The Central Bank of Nigeria Governor argues that banks need
to reorientate themselves to meet long-term needs in the face of
increasing competition from foreign-owned financial instutions.
For more on the turn around of Nigeria’s banking sector read Paradise Regained.
The Africa Report: Guaranty Trust Bank is going to float a local bond. Do you think that it is wise under the current circumstances?
Lamido Sanusi: One of the reasons we pushed for the tax cut on the capital market is because if you look at the balance sheets of Nigerian banks, the major source of long-term funding is equity. The rest is current and savings accounts, and volatile government deposits.Because the deposits are so volatile it means that the duration of the assets tends to be very short, and the banks turn to creating long-term assets that would otherwise be required for mortgages, manufacturing and agriculture – instead of going to the short term. A lot of the risk assets go into the capital market and short-term trading. The ability to raise long-term finance in the capital market increases the ability of the bank to extend longer-term credit to the real economy and that is a good thing.?The tax waivers also improve the ability of highly-rated private companies to raise money from the capital market and move away from their dependence on bank borrowing. This will then compel the banks to look for risk-adverse customers in the middle market in manufacturing, in small, medium and growing businesses, which is where we want bank lending to go.We have been trying to create alternative means of financing for businesses and move the banks away from doing everything. Right now the banks provide overdrafts, loans, project finance and underwrite equity … but you want to make sure you’ve got venture-capital companies, private-equity companies and capital markets there for long-term lending. The banks then can beging to focus on the short- and medium-term exposures to small and growing businesses.
?Do you think it is a good thing that the Nigerian banking sector will be more open to foreign participation? ?
When I became governor of the Central Bank of Nigeria there was a rule that I did not agree with that said that foreign banks should not own more than 10% of a Nigerian bank. Coming from a risk- management background, I know that when foreign banks come in they contribute to improving risk management and general practice in the industry. Most countries that have opened their banking system to foreigners have found a general improvement in the quality of banking. So I removed that restriction. Its removal was then interpreted by journalists as an appeal to foreigners to come in and buy out the banks. Personally I would like Nigerian banks to own and be partners. You have banks like Standard Bank of South Africa, where 49% of the new bank – Stanbic IBTC – is owned by Nigerians. It is lending to the Nigerian economy, it has Nigerian tax as well as foreign tax and is one of the best examples of what a big bank ought to be in that environment.
This article was first published in the June-July edition of The Africa Report.
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