How Soludo Fought To Sanitize Nigerian Banks: The Untold Story Of The Banking Reforms 

CHRISTIAN ABURIME

Prof Chukwuma Charles Soludo’s appointment as the CBN Governor had earlier raised some dust among some of these Bank Chiefs. For the first time an economist, rather than a Banker was appointed to that position.

The Bankers, who thought that was supposed to be their turf, were not happy with the development.

They became even more angry when Soludo suddenly came up with the banking reforms that mandated all commercial banks then with a minimum N2billion capital base to raise it to N25billion in 18 months.

Although, the move was very unpopular, but only a few of the Bankers went public to condemn it at that time, namely; Dr now Prof Pat Utomi, then chairman of Platinum Bank and Mr Atedo Peterside, the chief executive, IBTC Ltd, _(who later publicly acknowledged Soludo’s ingenuity after the success of the consolidation)_ while others worked behind the scene to scuttle the reform.

Beyond the rhetorics, the vociferous protests and the hullabaloo, the July 6, 2004 historic announcement by Soludo to banks to recapitalize to a minimum of N25billion became one subject of heated debate and controversy unprecedented in the annals of banking history in Nigeria. It was indeed an acid test for Prof Soludo as a person and the CBN as an institution.

After weeks of endless debates, the opposition group mainly made up of Bank owners and those with vested interest in some of the weak banks went on the offensive. They lobbied and mounted overwhelming pressure on the National Assembly to save them as the presidency was a no-go- area. The then President, Olusegun Obasanjo was fully in support of the Soludo-led CBN banking reforms.

It will be recalled in his earlier address, Soludo had taken a swipe at the Bankers for some unethical practice, whereby a group of people will get a banking license, use their connections to garner some billions of Naira in deposits from one or two parastatals and use the deposits to trade in government treasury bills, foreign exchange and open letters of credit for importers. And such a bank consequently goes ahead to declare billions of Naira in profit.

According to Soludo, the above scenario was the situation with many banks in the system and it was no longer acceptable.

After several months of intense lobbying by the opposition group, the overwhelming pressure and manipulation of the lobbyists who persistently pestered the members of the National Assembly to ensure Soludo was cut to size became unbearable for the distinguished Senators.

Consequently, on February 4, 2005, the Senate caved in; and passed the Central Bank of Nigeria (CBN) Amendment Bill as well as the Bank and other Financial Institution (BOFI) Amendment Bill with a view to bringing both Acts in consonance with democratic norms.

Under the new CBN Act, the appointment of governing board of the Apex bank as well as it governor would now be subject to the confirmation of the Senate while the new BOFI Act categorized banks into Mega, Medium, Small, Specialized and Community bank.

The BOFI Act also provided a capital base of N25billion for Mega banks; N10billion for Medium banks, and N5billion for Small banks.

The action by the Senate was perceived by some financial experts and Nigerians as an indirect move by the Upper legislative house to derail the Soludo reforms which has now gained momentum.

Indeed, the bill was described as the most controversial and, perhaps, most unpopular among the several bills passed by the Senate.

Surprisingly too, the criteria for the categorization were not made clear to the Nigerian public – leaving a wide gulf of suspicion and doubts about the Upper law makers sincerity in passing the bill.

With this unfortunate development, the question on the lips of Nigerians, was; “Why will the Senate embark on this action to derail the reform; and what was the likely consequences?

Investigations later revealed that the majority of the upper house law makers were either directors or hold reasonable stakes in most of these troubled banks. Some analysts therefore believed the categorization was done as a ploy to cut Soludo to size and ultimately reduce the autonomy of the CBN.

The likely effects of this action was that the consolidation process which had already begun will be put in ‘reverse gear’.

Before the Senate action, the recapitalization drive of some of the banks was gradually taking a life of its own with some industry operators concluding plans by mergers and acquisitions, in addition to going to the capital market to beef up their capital base.

The Senate action became a clog in the wheel of progress as it will affect some mergers talks which have reached advanced stage, with the attendant risk of collapsing like a pack of cards.

The reality of post events after the Senate Bill and the professionalism Soludo applied in managing the situation came to play.

Even with the Senate no-retreat, no-surrender position on the (BOFI) bill, popular opinion indicated that majority of Nigerians were not in support of the bill.

A lot of arguments were canvassed by industry experts to deflate Senate action, which included the following:

That the so-called banks the Senate is trying to save are small because of the smallness and inefficiency of their various management and not as a result of a conscious decision to be small.

That categorizing Nigerian banks will not save the small banks, neither will it provide a level playing ground for them. The Senate Act itself makes the ground uneven for them and it will eventually kill them faster.

That the quality of the banks’ human capital will be low as the inefficiency of their operations will ensure they cannot attract the best hands to work for them.

That these small banks will likely be a clog in the wheel of efficient monetary policy management by the CBN because they will be operating on the fringes of the financial industry.

That to survive, most of these banks will offer unnecessary high deposit rates to attract funds and will be forced to lend at high interest rates to desperate borrowers. This will further increase their bad loan portfolio and increase their chances of being distressed.

That if Nigeria banks do not consolidate, foreign banks with their huge capital and asset base, will completely take over the nation’s financial industry competing against these poorly capitalized banks.

With the fore-going the Soludo’s banking reforms gained unprecedented momentum.

In addition and more importantly, members of the lower House whose approval was also necessary for the Senate bill to finally become law reportedly distanced themselves from the bill.

Also, majority of the Bankers who now believed in the reforms, affirmed that the Senate action would probably have made more meaning to them if it had come a year earlier when the reforms were newly introduced by Soludo. But now, according to the Bankers, the action has become belated and irrelevant and is only aimed to reverse whatever achievements the laudable consolidation policy of Soludo’s CBN have recorded.

Some financial market watchers, economy experts and other industry opinion leaders all argued that if the Senate action is allowed to stand, it will send the banking industry many steps backward.

Some of the then banks’ chiefs like Mr Ben Akabueze MD NAL Bank; Mr Erastus Akingbola, Chief Executive Officer, Intercontinental Bank and Mrs Cecilia Ibru MD of Oceanic Bank also cautioned their colleagues not to jettison the N25billion capitalization drive.

Aside from Alhaji Faladu Bello of Intercity Bank and Mr Toni Phido MD of Citizens Bank, most other bank chiefs pledged their readiness not to remain small.

With this apparent support and goodwill from some of the Bank Operators and the the Nigerian public, financial analysts were stoutly unanimous in their opinion that Soludo, inspite of the opposition from a section of the Senate must remain undaunted and forge on with the reforms.

These analysts insisted that the CBN had statutory powers especially to stipulate minimum capital base for banks. That these laws empower the Apex bank to conduct and review monetary policy from time to time.

The analysts, however, cautioned that should Soludo reverse himself on the CBN banking reforms policy because of pressure, it will adversely affect CBN credibility and all the gains made so far will fizzle into the air.

The analysts therefore advised the CBN to effectively manage the situation by deploying professionalism and proficiency in handling the over-bearing influence of the Senate as well as educating the public which was exactly what Soludo did proficiently.

At the end of the Soludo”s banking consolidation on December 31, 2005, twenty five banks emerged from 75 banks out of 89 banks in the system. 14 banks fell by the way side.

At the end of the first phase of the consolidation, capital base for the industry moved from $3billion to $6billion.

Indeed, it would only have taken a man with a lion’s heart to do what Soludo did.

Nobody thought Soludo could pull through in a country where powerful and highly influential people control the financial landscape of the nation.

To a vast majority of grateful Nigerians, business entreprenuers and the ordinary men and women on the streets, how Soludo did the Nigeria banking revolution remains a mystery till date.

But some personality traits which Soludo exhibited were clearly evident: COURAGE, RESILIENCE, VISION, KNOWLEDGE and UNCOMMON LEADERSHIP

Concluded: First published in 2019 by Christian Aburime.