Former Central Bank of Nigeria (CBN) Governor and Governor of Anambra State, Chukwuma Soludo has described the 2004 banking consolidation as a revolution that produced today’s mega banks.
Speaking at the weekend during the launch of a new book: “The Power of One Man- How the Soludo-Engineered Consolidation Transformed Nigerian Banks to Global Players”, he said Nigerian banks have today expanded to different African countries, Europe, America and Asia, among others.
The book was written by journalist of repute, Dr. Ray Echebiri. Soludo, who was the Special guest of honour at the event, said the consolidation was nothing short of a revolution, with many people describing the exercise, which increased banks’ capital base from N2 billion to N25 billion as an impossible mission.
The CBN had on July 6th 2004, announced the recapitalization of banking sector from N2 billion to N25 billion with effect from 31st December, 2005. The initiation of increasing the banks minimum capital base to N25 billion in 2006 led to a remarkable reduction in number of banks from 89 to 24
Soludo said the CBN team, especially the Deputy Governors and himself, went through hell to achieve the results that turned around the finanacial sector.
He said the organised labour, Manufacturers Association of Nigeria and even the labour unions in banks kicked against the exercise.
“I remembered those days we spent weeks here in Lagos trying to midwife mergers of strange bird fellows. I remembered the hours we spent just reconciling directors of various banks and their irreconcilable differences. Nigeria is a country of infinite possibilities. It was a disruptive change and the revolution that have changed Nigerian banking and financial system forever,” he said.
According to him, the apex bank, then wanted a private sector-led economy, and decided to pull down the entire banking system for a fresh rebuild.
“And so, when we raised the capital base of banks from equivalent of $15 million to equivalent of $200 million, which was about 14 per cent increase, everybody thought it was impossible. Even some bankers took advertorials to say it was impossible. And this is where we must celebrate one man on the issue of leadership. We were determined to get it done but what if the President himself under pressure from all sides cancelled the policy because they couldn’t meet $15 million in two years and now you have $200 million in 18 months?,” he said.
“For me actually, the story will be told of what we went through together with the formidable team at the Central Bank to get this done. And for me, the major message of July 6, is that it is a revolution day for the banks. What the policy did was to kickstart what I called a race to the top”.
Also speaking, the Lagos State Governor, Babjide Sanwo-Olu, advised the current leadership of the CBN to seek wise counsel to ensure that the ongoing banking recapitalisation exercise succeeds.
He said: “We are at a point where the current CBN and the leadership are also going through a similar exercise- banking consolidation and increment in share capital of banks. We should not walk away from the tough decisions. You can imagine N25 billion then and today we are talking about N500 billion, you can see how the envelope has moved, how the challenge of our country and our economy has moved and how we are still grabbling with some of the issues and some of the problems that Prof. Soludo saw then”.
Sanwo-olu said the country has moved on but some of those challenges of Soludo era are still here.
As an ex-banker, he described this time “as a moment for the current leadership of the Central Bank to use this small gathering to test the temperature and the blood pressure of the system and do the right thing. You are on the right track of doing the right thing. We hope that you will hold on, complete the task and be able to stand tall”.
On his part, CBN Governor, Olayemi Cardoso, who was represented by Deputy Governor, Financial System Stability, Phillip Ikeazor, said “Soludo has been very close to the Central Bank.
He is in touch with the Governor and he is in touch with us, the Deputy Governors and his wise counsel is very much appreciated.
Ikeazor said the decision Soludo took 20 years ago on banking consolidation was a very bold one at that time where banks capital base of N2 billion was raised to N25 billion.
“That is about 12 and half times. Incidentally, the current management of Central Bank has embarked on another round of banking consolidation. Why was it necessary then, Prof Soludo wanted to make the banks robust, resilient and fit for purpose to grow the economy. And that is exactly the reason why we are embarking on a similar journey today,” he said.
“I think by coincidence, if you check the amount of the minimum capital levels that we required, it is pretty similar because international banks are moving from N50 billion to N500 billion, which is 10 times, similar to Soludo’s 12 and half times. Our national banks are moving from N25 billion to N200 billion. When you do consolidation, you would look at the microeconomics headwinds, the microeconomics conditions on ground and of course apply your stress test,” Ikeazor stated.
“And when you apply your stress test today, which I am sure all of the big banks have done, they would have second-guess where the capital levels are going to land. If you compare the bank assets in Nigeria today and compare it with similar economies in Africa, you can see that we are way behind.”
He said the ongoing recapitalisation of banks will further strengthen the financial system, make it robust to be able to meet the expected headwinds.
The author, Echebiri, said the 20th anniversary of the banking consolidation exercise marks a watershed in the Nigerian financial sector.
He said the book is a way to celebrate Prof. Soludo for his insightful leadership that made the exercise a huge success.
“We are celebrating Soludo for his insightful leadership in guiding the banking sector consolidation to success,” he said.
The chairman of the occasion, former Director General of the West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Hogan Ekpo, said the Prof. Soludo brought positive changes to the country. He advised on the need to always ensure that the right and qualified persons are entrusted with responsibilities.
“In every economy, there is need to ensure that the right people who are qualified are used to drive growth,” he said.
Other dignitaries at the event are Chief Guest of Honour, Chief Olusegun Obasanjo, former president of Nigeria, who was represented by former Governor, Donald Duke; Ogun State Governor, Dapo Abiodun and Senior Vice Chairman/Editor-In-Chief at Leadership Media Group, Azu Ishiekwene, who reviewed the book.