SUNDAY, 18 JULY 2010 00:00
EDITOR BUSINESS NEWS
Professionals Friday’s papers were awash with the news that the Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi has, after 12 months of intransigence finally agreed that shareholders of the eight taken over banks can finally recapitalize their banks. This made the headlines of all local and international news agencies and papers because it has taken 12 months for the governor to realize what everyone in the investment community already took for granted, the fact that when a bank suffers from temporary capital inadequacy, (as the CBN alleges is the case with the eight banks) the first remedy is to call on shareholders to bring in fresh capital.
Unfortunately for our CBN Governor this simple fact was rocket science that took him 12 months to understand. This is after threatening, intimidating and cajoling shareholders, all in an attempt to make them give up their shareholding in these banks that were forcefully taken over by the CBN when a simple remedy action of recapitalization would have resolved the issue. Instead, the CBN has taken the Nigerian economy through several months of uncertainty and double standards.
While the CBN has given the option of recapitalization to ETB, Unity Bank and Wema Bank, it stubbornly denied shareholders of the other eight banks similar opportunity. The Governor remained adamant even when it became obvious to all discerning individuals that the economy cannot move forward until the issue of these eight taken over banks is fully resolved.Now the Governor has done what he should have done 12 months back.
However, we will like to warn shareholders not to take the Governor’s seeming recapitulation on face value. The Governor obviously has not given up his desire to take over these banks. Right now his strategy seems to be a ploy to lure shareholders into withdrawing the several court cases standing in his way against selling these banks. Any discerning mind, except that of the CBN Governor knew he had no power to sell these banks. It was also obvious that his chances of winning any of the cases in court were very slim.Â¨Now that he has come to that reality, he is trying to lure shareholders into withdrawing these cases. We will advise shareholders not to. They should only withdraw these cases when the CBN hands over their banks to them. Then it will be illogical to have those cases in court.¨
It is the right of shareholders to decide whether to sell, go into partnerships or recapitalize their banks. It is not the business of the CBN as we have insisted on several times before now. The right of shareholders to recapitalize their banks does not affect the right of the CBN to regulate these banks. It is simply over zealousness for the CBN to determine who owns the banks that it seeks to regulate. It compromises the CBN if it seeks to bring in the investors to invest in the banks that it will regulate. Let the CBN seek to strengthen its regulations while the banks seek to strengthen their capital and operations to meet regulatory standards.¨
The CBN has already over-reached itself by appointing financial advisers for banks it did not own and even going ahead to negotiate with investors on behalf of the banks. These taken-over banks are quoted on a recognised and respectable stock exchange, the Nigerian Stock Exchange (NSE) not a casino as Sanusi will want us to believe.¨The shareholders of these institutions are very much alive and willing to recapitalize their banks. The CBN has done its job by stabilizing these institutions; which have not only been stabilized, but they have returned to profitability. What the CBN should do next is hand over these institutions back to their shareholders at their next annual general meeting (AGM).¨
The CBN can give them the timeframe to recapitalize like it has done with Wema and Unity Bank. It can also retain one or two directors on the board of the banks to guide the tier II capital it pumped into the banks and protect its interest. Let shareholders now make the decision on the mode of recapitalizing these banks. This is the only way to ensure that the right to private property is fully protected in a country that claims to practice a market economy. This will also ensure that the ability of banks to raise equity capital in future is not impaired.