Reflections on Nigerian Banking Part 4

Mid way through 2003, I was still a General Manager in an “emerging” Nigerian bank. I was experiencing some professional dissatisfaction and had made up my mind to resign from the job. I was frequently running into trouble with the de facto (family) owners of the bank over sundry official and human issues. I started evaluating my options-was I to strike out on my own? (I had always wanted to be self-employed before my fortieth birthday) or should I move to another bank? In the few years preceding, I had made two career changes and I was concerned that another switch would be one too many. While I was in the midst of this dilemma, I was appointed an Executive Director in the bank in August 2003! I had sought the elevation at a point, but by the time it came, I really wanted out. Indeed I had tendered my resignation to the CEO of the bank on two or three occasions already (late in 2002 and in 2003) but he had managed to persuade me to reconsider my decision to leave. I convinced myself to give the job one last shot-perhaps the promotion was a sign that I should stay.
Having decided on one last throw of the dice, I discussed the measures I thought were necessary to achieve our objectives for the institution. I had no problems convincing the CEO that we needed to increase the bank’s capital base to at least N5billion and expand its branch network, while continuing with efforts to reposition the institution in the market place. We commenced discussions immediately with an investment bank and the corporate finance team of a leading “new generation” commercial bank, and soon management settled on the investment bank to act as financial advisers for the proposed capital raising. The first bottleneck was that the board (or its head) disagreed with our objective of raising the capital base to N5billion. The institution was family-controlled and perhaps there were fears about loss of control. The figure was eventually reduced to N2billion (after several months of stalling) before board authority to appoint the financial advisers was obtained. This was long before Soludo!
Indeed in December 2003, I convened a management retreat and shared with participants the conclusions of a carefully selected research and planning team on the direction of Nigeria’s banking industry. We noted the continuing demarcation between smaller and bigger banks and predicted that industry consolidation (those were my exact words! And I was referring not to a regulator-induced consolidation, but a market-evolving one) was imminent. We identified a group of ten or eleven banks that were increasingly significantly larger than the rest and warned that there was a maximum of two or three year window for the others to catch up or else the game would be over. The retreat was fired up and we agreed on a specific two-year implementation plan to ensure we leveraged the strategic insights we discussed. The critical elements of the plan were capital, branch network, products, people, alliances and the brand. We shared these plans with the bank’s board but again there was no apparent enthusiasm for the proposed measures.
By Christmas 2003, my personal resolution was to observe the level of institutional commitment to the plan for a maximum of two months and if I was in doubt to leave before the end of March 2004. Midway through February, I was overwhelmingly convinced that the plan would not happen so I again resigned. This time I also informed the Chairman and a few other persons, in addition to the CEO of my decision. As usual, the pressure to rescind the decision was strong but my mind was made up. But considering executive management and board protocol, I agreed to “think about it” for a few weeks. On June 28, 2004, I informed the bank’s “exco” and the CEO that my mind was made up and on the morning of July 6, 2004, , I tendered my official letter of resignation. Later that day, Professor Charles Soludo made his famous “N25 billion” speech. Professionals would say I made a professional decision. Strategists would say, I made a strategic decision. Moralists would say I acted on principles. And those who believe in God would understand if I say there was also an audible voice and hand pulling my ears and telling me to “come out from amongst them”, but I know I was completely shocked when later that day, I heard about the CBN “earthquake” stipulating an over 1000 per cent increase in capital for banks operating in Nigeria.
I reflected on these matters as the news of CBN Governor Sanusi Lamido’s bombshell hit the airwaves on Friday. I reflected also on the fact that this column had by and large predicted all these developments. Immediately after the successful conclusion of Soludo’s banking consolidation in December 2005, I wrote early in 2006 a column titled, “Banking Consolidation and Then What?” The essential message in that article was continuously repeated over and over again over the next three years culminating most recently in my “Reflections on Nigerian Banking”-a three part series published on March 4th, 11th and 18th and “Memo to Lamido Sanusi” published on June 10th. My constant refrain has been that banking consolidation was good, but it has not by one stroke of the pen put an end to all the critical issues militating against the development of our banking sector; the real issues are strengthening corporate governance and institutional capacity, improving credit and risk management, deepening competences and skills, improving technology, systems and processes, restoring ethics and professionalism, reducing costs, and deepening regulatory capacity.
With few exceptions the banking sector and its erstwhile regulators over-celebrated the success of consolidation now to everyone’s regret. Next week, we will review all our previous arguments on the sector, discuss the CBN’s recent actions and proffer our suggestions on future industry direction.