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Nigeria: Lamido Sanusi’s legacy

Photo©Jerome Favre/BloomBerg via Getty Images

The central bank governor will step down in June, having saved the financial sector and created plenty of enemies along the way.”I love controversy,” Sanusi Lamido Sanusi, Nigeria’s central bank governor, said at a conference in Lagos on 3 February.

Hours earlier he accused the state-run Nigerian National Petroleum Corporation of operating illegally and diverting $20bn of state funds, an outburst that embarrassed President Goodluck Jonathan.

His claims followed a leaked letter he wrote to Jonathan that exposed problems in remitting oil revenue to the federation account.

Timeline of Fall and rise of the NSE 2008-2014

1 March 2008
The top of the precipice: After several years of accessing the capital markets, Nigerian banks pump up a huge bubble in the Nigerian Stock Exchange (NSE).

15 September 2008
Lehman Brothers files for bankruptcy. Global liquidity moves from periphery to core. Confidence in Nigerian banks shaken as questions asked about corporate governance. Stories filter out about a build up of ‘toxic assets’ in banks exposed to margin lending, energy companies and state governments.

3 June 2009
Lamido Sanusi appointed as new central bank governor in the middle of global and Nigerian financial crisis. Three months later, Sanusi sacks the heads of Afribank, Intercontinental Bank, Union Bank, Oceanic Bank and Finbank, and injects N400bn to stabilise the banking sector. A controversial anti- corruption fight ensues, with bad debtors named and shamed in national newspapers.

19 July 2010
The Asset Management Corporation of Nigeria created to absorb and restructure the bad loans that had accrued during the crisis period, and act as a bridge bank
in order to manage three of the rescued banks, now called Enterprise Bank, Keystone Bank and Mainstreet Bank.

1 January 2012
Nigeria cuts fuel subsidy. Sanusi becomes strong defender of the action – if not the implementation – on account of huge corruption within the subsidies payment system. A report to Nigeria’s parliament later suggests $6bn was defrauded from the system over the previous two years.

12 December 2013
The central bank dissociates itself from the leaking of a letter from Sanusi to President Jonathan, detailing $48bn of revenue that the Nigerian National Oil Corporation had failed to account for.

The state oil firm denies any wrongdoing.

When Sanusi leaves his post in June, he will be remembered by some as a swashbuckling graft-buster, while others may always view him as an irritant who stepped beyond the boundaries any central bank governor should.

Detractors and supporters alike tend to praise Sanusi for perhaps his most impressive achievement since coming to office.

He prevented a financial sector meltdown in Africa’s second-largest economy.

When he became governor in June 2009, he had only recently taken over as the new managing director of FirstBank.

He wasted no time in cracking the heads of his former peers.

Just weeks after taking office at the helm of the apex bank, he overhauled the banking sector.

“Sanusi came like a wrecking ball on frail banks standing on false fundamentals,” says Oluseun Onigbinde, co-founder of number-crunching website BudgIT.

“Sanusi knew the rot in the system, and he moved in with a bang destroying the quietude that enveloped the banking sector.”

Shockwaves

Sanusi bailed out nine lenders, nationalised three banks and removed eight chief executives, sending shockwaves through the establishment.

“He was able to act very quickly to sort out the good banks from the bad banks and get the banks back to health. That is a huge legacy,” says Wale Shonibare, managing director of investment banking at UBA Capital.

Failed banks morphed into bridge banks – Enterprise, Mainstreet and Keystone banks – and were acquired by the Asset Management Corporation of Nigeria, a rapidly formed state-backed bad bank to soak up toxic assets.

The fate of these bridge banks is still unclear.

“Going through the process of actually fixing a crisis without depositors losing money and getting the banks to pay for that is a major thing, so one would like to see an agreement that the Nigerian banks – over the next 10 years – are the ones that pay for the cost of the bailout after I’ve gone,” Sanusi tells The Africa Report.

Sanusi has bagged a string of banking awards and was included in Time magazine’s list of 100 most influential people in 2011.

But for all his foreign plaudits, his controversial policies and statements have won him more enemies than friends at home.

At the advent of his reforms, jobs were lost, credit stagnated for months and interbank rates spiked.

His critics argue that his inability to adopt the reticence typical of a holder of his job threw him into the ring of controversy.

Sanusi made a number of public donations in 2012, drawing fire from politicians who accused him of only taking care of his own.

The government’s management of Islamic banking and an attempt to introduce the N5,000 ($30.60) note and coins generated media frenzy.

Never afraid to criticise Jonathan’s government and the National Assembly, he made enemies who questioned the need for an independent central bank.

“Such approach and bluntness, especially his incessant outbursts on the expensive structure of Nigeria’s statecraft, propelled the Nigerian legislature to craft a failed unpopular bill which tinkers with the independence of the apex institution,” observes Onigbinde.

Sanusi knew the rot in the system, and he moved in with a bang destroying the quietude that enveloped the banking sector

Another controversial hallmark in the central banker’s legacy was pushing for the removal of a fuel subsidy in January 2012.

The move sparked violence and strikes, which forced the government to reinstate it partially.

The central bank maintains the benefits of removing the fuel subsidy far outweigh the costs of a higher pump price.

Few Nigerians agree.

By rewriting the regulatory framework of banks, institutionalising tenure limits for bank chief executives and abolishing the universal banking system, Sanusi managed to strengthen some aspects of banking regulations.

However, some of his critics argue that there is still not enough supervision.

Industry funds

“His mandate is to stabilise monetary policy – so why introduce intervention funds for agriculture, power and aviation? It is not his job to be promoting funds for industries,” says Atiku Samuel, a business owner and analyst.

“He seems to be more interested in industry policy and fostering an environment for big corporate investments, neglecting banking supervision.”

Plenty of ire is also directed towards the central bank’s tight monetary policy.

It has kept its benchmark interest rate at 12% since October 2011, despite calls to cut it.

The central bank also increased banks’ cash reserve requirements from 8% to 12% in July 2012.

In October 2013, the central bank extended penalties for large cash transactions to bolster the cashless policy Sanusi has been supporting.

His supporters maintain that his stringent approach has seen a return of profitability to a banking sector that was heavily subsidised with high-interest government bonds.

He has pledged to crack down on money laundering and speculation by enforcing a 75% cash-reserve requirement on public sector deposits.

He wants banks to lend to ordinary Nigerians, not to take state funds and lend them back to the government to make an easy profit.

His hawkish approach has reined in inflation, which was around 15% when he took office and is now stable well within single digits.

Sanusi will also be hailed for bringing relative exchange rate stability, a credit to the central bank and its ability to keep money supply tight, says Shonibare.

It is unlikely that the incoming governor will depart from the central bank’s historic stance on foreign exchange stability, especially given the currency’s critical role in the forthcoming election.

Analysts expect that political pressure may push it to lower policy rates and shift to a more expansionary monetary regime ahead of the 2015 elections. ●

 

Babatunde Akinsola

Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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