Wall Street before the Crash of 1929? No, Nigeria. Or, at least, Nigeria before Lamido Sanusi became governor of its central bank last year.
Outwardly, Nigeria is seen as a country with a well-capitalised banking system riding an oil boom. The second-largest economy in sub-Saharan Africa, it generally gets good marks from the IMF’s periodic economic missions.
To Dr Sanusi however, certain parts of the banking sector that accounts for some 60 percent of the stock exchange is an Augean stable and he’s doing his best to clean it all up in the teeth of determined opposition. Bespectacled and bow-tied, he’s the man who, soon after taking the top job, sacked the management and board of eight of Nigeria’s 24 banks, and then went on to name the industrialists, politicians and others – “the rich and powerful”, as he calls them – deemed responsible for profligate and ruinous lending. That was after the banking sector ran up nearly $5bn in non-performing loans.
Since then however, the implacable Dr Sanusi has gone a step further, a big step further. He’s been conducting a forensic investigation into the state of the financial sector that is practically unique in Africa, but clearly long overdue. His investigators have worked their way through internal memos, numerous reports and letters. They interviewed regulators, bankers, businesspeople, government officials and other stakeholders.
And what they found is a cauldron of malpractice in certain corners of the industry that was masked by the torrent of easy oil money. The standard of governance, varying between poor and corrupt, “enriched a few at the expense of many depositors and investors.” Bullying chairmen forced committees to rubber stamp decisions. And that’s not the half of it.
Chief executives established special purpose vehicles (SPVs) – the infamous instruments that brought down several European and US institutions – whose sole purpose was to lend money to themselves to be pumped into the stock market to drive up prices on their own account or to buy plum real estate “all over the world”.
Another bank bought private jets (yes, that’s plural) and registered them in the name of the boss’s son. In yet another, management set up 100 fake companies for fraudulent purposes. Afribank’s management used its own depositors funds to by 80 percent of its own IPO. Some banks manipulated the books, others never raised the money they said they had.
The central bank itself gets it in the neck in this merciless investigation for failing to act on warnings of junior staff, for regulatory slackness, for deficiencies in skills, and generally for getting too cosy with the wrongdoers.
It all ended up in tears when the oil boom-fuelled stock market collapsed, but the biggest tears were shed by the depositors. This particularly angers the governor who, like any good central banker, sees the damage caused to the innocent or ignorant in destroyed savings. In highly graphic phraseology you won’t hear from any European central banker, he explains what a bank failure really means:
“To say ‘the bank has failed’ is somewhat like coming across the corpse of a man whose throat was slit, or whose body is covered with knife wounds or riddled with bullets and saying ‘the man died.’ The man did not die. He was killed.”
Although he’s clearly rubbing some people up the wrong way, that’s unlikely to be 49 year-old Dr Sanusi’s fate. Fortunately for a man on a mission to clean up these Augean stables, he’s extremely well-connected in Nigeria. From his great-grandfather down, the family has long been influential in politics, banking, civil service and universities. He’s also got the backing of President Umaru Musa ‘Yaradua.
If Nigeria’s top central banker can pull this off, it will act as a beacon for other sub-Saharan nations.