Loomnie

From Reuters:

Nigeria’s central bank plans to diversify its $33 billion in foreign exchange reserves away from the dollar by switching a tenth of the stockpile into yuan, underlining the momentum behind China’s drive to internationalise its currency.

“We are looking at anything to start with from 5 to 10 percent of our reserves,” central bank governor Lamido Sanusi said on Monday.

The central bank had already said that it was considering reducing its reliance on the dollar, which economists say accounts for the bulk of its $32.96 billion in reserves . The bank does not publish the currency composition of its assets.

But Sanusi, speaking to CNBC news by telephone from China, said Africa’s second-largest economy was not abandoning the dollar and euro. “They are going to remain an important part of our holdings,” he said.

Continue reading for more analysis of the decision. From what I’ve seen, CBN seems to be the first central bank to do this.

See also FT TIlt for more analysis.

Mallam Lamido Aminu Sanusi has been named as the Central Bank Governor of 2010 for both the African continent and the entire world, by the prestigious Banker Magazine.

The editor of the magazine, Brian Caplen, says that few candidate names generate an overall consensus on judging panels, and yet, when it came to finding the best global central bank governor of the year, Mr Sanusi was chosen unanimously.

From the BBC.

Ever heard of the D8? They are Iran, Nigeria, Bangladesh, Egypt, Indonesia, Malaysia, Pakistan and Turkey. Their central bank governors and foreign ministers met in Abuja on Tuesday.

The aim?

to seek closer economic cooperation that would help protect the group from another global financial crisis.

The decision?

Under a draft Abuja declaration, the group proposed to combat corruption, ease visa procedures, expedite multilateral trade agreements and review the creation of an investment fund for use by member countries.

Trade between the eight countries is estimated at around $68 billion, or about 3 percent of global trade.

“It has become necessary to review and adopt common regulatory regimes to safeguard financial systems’ stability and forestall a reoccurrence of the recent experience in our various countries,” said Nigerian Central Bank Governor Lamido Sanusi.

Of course, Iran is part of them, so:

The proposed declaration also backs “peaceful uses of nuclear energy,” but does not specifically mention Iran’s nuclear enrichment activities.

IR people, what do you make of this?

I was just thinking of writing a column on the new term limit imposed by the Central Bank of Nigeria on bank CEOs when I saw this thoughtful Next editorial:

Is the CBN too powerful?

In the national confusion over our president who has vanished into thin air, a significant but little remarked event occurred earlier this week. The Central Bank announced that it was retroactively imposing a 10-year limit over the tenure of bank CEOs, effective July 31.

It was not lost on most discerning observers that the primary targets of this new policy appeared to be two of our most prominent bank chiefs, Tony Elumelu, who engineered a takeover of UBA by the much smaller Standard Trust Bank that he used to run six years ago; and Jim Ovia, who built Zenith Bank from scratch and made it a ubiquitous presence.

The legality of the CBN decision is hardly in question: we have a central banker so powerful that it can dissolve the boards of banks, dismiss their executives, dictate their operations and pretty much act in almost any way it pleases.

The necessity for such level of authority is not hard to see. The banking system of any country plays an outsize role in the national economy. Poorly regulated or supervised, banks are quite capable of destroying the economy and impoverishing the rest of us. The United States barely dodged the bullet in the last quarter of 2008, when its banks tottered and nearly collapsed, bringing the world’s financial system down along with it. And the level of sheer criminality in our banking system, exposed in the past seven months only because a complicit Central Bank governor was replaced with a more alert one, was an object lesson in the need to guide the banking system with a firm hand.

No one can deny that the wretched excesses of banking chiefs with supersized egos, exemplified by Cecilia Ibru at Oceanic Bank and Erastus Akingbola at Intercontinental, made an aggressive posture by the Central Bank an urgent imperative.

But the question needs to be asked: should the Central Bank be assuming the roles of board directors to dictate how long a chief executive may serve? Heavily regulated though they are, unlike, say, a cement company or a flour mill, banks nonetheless remain the property of private investors, and in the absence of a specific regulatory breach by identifiable bankers, should the Central Bank be in the business of stipulating how long they may serve? Setting term limits, as a general principle, of course works well in politics and government. The basic assumption, which is well founded in our experience of the frailties of leaders, is that power corrupts, and the earlier we can kick the bums out, generally the better for the state.

This may, of course, not necessarily work in private enterprise. Bill Gates built Microsoft from the scratch and ran it for 25 years. The mercurial Jack Welch, during a two-decade tenure, rebuilt General Electric into at one time the world’s largest company by market capitalisation. And in our own country, Atedo Peterside founded and ran IBTC for nearly 20 years, making it one of the country’s most respected banks.

Central Bank officials justify their latest action thus: A banking license is a rare privilege, granted on the implicit assumption that the holder will act in the highest traditions of prudence and restraint, and essentially run a bank in the best interests not only of depositors and shareholders but of the public at large. Needless to say, many of our most powerful bankers failed that test in recent years, culminating in last year’s crisis that has forced the treasury to pony up about N1 trillion to rescue the banks lest the economy collapse. That’s a number with a lot of zeroes to clean up after Mrs. Ibru’s mess.

Officials also argue that banks are unique because they hold custody of other people’s money to trade with, with the clear understanding in the public mind that the government, by giving them such a right, is putting the full faith and credit of the public treasury behind them. And this is not simply a shareholder matter. In general, for every one naira shareholders place in a bank, the public deposits six, seven, eight, maybe even N20. This distinguishes a bank from Guinness or Chicken Licken.

Crucially, officials argue that our recent experience makes it a matter of prudence and commonsense to impose limits on the tenure of banking chiefs. “The certainty that they can stay as long as they wish and maybe even transmute to bank chairman makes some CEOs act with impunity,” one senior regulator told us last week. “Knowledge that there will be change conditions behavior.”

There lies the rub. Those leery of a Central Bank with untrammeled powers say that the CBN, by making such a sweeping rule regarding tenure, is inadvertently admitting its own failure to regulate and supervise the banking system. Were the CBN competent in the discharge of its duties, it would have had a bit more confidence to prevent widespread abuse by bank CEOs and to punish rogue bank chiefs where the situation demands. As one senior banker tells us, “a one size fits all rule does not often work well.”

Cynics might feel free also to point out that Tunde Lemo, a powerful deputy governor of the CBN, was directly in charge of banking supervision over the past few years that the most reckless behaviour on the part of bank CEOs occurred. It would not be unfair, and might even be somewhat generous, to accuse Mr. Lemo of negligence. But a term limit apparently does not apply to him.

It is instructive that the bank chiefs immediately affected have refrained from raising any hackles regarding their sudden forced exit. In one fine example, Mr. Elumelu immediately got his board to announce that a succession plan was in place and appears to want a tidy exit that does credit to the UBA, as he makes clear elsewhere in this newspaper.

Our view is that, while the CBN governor had got most of the big things right so far in his turbulent nine-month tenure, one must always be wary of a government official with power to do almost anything.

We will remain vigilant.

From FT reporter Tom Burgis:

Two of Nigeria’s most prominent bank chief executives are to be forced to stand down under new rules introduced by the central bank as part of the governor’s ongoing tussle with some of the country’s most powerful tycoons.

Lamido Sanusi, who took over as governor in June, has already rocked the financial sector in Africa’s second largest economy, dismissing the executivesof eight banks during a debt crisis brought on by reckless lending. The central bank bailed out stricken banks to the tune of $4bn.

In the latest move, the country’s 24 banks have been instructed to place a 10-year limit on the tenures of chief executives. “All CEOs who would have served for 10 years by July 31 2010 shall cease to function in that capacity and shall hand over to their successors,” the central bank said.

The purpose of the new rules was to address “corporate governance issues”, the bank said.

Full story.

Check here for reactions from Nigerians.

I am just about to finish reading anthropologist Karen Ho‘s Liquidated: An Ethnography of Wall Street. She carried out seventeen months of fieldwork on Wall Street, interviewing and observing investment bankers. Actually, she started out as a rookie analyst working in management consulting in a hybrid investment and commercial bank. She had the intention of doing some pre-fieldwork study before going back to graduate school to write a dissertation on Wall Street culture. She got laid off after six months into her job. The experience of being laid off became one of the central things she studied during her fieldwork.

The book is not so much an indictment of Wall Street as it is a presentation of the way the Street understands its place in the scheme of things. She highlights the self-understanding of investment bankers as ‘being’ the market, an understanding that goes as far as to justify, on the one hand, receiving insanely huge bonuses, and on the other, being very liquid individuals themselves. The rate of staff turnover on Wall Street is extremely high.

Perhaps the point that I found most instructive is the way Wall Street has changed corporate American culture in the past 25 years. Corporations, which were seen as part of the welfare capitalism of the post 2nd World War era gradually lost their status as social institutions. Shareholder value has become naturalised as the sole reason for the existence of corporations, and anything that can improve shareholder value, no matter how short that increase in value lasts, is encouraged. This sometimes includes hostile takeover, and almost always demands massive job cuts and downsizing. Once corporations are no longer seen as social institutions that provide jobs and care for customers, those are rather easy things to do. Perhaps inconvenient, but easy.

The emphasis on shareholder value has led to short-term thinking and has often robbed corporations of the ability to make long-term plans. If a group of investors buy up a company by leveraging that same company on the junk bonds market, with the plan to cut spendings on R&D and cut jobs in order to ‘improve’ the shareholder value of the company before selling it off, how would they make long-term plans for such company? This could happen to corporations that are healthy, all things – including stock price – considered.

This leads me to thinking about what is currently happening in the Nigerian banking industry. I blogged about it when five banks were taken over by the Nigerian Central Bank. Shortly after, that the Central Bank published a list debtors of the banks. In all that, what was not mentioned was the corporate practices of those banks during the Nigerian stock market bubble. Actually, the practices of the banks was what created the bubble. Increasing their own shareholder value became the main job of the banks. Of course, in a weird way, this is understandable. Wall Street could claim to work on increasing shareholder value of corporate America; in Nigeria, the banking industry is corporate Nigeria.

It is not by chance that it was after the bubble burst that the Central Bank took over the banks. Before then, the profits banks were declaring were highly manipulated figures that bore no relationship to the actual condition of the banks. Now, they have to find a way of reconciling their balance sheet, somehow. I was in Nigeria a couple of weeks ago, and the cry was, and still is, that banks are laying off staff in droves and closing up branches.

It is perhaps obvious from this post that a lot of things are still not clear, at least to me. Newspaper commentaries I have been reading since the banking crisis started have not helped me much. This is probably due to the fact that we are always too quick to resort to simplistic explanations – one of which was the publication of the list of debtors – that we (the public, and even journalists) stop asking questions that might lead to a better understanding of what happened. As if the only reason the banks are in trouble is because they gave out too much in loans.

I am now thinking that it might be a nice idea to do an ethnographic study of the Nigerian financial sector when I am done with my second-hand clothing dissertation.One of the biggest strengths of anthropology is the fact that anthropologists ask basic and simple questions, questions whose answers are sometimes assumed, until they are asked. Wouldn’t it be interesting to turn that kind of attitude towards the Nigerian banking industry?

You can listen to Karen Ho on Laurie Taylor’s Thinking Allowed programme on the BBC.

Remember this story about the Nigerian central bank taking over five Nigerian banks? Well, it seems that a result of that has been a sort of credit crunch in the country. From the BBC:

Lagos-based manufacturing firm, supplying cables to Nigeria’s fledgling national grid.
With more than 500 skilled staff, it is exactly the kind of business that trade experts say Nigeria needs if it is to diversify away from oil production and create a more mixed economy.
Using borrowed cash, the firm moved to bigger premises in August, but just three weeks later received some devastating news from its two banks about its loan facility.
“The bank just told us pretty much, ‘Look, we have to put a hold on this at least till next month, or the month after or until things die down,’” says David Onefowoken, director of Coleman Wires and Cables.
“The second one might slash [the loan] by half.
“A lot of these banks that were stopping these loans had actually helped us out before, to get up and running.”
The reason?
A banking crisis entirely divorced from the global credit crunch. Continue reading.

1. Remember the list of debtors that was published a last week by the Central Bank of Nigeria? Well, some of the money is now recovered

2. It seems that the Nigerian stock market is getting over the initial shock of the banking reform

3. More on the effects of the rescue of Nigerian banks by the Central Bank

4. Now to the US, 1,000 Banks to Fail In Next Two Years: Bank CEO

5. How does one modernise the Middle East’s Economies?

Governor Lamido Sanusi

Mr. Lamido Sanusi, Nigeria’s not-so-long-ago-appointed Central Bank Governor, a risk-management person, is at it. From Financial Times:

“A few Nigerian banks, mainly due to huge concentrations in their exposure to certain sectors … but [also] due to a general weakness in risk management and corporate governance, have continued to display signs of failure,” Mr Sanusi said.

The banks are:

1. Afribank Plc
2. Intercontinental Bank Plc
3. Union Bank of Nigeria Plc
4. Oceanic International Bank Plc
5. FinBank Plc

The Central Bank sacked the MDs/CEOs of the banks and appointed new ones. They are also going to get some more loan from the government. From NEXT:

Backed by the confirmation of CBN governor, Sanusi Lamido, that N400 billion [$2.6bn, €1.8bn, £1.6bn] is to be injected into the five banks whose chief executives and management were sacked this morning to “enable them continue normal business”, industry insiders have asked shareholders to stop listening to and spreading rumours.

I followed the news as it unfolded on NEXT newssite. See this, this and this. Don’t forget to read the comments too.

From BBC:

Mr Sanusi said the five banks had accounted for almost 90% of exposure to the central bank’s so-called discount window, which allows banks to borrow in the short-term from the central bank to meet their needs.

“The excessively high level of non-performing loans in the five banks … was attributable to poor corporate governance practices, lax credit administration processes and the absence or non-adherence to credit risk management practices,” he said.

Addendum
It is really nice to have a news website that is nimble on its feet. Nigerian newspapers are going to have to learn from NEXT. I think NEXT too has to find a way of dealing with a lot of traffic to their website. It must have been hit by so much request yesterday that at some point it was almost impossible to get it to load.

Sometime ago I wrote a post about my efforts to understand the Nigerian oil industry. Some Next reporters have done an article on their efforts to understand the industry. Nobody seems to know how much Nigerian exports, or how much it makes from oil:

Even a cursory check by NEXT has revealed that various agencies of our government give conflicting figures of how much oil we produce and sell.

The Central Bank, the Ministry of Finance, the Department of Petroleum Resources, the Nigerian National Petroleum Corporation (NNPC) cannot agree on exactly what the numbers are.

And:

The Nigerian National Petroleum Corporation, our state oil company which enters into joint ventures with the oil multinationals, even goes so far as to say on its website that it cannot be held responsible for the accuracy of the sales figures it publishes.

The Central Bank, which receives the money on behalf of the Nigerian people, also would say nothing regarding the veracity of these numbers.

The Department of Petroleum Resources (DPR), the industry regulator, makes the astonishing claim that it does not know the figures.

After more than two weeks of constant calls, text messages and email, the department’s acting director, Billy Agha, informed us through a spokesman that “we only corroborate what NNPC gives to us.”

Oil workers too do not know:

Even oil industry workers don’t have a clue. Peter Esele, former president of the Petroleum and Natural Gas Senior Staff Association, says, “Whatever information that is gotten from the NNPC is from the producers.

“One thing is clear, DPR does not even have the capacity to undergo or even know the quantity of crude. They don’t have a meter, they don’t have a measuring meter. Now, if you go to NNPC, the figure is different, DPR’s is different, producers’ different, CBN is different. So you cannot really reconcile all this.” Esele for a time had served in NEITI.

Peter Akpatason, president National Union of Petroleum and Natural Gas Workers, said: “Officially we don’t know. But we have access to the information each time we want to get them.

“But, it is not as if on daily basis, we get the figures. I’m sure you know that there is always discrepancy of some sort between what NNPC declares and what DPR declares.

“What somebody explained to us in DPR is that NNPC figure is taken at the point of production while DPR take theirs at the terminal.”

Really sad state of affairs. The full story is here.