Thank You CBN Governor For Saving The Banking Sector

“CBN dividend ban rattles bank stocks, stirs recapitalisation fears.” News Report, June 18, 2025. 

One of the befits, as well as regrets, of staying so long in the media is that you get to observe how public and private sector actors repeat the same mistakes whenever they are faced with the same challenges. Since starting on the Business/Economy pages of VANGUARD almost 38 years ago, banking recapitalisation has occurred three times with mixed results.

The newspaper report said that “CBN’s directive to suspend dividend payments by banks has triggered concern about its impact on banks’ stocks and the wider economy. The move has led to increased volatility and declining share prices in the banking sector, raising fears over recapitalisation efforts and investor confidence.” 

For those who might not understand what that means, here is the simple interpretation. If you are holding banks shares, prepare to shed tears now because your shares will decline in value – especially as the report also indicated that dividend payments by the banks affected might not be restored until 2028. Those who rely on annual dividends from banks are in deep trouble; particularly, if they borrowed the funds to acquire the banks’ shares in the first place.

They have my sympathy and nothing more. Since the first bank failure in the 1950s in Nigeria, no investment in any other sector has ruined more people than banks. The downfall is always against the publicly perceived run of play. Banks frequently fall when their pronouncements are most optimistic.

BANK CONSOLIDATION 2005-6.

“Habit is stronger than reason.” Professor Robert Dorfman, 1917–2002

There is no need to go back too far. The last one before the current one took place precisely twenty years ago under Professor Soludo who was Governor of the Central Bank of Nigeria, CBN. Soludo, a good economist, without any experience in banking, managed to persuade President Obasanjo to be elevated from the paper-shuffling position of Chief Economic Adviser after publishing a highly theoretical document called National Economic Empowerment  and Development Strategy, NEEDS – which was packed full with wishful thinking than sound economic data and possibilities.

The professor took the banking sector by storm, literally, by launching a Banking Consolidation programme making it mandatory for banks operating in Nigeria to have minimum N25 billion share capital – in just six months.

At the time of the announcement, only three banks – First, Union and UBA – had that kind of money. The fourth – Afribank – was so far down, at N6 billion that the obstacle was clear to all the stakeholders in the 73 banks operating at the time. In the end, twenty five banks survived the exercise; some through means fair and foul (but generally more foul than fair), which CBN overlooked; thereby sowing the seeds of destruction of some of them.

I am beginning to wonder how many fools it takes to make the term ‘My Fellow Citizens.” Honore de Balzac, 1799-1850, in LOST ILLUSIONS. In  January 2006, a totally self-confident Soludo announced to Fellow Citizens that  Nigeria had banks in which they can keep their money – either as shareholders or depositors – and “go to with two eyes closed”. To be honest, Nigerians actually dozed off and snored until 2008.

They refused to open one eye when some of us started raising alarm that all was not well with most of the banks. Like a magician whose bag of tricks was failing him, Soludo continued to reassure Fellow Nigerians that all was well – despite the fact that CBN was using public funds to keep the banks afloat. By 2009, the imminent collapse of the entire banking sector was no longer in doubt without unprecedented bail-out.

AMCON SOLUDO’S LASTING MONUMENT

“He who speaks without modesty will find it difficult to make his words good.”Confucius, 551-479 BC. VANGUARD BOOK OF QUOTATIONS, VBQ p 162.

The adverse consequences of hubris can be devastating. Eventually, Soludo was forced by facts – the worst enemy of illusions – to admit that the banks were tottering on the brink of collapse. Assets Management Company of Nigeria, AMCON, was the vehicle used to buy N6 trillion toxic loans from the banks in order to save them and Soludo from embarrassment.

Fellow Citizens’ funds were deployed to save those who enriched themselves at their expense from disgrace or jail or both. Even now, nearly N4 trillion of the funds have not been recovered – while some managers of AMCON had reportedly, benefited to the tune of N95 billion. If any proof is needed that Soludo’s banking consolidation was a colossal failure, AMCON has provided it. The theory might be sound, but, the implementation was awful; the result devastating. Only about 12 banks among the 25 granted licences in 2006 are left standing.

BANKING SECTOR IS BACK AGAIN“People never learn from history.” We have heard that so many times before. In Nigeria, politicians and bankers have demonstrated that lessons of the past are frequently forgotten. When the CBN Governor announced banking recapitalisation last year, those of us who were living witnesses knew some of what would happen.

The banking sector is like a moving parade; not a standing army. Very few of those who were participants in 2005-6 are still in active service. Those who had escaped being indicted for their roles in the banking crisis of 2008-2010 have only learnt how to avoid being caught – unlike the Chief Executives of other defunct banks, who were jailed. They have devised other ways of cutting corners ahead of the deadline for new recapitalisation requirements.

Central to those strategies has been the uniform declaration of astonishing profits and, consequently, unprecedented dividend payments to shareholders. This would not be the first time Nigerian banks would take us through this familiar road. In 1995-6 and in 2006-2008, banks announced extra-ordinary results based on questionable accounting only for the several failed banks to be discovered under Abacha – prompting the Failed Banks Decree of 1997.

In 2008, a civilian administration could not summarily round up the bankers who deluded investors into parting with their funds – some borrowed – with mouth-watering results for 2006 and 2007 before the banking crisis of 2008, like a recurrent flood, swept away the likes of Intercontinental Bank, Oceanic Bank. The bigger they were, the harder they fell. By the time the dust cleared under Governor Sanusi in 2009, all the banks had gone down with trillions of naira of customer deposits. Those who procured shares at N20 to N70 per share were holding to scraps of paper priced at N0.75 to under N10.

For over six years, only two banks shares were selling above N10. Instead of sleeping with two eyes closed, millions of shareholders woke up to nightmares. They discovered that they had been swindled by the pillars of banking sector. The Federal Government also had a rude awakening to reality. It was compelled to part with N6 trillion public funds to save the sector from total collapse; N4 trillion remains unpaid till today. Cardoso had taken pre-emptive measures to stop bad history from repeating itself in Nigerian banking.

Follow me on Facebook @ J Israel Biola.

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