In an effort to stabilise Nigeria’s financial sector, the Central Bank of Nigeria (CBN) has raised the base capital requirements for banks, leading to fresh capital- raising efforts and the likely consolidation of the sector.
Twenty years ago, when chaos ruled Nigeria’s banking sector, the then Governor of the CBN, Chukwuma Charles Soludo (above) embarked on a similar exercise and the resulting bank consolidation reduced the number of banks from 89 to 24. That exercise was a watershed in Nigeria’s financial system and transformed the business landscape, repositioning Nigeria’s banks as top players in Africa and globally.
It was also Soludo’s suggestion that Africa’s still nascent financial sector needed a dedicated publication on the industry that led to the establishment of African Banker magazine.
The newspaper headlines, 20 years ago, said that your attempts to clean out the Augean banking stables were an impossible task. How did you manage it?
I want to give my appreciation for the incredible team that I worked with, particularly the three Deputy Governors, Dr Tunde Lemo, Dr Sarah Alade and Ernest Ebi. It was a major piece of teamwork. I also want to thank the Nigerian people and other stakeholders for their massive support, because it was nothing short of a revolution then.
As you said, the newspaper headlines before the banking consolidation were that it was impossible. And we went through hell then. Three quarters of the hair on my head disappeared during that period!
The Nigeria Labour Congress, Manufacturers Association of Nigeria, labour unions in banks, and many other groups all over the country kicked against the exercise. Sometimes it was tagged as ‘ethnic’ and all kinds of things were thrown into the basket.
I remember we spent weeks in Lagos, trying to midwife mergers for strange bedfellows. I remember the hours we spent just reconciling directors of various banks, and their great differences. If we added them up it would have amounted to years.
So, I want to thank all who believed. Because for me, the reason that we are here is to celebrate the possibility that is Nigeria. This country is a country of infinite possibilities.
My deep gratitude goes to Ray Echebiri for chronicling this journey in his inspiring book, The Power of One Man: How the Soludo-engineered Consolidation Transformed Nigerian Banks into Global Players.
Would you describe the recapitalisation of banks as disruptive to the system?
It was a disruptive change, a revolution that changed the Nigerian banking and financial system forever. When we started, there were 89 rickety banks, largely family-owned. We did not know which one was alive and which one was dead. I remember a call I got one morning when I assumed office, it was from a businessman at Alaba International Market in Lagos. He said: “I have my money in a particular bank. I am just calling you to confirm that the bank is safe.” But that was the state of things. You did not know which bank was safe. The feeling then was that one’s money was trapped. We had decisions to make.
And by the way, as Chief Economic Adviser to former President Olusegun Obasanjo, working on the National Economic Development Empowerment Strategy (NEEDS), I had a framework for states to develop their own NEEDS.
We had identified the major problems of the Nigerian banking system, among which was that they needed to be massively recapitalised to be fit for purpose. You cannot talk about financial system-led development without a financial system that can finance development! For you to make an investment of about $500m then, you needed to syndicate among many banks because they were very poorly capitalised.
We had to decide whether to go on and patch up the house, or decide that the house had cracked to the foundations, and we needed to pull it down and start afresh. That was the decision that we faced.
What was the capital base for banks at that time?
Then, the capital base for banks was an equivalent of $15m and even then, they had two years to meet the capital base. The capital of all 89 banks in Nigeria then, put together, was far below that of the number four bank in South Africa and none of them was among the top 20 banks in Africa.
Since we were the largest economy in Africa, and we needed a private-sector-led economy, we took a decision that this house had to be pulled down. So, we raised the capital base of banks from an equivalent of $15m to $200m, an over-13-times increase in dollar terms. Then, everybody started asking, ‘Where did this man come from?’
Many bankers took out advertorials in publications, saying it was impossible. But the war had begun. It was a war. And I must say we must celebrate one man on the issue of leadership, President Olusegun Obasanjo.
We had made a statement that the train had left the station. But what if, while we were determined to get it done, the President himself, under pressure from all sides, felt the heat was too much? The banks could not meet the $15m threshold in two years, and now they were expected to meet the $200m target in 18 months! I can tell you some interesting stories on this which I am still writing for my memoir.
Given the huge outcry that followed the new capital requirements and the tremendous pressure, how did the exercise continue?
I will tell one story that shows this issue of leadership. The chairman of a bank approached the President and said: “Mr President, this thing cannot work.” He said that even if 10 banks merged to raise the capital, they were not likely to meet the target. The President advised him to let the bank go.
So, the thing about leadership is that you must be self-sacrificing because once personal interest overrides public interest, that project will not work.
That’s why people try to appeal to leaders’ personal interest. There was nothing that was not tried. It was given an ethnic tint, a religious tint by several groups.
Tell us more about what happened during that era?
I must tell you, it was not just another recapitalisation. It was like pulling the entire system down and reconstructing it. We received a total of 19 written threats. They even attempted to pick on my children in secondary school. We had to evacuate my children in the middle of term. The children were going to school and back with a truckload of policemen behind them.
They left a note at my gate telling me that they knew where my children were. So, my children could not go and visit anybody without armed people with AK47s following them. That meant I then had to evacuate my family abroad. My family went into exile because of banking consolidation.
Are there prices that current leaders should expect to pay for causing disruptive changes in the banking sector?
What I want to say is that these disruptive changes, and revolutions come with heavy price tags. And for those who want to make disruptive changes in the present-day system, some of those who rule are not going to be clapping.
They will come for you, one way or the other, and you must be resolute over paying some price. It was during that same period that my dad was attacked. They went to him, they did not ask for anything, or take anything. They just kept beating him until he was lying almost lifeless. Then they trampled over him. It was after some minutes that my stepmother discovered that he was still breathing. He lost an eye.
It was a very dangerous time. Today, we can write that it was just a policy that was announced. No. It was war. One writer wrote a ThisDay opinion column telling me, ‘Soludo: Banking is not Ludo’. But after we succeeded, another newspaper headline said: ‘Soludo: The Man Who Saw Tomorrow’.
What were the benefits that banking consolidation brought to the economy and private sector?
The benefits of the consolidation were that it was from then that Nigeria began to march towards having a truly formed private sector. It was a watershed. Several big business owners later confirmed that without the consolidation, they would not be anywhere near as big as they were.
This was because even if you were borrowing from abroad, you needed local banks to provide cover, but there was none. After the consolidation, a particular company wanted to take a multi-billion- dollar loan syndicated by Nigerian banks. The then general manager of one of the firms said during the signing of the agreement that he was not sure whether “we are here to witness the signing ceremony, or to celebrate the emergence of a new banking system in Nigeria”.
Wale Babalakin, who built the Murtala Muhammed International Airport Terminal 2, said on the day it was commissioned, that without the banking system, it would not have been possible. How could that happen, without the bank with the muscle?
And then, new technology began to come in. Before recapitalisation, no bank had the money to invest in technology.
Look at Access Bank of today, it was previously a very tiny bank. Or is it Standard Trust Bank which swallowed United Bank for Africa (UBA)? What the policy did was to kickstart what I called a race to the top.
For me, what we did was [like] taking people who used to play football in a small space in my office to a football field. There, they could kick the ball as high as possible, and run as far as they could. After playing on that big field, they would refuse to go back to that tiny office. And that is precisely what happened.
What is stopping us from developing? The only limits we have are in our minds. If we can dream it, we can achieve it. For anyone in the industry, there is work to be done. That is why I commend the ongoing recapitalisation of banks by the central bank. We will keep reviewing the capital base of banks, and also recapitalising them.
I see that N500bn ($311m) is now the capital base for international banks, and N200bn ($125m) is the capital base for national banks. Let’s just keep pushing the envelope because as this economy continues to enlarge, we will need bigger banks.
How would you assess the post-recapitalisation era in the banking system?
After the recapitalisation, the banks became Nigeria’s multinationals. They became the ones that are champions of the world, now conquering most of Africa. There are few African countries today where you cannot find Nigerian banks.
For us, it is now a celebration of the 20-year anniversary of banking consolidation. 6 July, 2004. I remember it as if it happened yesterday. At the end of the day, the Financial Times of London, and The Banker, named us the Global and African Central Bank Governor of the Year, African Banker awarded us the Banker of the Year prize, Euromoney followed, Annual Meetings Daily followed, and six Nigerian newspapers and magazines, simultaneously in one year, declared I was their Man of the Year.
How do you look back on your role in Nigeria’s first major consolidation exercise?
It was a very significant thing. African Banker magazine, The Banker, and the FT wrote that what had been most impressive was the scale of the transformation, the precision of its execution and the cost involved, the lowest for any such systemic banking consolidation in the world.
For us, that must be something that we take pride in, seeing that in Nigeria, it is not all gloom and doom. I see Nigeria as a half-full glass, not half-empty. We have infinite possibilities, and I want to say the banking consolidation is a metaphor for what is possible. That if we dream it, we can achieve it.
I tell the once little banks that have become global banks, that someday, we are going to remind them that like teachers, our own reward is in heaven.
We even went the extra mile by paying global asset managers to manage their foreign reserves. We paid to let them learn to do that so that in the future, their subsidiaries abroad would manage our foreign reserves. There is still quite a lot of unfinished business in that sector.
Like I said when I founded the Africa Finance Corporation, and they were asking me to take 5% as sweat equity, if I did that, it would mean the whole effort was self-serving. Maybe one day, I will have my own project that they will finance!
The country will continue to move forward, and I believe in the greatness of this country, and its ability to achieve its rightful place in the comity of nations.