News Column

From Amcon to Nigeria Banking Regulatory Commission

May 26, 2014

Okwy Basil

The shocking and crushing effects of the 2008 global financial crisis that started at the Wall Street, which spread like a wildfire, were so deeply felt around the world's financial systems, particularly the stock markets. Mitigating the accompanying banking crisis caused by huge toxic assets, in that effort, governments around the world pursued the bailout of their financial sector. Particularly western and emerging economies, rushed in, injecting unheard-of direct cash into their banks.

Like most of these countries, the effects on Nigeria's financial system were as explosive as a nuclear bomb, especially with stock exchange dropping from N13.5tn to N4.6tn, losing not only N8.9tn in value, but also $15bn was suddenly pulled out of the country by foreign portfolio investors who were eager to seek better arbitrage opportunities elsewhere outside.

Soon, Nigerian banks' bloated stocks turned into junk. This was made easier by the fact that their excessive exposure to oil and gas sector, margin lending, and speculative foreign portfolio investors in bank shares, made them to lack the necessary shock-absorbers from such financial fiasco.

If recalling their margin loans witnessed mass defaults, turned into nonperforming loans, why shouldn't the big holes created in banks' balance sheets put the banks in such a grave financial situation, especially in the absence of sound corporate governance practices and macro-prudential guidelines, as well as de-marketing, accounting frauds and media cover-ups?

As a result, with most of the banks failing capital adequacy, asset quality, management quality, earnings quality, liquidity and sensitivity to risk , otherwise called the CAMELS) stress tests, a test used in determining the state of health of financial institutions, bailing out these banks to prevent an impending contagion hitting the country's financial sector, became a matter of life-and-death. Besides Sanusi wisely injected N620bn into the nine banks so as to stop their bleeding, his excellent permanent solution to the mess was to ensure that the Asses Management Corporation of Nigeria (AMCON) was immediately in place and running. For this reason, one thing Sanusi should always be given credit for is this his boldness not only in making sure that AMCON was finally set, but most important, giving it all the resources it needed to perform the very most difficult task of restoring life to the country's comatose banking industry.

And on his part, the managing director of AMCON never disappointed Sanusi for the difficult responsibility of navigating Nigeria's most troublesome water, full of ferocious sharks. Mustafa Chike-Obi showed his doggedness, when he refused to yield to the usual blackmail from our so-called ever powerful political and economic elite class, who thought that they could get away with defrauding the country's banking and financial sector. That the cleaning up of banks' toxic balance sheets, which cost the US government trillions of dollars to achieve, the UK government hundreds of billions of pounds injected into the banks via preferred stocks, the eurozone governments over a trillion euro in bailing out the zone's banks, and China no less than hundreds of billions of dollars recapitalize its banks, only cost Nigeria a mere fraction of the huge sums of money spent around the world is something Nigerians should always remain grateful to Lamido Sanusi and Chike-Obi.

Given the immense damage the global financial meltdown caused around the world, to proactively prevent such financial tsunami from reoccurring, most governments have wasted no time in getting back to the drawing board in an effort to fully redesign their financial sector architecture. The result has been the tightening up most countries' lax regulatory system, particularly banks' unrestrained creation of credit, inaccurate financial reporting, and the culture of dishonesty pervading the banking sector. Also, besides broadening standards and replacing narrower rules, increasing insider whistle-blower recognized as most important in checkmating corporate excesses, has been so protected and rewarded.

Since 2010 it was handed the illiquid and difficult-to-valuate bank assets to manage with the goal of helping the banks get rid of toxic assets so that they could be healthy once again, AMCON has done extremely well, especially taking into account the kind of lawlessness society ours is. In fact, received as a national duty, the no-nonsense toxic assets inspector-general, in riding the banks of their nonperforming loans, has since gone after all the criminals who defrauded the banks, no matter how highly place. Having no hiding place, most have either paid up or forfeited their important assets, in most cases had their pricey assets auctioned. So far, AMCON has succeeded in helping the banks regain their much-eroded public confidence, a life-and-death in universal fractional banking.

Countries like China have created the China Banking Regulatory Commission, new agencies to regulate and supervise banks so that their central banks should focus more on formulating and implementing monetary policy, safeguarding financial stability, and managing foreign exchange accounts, unfortunately, Nigeria has yet to create such a banking regulatory and supervisory commission. That is why I strongly believe that AMCON, should without anytime wasted, be transformed into the Nigeria Banking Regulatory Commission. Like China's this should be an independent agency with the responsibility of supervising the activities of the country's banks with the goal of advancing banking sector regulation in a way that promotes system stability and risk control. This way, the Central Bank of Nigeria should become fully focused on monetary policy, particularly on interest rate regime and the administration of the foreign exchange account.

Besides supervising banks, trust and investment companies, and other depository financial institutions, the new commission should also be responsible for approving new banking institutions, as well as formulating prudential rules and regulations. Others include conducting a wide range of powers of examination as well as off-site and on-site investigations, detecting risks in the banking sector and establishing an early-warning system.

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Source: AllAfrica

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