The crisis that emanated from global financial recklessness had its impact and lessons on emerging countries. In Nigeria, it brought out the genius in Sanusi Lamido Sanusi, the Central Bank of Nigeria (CBN) governor.
Acting on the lessons he learnt from the global financial crisis transformed him into lecturer of some sort. Other central bankers we forced to look at his rescue models as one of the best option out of the crisis.
The global financial crisis started with customers with poor credit ratings who were enticed to buy mortgage assets without down payment or credit checks.
Lenders charged interest on sub prime mortgages below normal mortgage rates.
Rates on these assets later rose as they were marked to US Federal Funds rate, leading to default.The action led to a collapse of government backed securities and insufficient capital of various institutions to guard against the shock of the credit bubble.
Growth in developing countries fell from an average of seven percent, five (5) years before the crisis to 1.6 percent.
Response to the banking crisis varied by economy but Africa remained fairly resilient to its effects.
The indirect impact on the Nigerian economy through the second round effects included; Reduced capital inflows into the economy; Collapse of prices within the stock market; Significant exposure of banks to the capital market in form of margin loans; Withdrawals of liquidity from local subsidiaries of foreign banks; Depletion of external reserves; Significant decline in oil revenues leading to revenue attrition for all tiers of government; and Inability of the local banks to effectively manage the sudden increase in capital inflows arising from high oil price preceding the crisis.
The crisis was further worsened by; Reduced capital inflows into the economy; Major failures in corporate governance at banks; Lack of investor and consumer sophistication; Inadequate disclosure and transparency about financial position of banks; Critical gaps in regulation and its framework; Uneven supervision and enforcement; Some internal weaknesses within the CBN; and weakness in the business environment.
The crisis was however turned into a development opportunity by Sanusi. For instance, in addition to the bail out of stressed banks, the CBN also pursued other measures to unlock credit markets and inject funds to productive sectors.
Interventions were initiated by the CBN in various sectors of the economy including the Power & Airline Industry (PAIF), Agriculture (NIRSAL) and Small and Medium scale Enterprises (SMEs).
The Asset Management Corporation of Nigerian (AMCON) was established as an innovative crisis resolution vehicle to soak up toxic assets and deal with non-performing loans.
The central bank policies also led to banks’ contribution to a sinking fund to pay for the crisis with minimal cost to the tax payers.
Sanusi in one of the lectures had stressed of the need for a collaborative efforts between banks and regulators to build a strong and resilient financial system.
Also, the Bankers’ Committee in 2009 commenced an annual retreat with a focus to develop three key sectors of the economy –Agriculture, Power and Transportation.
Some key outcomes of the 4th annual retreat which held in December, 2012 include the implementation of Financial Inclusion Strategy - Borno State Pilot, institutionalisation of sustainability principles by deposit money banks, increase in lending to Agriculture and Transformation of Agriculture value chain, continuing advocacy for Power sector transformation, and funding/investments for the Gas to Power plan and of Gas infrastructure.
“Learning from the recent global financial crisis and recognizing the critical importance of the need for financial institutions to play a role in national development and economic growth, the CBN has lead in the development of certain initiatives”, said Sanusi.
Further efforts aimed at sustainability in 2011, the need was established for a balanced approach to growth and development that is economically beneficial but socially relevant and environmentally sound.
A joint commitment statement was signed by all the members of the Bankers’ Committee committing the industry to the development and implementation of the Nigerian Sustainable Banking Principles (NSBP).
The NSBP and sector specific guidelines (agriculture, oil and gas, power) have been developed and adopted and implementation is currently underway.
Also, a Sustainability Committee has been set up within the CBN to lead by example and provide oversight for the industry implementation, while industry-wide awareness raising and training is on-going.
Other development initiatives were in the area of intervention fund.
For instance, the Power and Aviation Fund (PAIF) catalyze financing of the real sector of the Nigerian economy, the CBN set aside the sum of N300 billion to be applied to Power and Airline projects.
The PAIF currently has led to savings on interest expenses and has generated a total of 698.6MW out of which 415.5MW as additional capacity was generated in the economy under the fund.
The Restructuring & Refinancing Facility (RRF) of N200 billion was introduced by the CBN in 2010 to fast-track the development of the manufacturing sector of the Nigerian economy by improving access to credit for manufacturers.
The Scheme has helped to create 13,886 new jobs and 257 companies with uncompleted projects were able to complete and resuscitate their operations after benefitting from the scheme.
On women economic empowerment, the Bankers’ Committee had declared 2012 the year of ‘Women Economic Empowerment’.
Collective agreement that by 2014, 40 per cent of senior management and 30 per cent of board level positions should be occupied by women.
Micro Small & Medium Enterprises Development Fund (MSMEDF) is being set up to promote the development of the Microfinance sub-sector and provide for wholesale funding requirements of Microfinance Banks and Microfinance institutions.
It is intended that a minimum of 60 per cent of the MSMEDF should be committed to providing funding to women owned and run businesses in order to address their peculiar financial exclusion challenges.
SOURCE: Leadership
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