How banking consolidation will grow economy, reduce pains of Tinubu’s ongoing reforms

Governor of the Central Bank of Nigeria, Olayemi Cardoso, has restated that the fresh round of banking consolidation in the country is aimed at strengthening the financial system, making it robust to meet the expected headwinds and, ultimately, grow the economy.

He said this on Saturday in Lagos while speaking as the principal guest of honour at the launch of a book, ‘The Power of One Man: How the Soludo-engineered Consolidation Transformed Nigerian Banks to Global Players.’

Written by Ray Echebiri, a seasoned journalist and economist, the book, which was launched at the Eko Hotels and Suites, Victoria Island, Lagos, captures the chain of events in the Nigerian economy and the banking industry in particular, that led to the banking consolidation of 2004/2005, and what transpired during and immediately after the exercise.

Mr Cardoso, represented by the CBN’s Deputy Governor, Financial System Stability Directorate, Philip Ikeazor, stressed that it was important that banks be recapitalised to the level where they will be able to absorb shocks that might be occasioned by the current administration’s economic reforms and policies.

“Remember that when the current administration came into place, there was unification of FX rates, and there was the removal of fuel subsidies. And the impact on the economy, especially the manufacturing sector, is beginning to manifest and will continue over the next few years,” he noted.

Reflecting on the banking consolidation exercise done under Chukwuma Soludo while he was the CBN governor, which formed the essence of the book being launched, Mr Cardoso said the Soludo-engineered consolidation was necessary at the time because he also wanted to make the banks robust, resilient, and fit for purpose to grow the economy.

“That is exactly the same reason why we are embarking on a similar journey today. Again, I think by coincidence, if you check the quantum of the capital minimum capital levels that we require, it’s pretty similar.

“International banks are moving from N50 billion to N500 billion capitalisation, which is ten times, similar to Soludo’s 12 and a half times. National banks are moving from N25 billion to N200 billion capitalisation, roughly about eight times more.

“Why would you think this is the quantum leap? Basically, when you do consolidations, you would look at the macroeconomic headwinds, the macroeconomic conditions on ground, and of course, apply your stress tests. And when you apply stress tests today, which I’m sure some of the big banks have done, they would have taken a guess where the capital levels were going to land.

“If you compare the bank assets in Nigeria to GDP, and compare it to similar economies in Africa, you can see that they were way behind. So, this exercise is also to strengthen the financial system and make it robust to be able to meet the expected headwinds,” the bank chief said.

Also speaking, former President Olusegun Obasanjo, who unveiled the book as the chief guest of honour, stressed the need for all stakeholders in the economy as well as government at all levels to work hand-in-hand to improve the current situation of the country.

Mr Obasanjo was represented by a former governor of Cross River State, Donald Duke.

“As the title of the book says, without the team, we cannot win the match; Soludo was the team captain and I take pride in the entire team. Yes, the CBN governor made a policy, but the weight (support) of the government was also important.

“When Soludo took over, I could tell the difference between a banker and an economist, and (today) we need someone who sees the country holistically,” he said.

Mr Obasanjo expressed appreciation to the author of the book and implored him to begin work on volume two.

Special guest of honour and governor of Anambra State, Chukwuma Soludo, described the banking consolidation he carried out as “a dangerous gambling and war.”

He expressed delight that reform is being celebrated today and has also been documented in book form.

While appreciating the author of the book, Mr Echebiri, his “incredible team” that saw through the consolidation exercise, and all the dignitaries at the event, Mr Soludo recounted the harrowing experiences he went through while carrying out the policy.

The former Central Bank governor revealed that his family had to go on exile because of the reform as “there were several threats and attacks from different people.”

“I also thank the Nigerian stakeholders for the massive support because it was like a revolution. Today, we are celebrating the possibility of Nigeria. The revolution changed the Nigerian banking system forever.

“As a leader, you must be self-sacrificing and ready to pay the price to avoid personal interest. The major message of today is the revolution for the banks themselves, who are now giants, such as Access Bank and Standard Trust Bank.

“I want everyone to know that what is stopping and limiting us from developing is our mind. If we can dream it, we will achieve it,” he said.

The chief host of the day, Governor of Lagos State, Babajide Sanwo-Olu, observed that the book presentation came at a time when there was a need for everyone – economists, bankers, opinion leaders, businessmen and politicians – to reflect on the Soludo-engineered consolidation, how his team survived the challenges at the time and the required solutions for challenges of the present time.

He noted that the nation was also at a point where the current CBN and its leadership were going through a similar banking consolidation, increment in share capital and the accompanying challenges.

He encouraged Mr Cardoso and his team not to relent with the new reform but to ensure they complete the process and stand tall.

“You are on the right track. Hopefully, 20 years from now, people will also gather to do another review of the consolidation of the banking sector,” Mr Sanwo-Olu said.

The Ogun State governor, Dapo Abiodun, also spoke at the event. He called for the right choices to handle public offices in all sectors.

Mr Abiodun noted that the impact of making the right choices in the public sector was very important for the growth of the economy.

Mr Echebiri stressed that the book captures, in unmistakable terms, how the banking consolidation transformed the Nigerian banking industry and placed it on the same pedestal with the industry of such regions as the Americas, Europe and Asia.

The author said his inspiration for writing the book was his relationship with his mentor and friend, Mr Soludo.

He restated that if Nigeria has the right persons in the right positions through leadership recruitment, it can claim prosperity as the birthright of its citizens without wars.

While the launch was chaired by Akpan Hogan Ekpo, a professor of Economics, the 263-page book was reviewed by the Senior Vice-Chairman and Editor-in-Chief, Leadership Newspapers, Azu Ishiekwene.

Other dignitaries who graced the event included the Kwara State governor, AbdulRahman AbdulRazaq; former Ekiti State governor, Kayode Fayemi; former Governor of Bauchi State, Adamu Mu’azu; and former Deputy Governors of CBN, Ernest Ebi and Stella Alade.

Under the new guidelines on recapitalisation policy for banks in the country, the CBN had, earlier in the year, directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn.

Banks with regional authorisation are expected to achieve a N50bn capital floor.

Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.