All Banks to Get Public Sector Funds - Jonathan

On the day shareholders of Oceanic Bank International Plc voted overwhelmingly in favour of the planned acquisition of the rescued bank by Ecobank Transnational Incorporated (ETI), President Goodluck Jonathan announced that henceforth, all banks in the country would benefit from public sector deposits in order to avoid “concentration” risk.

He disclosed yesterday that about 27 per cent of public money would have been endangered in the recent crisis which rocked the banking industry had the Central Bank of Nigeria (CBN) not waded in. Speaking in Abuja at a two-day conference of the Chartered Institute of Bankers of Nigeria (CIBN), the president noted that three out of the 24 commercial banks held about 52 per cent of the total public sector funds.

He was represented at the occasion by the Minister of State for Finance, Mr. Yerima Ngama Lawan. President Jonathan said henceforth, all public sector funds would be distributed among the banks. Giving details of the spread during the crisis, he said three of the “healthy” banks held 52 per cent of all public sector deposits, while four other banks taken over by the CBN held 27 per cent. He said the banking crisis had been caused by an aggressive marketing strategy employed by banks.

He added that most of the public funds had been exposed to “concentration risks” as at the moment the CBN moved in. Meanwhile, the CBN has said again that it believed the crisis which almost crippled the banking industry was now over. CBN Deputy Governor, Corporate Services, Mr. Suleiman Barau, said at the event that the non-performing loan portfolio of the industry had reduced to 9.37 per cent as at the end of August 2011 from 34 per cent in 2010.

Jonathan said: “The kind of aggressive marketing that we do here has caused a lot of casualty. We need to sit down and moderate this thing. “The competition has also affected the government. Marketing staff continue to go to state government and the ones that are strong actually got all the deposits and at the end of the day, government ended up with concentration risks. “As at the time central bank intervened to take over those seven or eight banks, 52 per cent of all public sector deposits were in three banks that were healthy, and 27 per cent in four of the banks that were taken over by CBN.

“So 78 per cent of public sector funds were in seven banks out of which only three are strong and healthy. The other four are already down. “So government cannot also sit down and see all the funds concentrated in banks that could burst.” Continuing, he said: “I want a future banking sector that is composed of conservative people. We are running a banking system where banks don’t move together because we find out that in every five years, one or two banks will fail.

“I am now talking with the Accountant General of the Federation to ensure that government also diversifies its own risks because you cannot just carry all public sector deposit and put in one bank. “It will encourage laziness because public sector fund are cheap. We will try to ensure that the AGF in giving his approval will ensure that government funds are spread across the entire banking industry.” He said the regulatory bodies would further enjoy government support to enable them effectively perform their supervisory roles. According to him, “The Nigerian banking sector has been adjudged the most vibrant in Africa despite the crisis.

“In terms of regulation, the regulatory authorities have distinguished themselves and they have at all times been very efficient to the extent that even the recent challenges have been successfully revoked and today, we are proud that we have come to the end of the crisis in the banking industry. “We know that the crises that have been successfully resolved came along with great shock not only to government but also to the healthier banks and we congratulate the entire banking industry for pledging to contribute to salvage the crisis. “Moving forward requires that we really reflect and look at where we really failed and put lasting measures to really avoid these occurrences.

“I have heard the Deputy Governor of the CBN saying that the crisis in Europe might even trigger another banking crisis and we pray that this time around, Nigeria will insulate itself. “Many people believe that crisis comes from outside and yes they do but when you look at the banking crisis starting from 1990, their externalities contribute a lot. But the main cause of banking failure is from inside the banks, the human beings. “We know that the CBN before appointing anybody to be the director of a bank conducts fit and proper test, but all of us here know that though the regulatory authorities keep the questionnaires to themselves, with what has been happening, we need to improve the test. “I told the president of CIBN that this institute has the history of having some of their past president running failed institutions.

“We know that in the early 90s, the managing director of Commerce Bank was well respected but yet his bank failed. We have another president also whose bank failed and there are human issues involved, which shows that none of us is insulated from the temptation of the industry. “These people are good and serious people but there are so many banana peels on the way and no matter how well you pass the initial fit and proper test, you might have come out with distinction, the moment you step on that banana peel, there you go.”

He said: “Our lifestyles are too flamboyant. The moment you decided to be too flamboyant, something gets into your head and before you know it, you start taking the wrong decision. “I am telling you that all those bankers that have today found themselves in unfortunate situation were excellent people before and they can continue to be excellent people except for those banana peels.”