Nigerians beware banks traveling a familiar route

ByDele Sobowale

“Shock as banks record huge profit amidst gloomy economy.”

Vanguard, October 7, 2024.

History does not usually repeat itself; it is human beings, in various spheres of life who commit the same blunders several times; and the same consequences follow. According to the story by Peter Egwuatu and Nkirka Nnorom,

“Earnings rise 132% to N11.7trn as profit skyrockets 101.9%.” Ordinarily, that should have been reason for jubilation. We should be dancing in the streets that our banking sector is stronger than ever before. Millions of gullible Nigerians are already doing that. 

They have my sympathies. One of the benefits of living long and having long term experience in a particular sector is the instinct to discern early when “all that glitters is not gold.” For more than 30 years on this page, I have operated on the principle that when something is too good to be true; then it is probably not true. Nigerian banks since 1997 have been my regular customers. 

They have made it possible for me to claim, on two different occasions, that the fantastic profits they were declaring were spurious and unrealistic. If you believe what is being announced now as the true picture of the financial situation of the banks, then you will believe anything. As P.T Barnum, 1810-1891, the great American circus master said: “There is a sucker [fool] born every minute.” If it requires an entire minute to produce a fool in the USA, only God knows how many are born in Nigeria in that time. Here is the history.

FAILED BANKS DECREE 1997

“Those who do not remember the past are condemned to repeat it.” George Santayana, 1863-1952. VANGUARD BOOK OF QUOTATIONS P 93.

The Failed Banks Decree 1997 was not the first of such interventions by the Federal Government after several banks which had been publishing fantastic results and profits eventually failed. But, I can claim to have been the only economist in Nigeria to have raised alarm that many banks operating then were in distress. My article published early in that year, titled FUNNY MONEY, raised the fundamental question concerning how banks could be declaring astonishing profits in an economy which was stagnant. One of the darlings of the Nigerian Stock Exchange, NSE, was Alpha Merchant Bank; headed by Jimi Lawal – who absconded when the bank collapsed. It is the same Jimi Lawal who was engaged by Governor El-Rufai as a Senior Special Adviser.

In that article, I outlined why it was impossible for the banks to be so profitable in that economy unless they were practicing “clever accounting”. The article ended with a list of nineteen highly regarded banks which would fold up. Nobody believed me. Even my Editors reluctantly published the article. History would record that 18 of the banks were liquidated; prompting the promulgation of the Failed Banks Decree. It was one of the few occasions that General Abacha and I agreed on anything.

SOLUDO’S BANKING CONSOLIDATION AND AMCON

“It is better sometimes not to follow great reformers of abuses beyond the threshold of their homes.” George Elliot, 1819-1880, VBQ p 211 available online.

Soludo’s banking consolidation in 2006 ended up as a calamity. His assurances that “depositors and shareholders can go to sleep with their two eyes closed” turned out to be a wild exaggeration. By 2008, about eight of the banks he licenced were irredeemably distressed; by end of 2010, half were gone.

Today,

only about eight remain in business. Together, they left  trillions  in toxic debts which the Assets Management Company of Nigeria, AMCON, is still struggling to clear. By any objective assessment, Soludo’s initiative was a colossal failure.

We might not have known how terrible the situation in the banking sector was if Soludo had secured a second term. The appointment of Sanusi Lamido as Governor of the CBN saved Nigerian banking from a fate worse than what we experienced. As far back as August 2008, I was warning Nigerians, who cared to listen, to dump their bank shares at a time when the likes likes of the First Intercontinental and Oceanic Banks were selling for over N30 per share on the NSE. I sold all of my own in Oceanic and most of First Bank profitably when soludo and Dr Ndi Okereke-Onyiuke, of the NSE were telling Nigerians that all was well during a global banking crisis. Both the friends and associates who followed or ignored my advice would never forget the experience. 

Those who sold saved their investments. Those who listened to Soludo and Onyuike are still “licking their wounds” — a favourite expression of Soludo’s in those days.

PERILOUS DAYS ARE HERE AGAIN

“BDAN CONDEMNS ALLEGATIONS AGAINST GUARANTY TRUST HOLDING COMPANY PLC BY CIVIC GROUP.”

Advert in a national newspaper, October 9, 2024.

The advert was signed by their Chairman, Mr. Mustapha Chike-Obi, son of legendary Nigerian Mathematician. The Bank Directors Association of Nigeria, BDAN, have risen in support of Guaranty Trust Holding Company Plc, whose declaration of huge profits has been questioned by a news media/civic group.

Because I have not heard from the Managing Director of GTCO, who was specifically accused of peddling falsified figures and whose organisation has been portrayed as a serial law breaker in several countries, I presume GTCO to be innocent until proved otherwise. I will certainly contact him.

For me the acid test of good journalism was established in the dying years of the last century by US journalist, Malvin Kalb, 1997, who said: “A journalist should be pursuing a fair rendition of truth without regard to popular moods; the journalist should not be swayed by public opinion, only by the pursuit of truth… Even though the accusatory article appeared in a popular media, which had done some outstanding investigative journalism, I still withhold judgment – for two reasons. First, I have not heard from GTCO. Second, I need to investigate the veracity of the allegations themselves because the fate of the banking sector might hang on this matter – particularly now that banks shares are once again on offer for sale. Two,  my private opinion are worthless.

In 1997 and 2008, the first signs of banking distress started with what was dismissed as rumours; when banks posting high profits and paying high dividends from, what turned out to be falsified results. 

The Managing Directors of four of the most highly acclaimed banks were among the culprits. GTCO is so big now that Nigerians cannot ignore what is going on there – irrespective of whether one is an account holder, a shareholder or is indebted to it. Every bank going down invariably causes collateral damage; and the bigger they are, the more damage they cause to the banking system and the economy.

ADVICE TO BDAN

“Just as Lord Denning, English Master of the Rolls, declared that “No man is to be condemned on suspicion”, it is also important that no allegation of gross misconduct should be dismissed by a small group of interested parties. In every case of banking crisis in Nigeria, from the 1950s till now, the Directors have always been indicted. BDAN, some of whose members might be implicated, cannot arrogate to itself the authority to think for all the stakeholders. They should wait and let us find out the truth. Then, it will be publish and be damned.

Follow me on Facebook @ J Israel Biola.

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