August 18th, 2009
Nigeria’s central bank sliced through the hubris of the business elite with its $2.6 billion bailout out of five banks and the sacking of their heads in what looks as though it could be a new era for corporate governance in Africa’s most populous country.

Recently appointed Central Bank Governor Lamido Sanusi said lax governance had allowed the banks to become so weakly capitalised that they posed a threat to the entire system, and described the move as the beginning of a “restoration of confidence” in sub-Saharan Africa’s second biggest economy.

The 1.14 trillion naira ($7.6 billion) in bad loans run up by the banks is roughly equivalent to the combined annual income of the poorest 20 million people in Africa’s most populous nation, each of whom live on around $1 a day.

Yet the “Friday massacre”, as one newspaper dubbed it, set Blackberries buzzing in Lagos champagne bars not because of the breathtaking scale of the money involved, but because of the might of the corporate aristocrats felled by Sanusi’s axe.

“Ordinarily in Nigeria there is a sacred cow culture,” said Reuben Abati, a respected leader writer and chairman of the editorial board of Nigeria’s Guardian newspapers.

“Once someone is prominent in a particular industry you assume those persons are untouchable. What Sanusi has done now is to say nobody is too big to be held accountable, whether they are an Ibru or an Akingbola.”

Cecilia Ibru and Erastus Akingbola — the former chief executives of Oceanic Bank and Intercontinental Bank — were arguably the highest-profile casualties of the cull, titans in a corporate elite dominated by egos and empire builders.

Ibru is from one of Nigeria’s most powerful business families, whose interests range from shipping and hotels to oil and media. Akingbola is president of Nigeria’s Chartered Institute of Bankers and brimming with honorary doctorates.

“Some are born great, others achieve greatness, while others still have greatness thrust upon them. But rarely do we have these three attributes combined so well in an individual as is the case in our Dr. Erastus Bankole Oladipo Akingbola,” blasts the biography on his website.

In his trademark bow-tie and frameless spectacles, Sanusi’s slight physique and measured rhetoric mark him out from some of the more flamboyant personalities it is his job to regulate.

Some Nigerian commentators have argued that the cull by Sanusi, a northerner, targeted southern bank executives and that it was a retaliation for consolidation four years ago which saw some northern banks absorbed by their southern peers.

But the forensic precision of Sanusi’s public statements left the numbers to speak for themselves.

The loans they racked up — including credit to speculators on a stock market which fell 60 percent over the past year and unsecured financing to fuel importers who have seen oil prices halve — meant the five were constant borrowers of public money.

They accounted for almost 90 percent of exposure to the central bank’s discount window, a facility which allows banks to meet short-term obligations by borrowing central bank funds.

The results of Sanusi’s audit have left many wondering how the five banks managed to survive for so long.

Intercontinental and Oceanic had both won national and international banking awards. Analysts from brokerage Renaissance Capital were shown Intercontinental Bank’s balance sheet in April and published a report saying it had enough capital to absorb its asset risks and there was no threat to its solvency.

Ibru was quoted in this month’s edition of McKinsey & Company’s business journal McKinsey Quarterly as saying: “In five to 10 years, we expect to be a well-known, established bank beyond this sub-region of Africa.”

One Nigerian analyst commented “When the dust settles, one of the most shocking aspects of this crisis is going to be the magnitude of the gap between the rot in the system and what its leaders wanted us to believe.”

Will this be a new era for Nigeria’s companies? For Nigeria itself?

reuters