Recently, Standard and Poor, a respected international rating agency described Nigerian banks as highly risky while calling into question CBN's intervention in the banks. The agency's assessment has raised the stakes in the debate over the true state of Nigerian banks and the effectiveness or otherwise of the CBN's controversial actions. This understandably prompted the country's apex banking regulator, Central Bank of Nigeria, to rise stoutly to the banks' defense. The manner and extent of defense by the apex bank's authorities raise many issues concerning its sincerity and whether it is in control of its reforms.

Standard and Poor’s stirred the hornet’s nest when it stated in unequivocal terms that Nigeria's banking system is still in the doldrums. Making the agency's assessment known in London, Mr. John Gibbling, its managing director said, "The Nigerian banking system is still highly risky. The ratings we have for the banks are in the single 'B' category; it's a very very low level compared to most banks in the world." He went on to frontally carpet the CBN reforms, saying, "We continue to see the Nigerian banking system as very high risk. In regulatory reform, there is still a long way to go."

Of course, the CBN hit back at the report, saying it was not a true reflection of the realities on ground and that depositors' money was safe and intact. It described the report as an attempt at sabotaging the efforts of the CBN.

Head of Corporate Affairs, CBN, Mr. Mohammed Abdullahi, reacting to the report, claimed it was mischievous and in bad light. He faulted the S&P, warning that Nigerians should be wary of such ratings by foreign rating agencies. He recalled that Fitch rated Lehman Brothers in the United States (US) A++ and two weeks later, the bank collapsed.

"The parameters of the S&P are unknown to us, and alien to Nigerian banking industry. The fact on ground shows otherwise that even the so-called rescued banks have bounced back and started making profit as widely reported," he said.

That authorities of the CBN appear taken aback by the Standard and Poor's critical appraisal is amazing, seeing that it was the same CBN that orchestrated a media hype to prove beyond all reasonable doubt that certain banks which failed its audit were dying and needed to be rescued. In what seemed an alarming stretch of indiscretion, CBN took the publicity blitz abroad in defiance of warnings that the issue was too sensitive for that kind of publicity and went all out to prove to the world that it was carrying out a revolution to sanitize a system that was literally decaying. In fact, the CBN more than anyone else told the world how rotten and risky the banks were, arousing curiosity about the entire industry. It did a fine job. It did it so well that it is becoming extremely difficult for people to have confidence in the banks even when CBN says so.

Before Sanusi's advent at the CBN, many of the rating agencies showered encomiums on a good number of Nigerian banks including the ones that failed the apex bank's stress test. Not a few of the banks were rated AA or won awards as best banks in Nigeria or Africa. It was after the interventions that the international community awakened to the fact that there was serious rot in the Nigerian banking system. As it turned out, the CBN fed the international community with the ammunition it needed. The Standard and Poor's report, therefore, was a mere confirmation of CBN's stress test and the widely publicized corruption and decay in the banking system.

If Lamido Sanusi had heeded warnings from concerned economists and economy watchers to tread softly in his assignment he could have escaped this embarrassing situation. He was advised to avoid the sensational, showmanship strategy, set his standards and enforce them quietly but he would not. He was counseled to adopt other strategies that would achieve the same results but that would not ruffle the markets. He chose to play to the gallery. Now, the whole world is exceedingly skeptical, not only of the rescued banks but even the ones Sanusi's CBN gave a clean slate. Talk about unforeseen consequences of an overzealous crusade!

Now, it is Sanusi's turn to start defending what appears indefensible. It is the price he is paying for his indiscretion. The stigmatization of the Nigerian banking industry by the CBN governor himself would take quite a while to heal. Indeed, what the CBN governor is doing looks very much like what his predecessor, Prof Chukwuma Soludo, did when he swore that the banks were fundamentally sound and strong enough to withstand the effects of the global meltdown.

Come to think of it, Sanusi says the banks are recovering fast and are already making profit. But he was reported last week as saying the ailing banks would be sold soon as they have attracted interested buyers. It is significant that he made the disclosure in Basel Switzerland during the international Settlements annual meeting. He has a penchant for making such sensitive and important statements outside of Nigeria. His desire to impress the international community is legendary! So the CBN would sell the banks; but pray, why should they be sold if they have become healthy again?

While we are at it, Standard and Poor’s also raised the issue of the bank's ownership. In its reckoning, the banks are currently owned by the government. "We feel that a majority of the rescued banks could remain in state control for the foreseeable future, while their balance sheets could also shrink significantly - as lending operations are flat or negative and noncore operations sold-off or closed," it stated.

It also pointed out that the exact legal status of the rescued banks is not fully known and that it is likely to remain under government control which it said, now has approximately half of the banking sector, "although the CBN states that this is only for the short term." With so many lawsuits slammed on the CBN over its planned sale of the banks, it wants to go ahead to sell them. It obviously wants to ignore the protesting shareholders who claim that it has no right to sell what does not belong to it. It is a wonder that any investor would want to put his money into such slippery sand. But as the rating agency says, any serious buyers would insist on government guarantee. Going by the apex bank's demonstrated desperation to sell the financial institutions, it would do anything including convincing the government to guarantee such transactions. But there will be more opposition to his plans, not only from the disgraced bank executives but businessmen who have been adversely affected by the interventions and many others who sincerely believe that Sanusi has done good job in a very bad manner which has caused terrible damage to the economy.

There is so much confusion caused by the banking reforms that it will take extraordinary sincerity, genius and perseverance on the part of all to get the banking system on its feet again. Running away from the truth will not help matters. Perhaps, acknowledging some of the observations of Standard and Poor’s will be a good point to start.

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