLs in the bank’s books as well as to take out systemically important loans took place on 28 December 2011.
Without suggesting that Zimbabwe will need an AMCON, a question that must be asked is: What is the true level of NPLs in the Zimbabwe banking sector and what will their impact be when they begin to crystallise on banks’ balance sheets? Is government going to bail out banks, even as it struggles to balance its own books? Wrong question, because government can’t afford it anyway. So when the chickens of the liquidity crisis, undercapitalisation and non-performing loans come home to roost, are we going to see a few more banks fall by the wayside? Or are we going to see further consolidation of the banking sector and if so, can its scale ever rival that of Nigeria which consolidated its banking sector from 89 players to just 20?
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On a positive note, in an era in which the reputation of bankers tends to generally take quite a knock, it is supremely inspiring for African bankers when one of their own makes it on the world stage. Ladies and gentlemen, join me in congratulating James Mwangi, the chief executive of Kenya’s Equity Bank for winning the Ernst & Young World Entrepreneur of the Year 2012.
Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory company with interests in banking, technology and agriculture as well as the convergence area among them.