Spring Bank and Bank Consolidation

(By Bosah Chinedu)

The crisis that rocked the Spring Bank recently has totally exposed the hocus-pocus called bank consolidation or re-capitalization. When the macabre dance started in 2004, it was more of media hype in order to give the impression of glorious days ahead. From 89 banks, we now have 25 “big banks”.

In less than 6 months after the recapitalisation, about 30,000 bank workers joined the ever-growing army of unemployed. Even the Central Bank was not spared. Before the re-capitalization, the CBN closed down the Central Bank schools under the pretext of the monetization policy. The CBN equally cut the number of departments from 23 to 17 to get rid of about 60% of the department, engaged in non-core banking functions.

The consolidation did not only come with attacks on workers, it also came with waste. Mr. Adebayo Owoyemi, a former ICAN President was reported in the Guardian of July 29, 2005 to have complained that aside huge and unbudgeted cost of expenses, external consultancy, which most banks were asked to bear, the transfer of huge fund from shareholders to various regulatory authorities was worrisome. Owoyemi went ahead to state that a review of 15 banks, which raised about N185billion up to March 2005, incurred N11billion expenses as demands from regulatory authorities (SEC, CAC, NSE).

The argument that the low capitalization is not ideal and is one of the factors responsible for collapse of banks cannot hold water. Some economies that are more productive and stronger have a lower capitalization base as the minimum upon which a bank is legalized to operate. For example, the minimum capitalization for South Africa is 50million Rand (N1.7billion), Ireland is 3 million Euro (N1.2 billion) while that of England is 10million Pounds (N2.5Billion). Some of the consequences of these mergers are loss of jobs, boardroom conflict like we witnessed in Spring Bank etc.

Even when the banks lend out money, it is largely to state and federal government, because it is only government that can pay the outrageous interest rate and survive. It is common knowledge that banks depend on government for survival. Government, through Central Bank, has so become Father Christmas that dashes out public money to these banks under different disguises. At least, 80% of banks profits are gotten from government related investments, such as foreign exchange transactions and from securities like treasury bills from financial market with an interest rate ranging from 6% to 17%, depending on the duration.

The latest crisis in Spring Bank, which emanated from the boardroom tussle and clash of interests, went messy with allegations and counter-allegations of corruption from the opposing sides. The CBN Governor, Prof. Soludo has been accused of complicity. In a press release published in the Punch of June 13, 2007, the former chairman, Chief Agbetuyi, raised some issues pertaining to the corruption that took place in Spring Bank. Chief Agbetuyi listed the irregularities as: unauthorized Director related insider loans amounting to billions of naira to single individuals; irregular approval of inflated contracts running to hundreds of millions of naira by some directors against all corporate governance norms. He further alleged, in his second letter to the Central Bank Governor on March 12, 2007 that cash of over N3bn was being siphoned out of the bank. He also accused CBN Governor, Prof. Soludo, of single handedly refunded Citizens International Bank’s mandatory liquidity ratio deposits (otherwise held for all banks at CBN) to help the bank re-float its liquidity and also took the grossly exceptional step of approving the conversion of depositors funds to equity to shore up its shareholders capital in seeking merger partners. This share that was allocated to GEB directors was funded through depositors’ funds of the consolidated Spring Bank. Also, that the fraud, which was to the tune of N6.2bn, was reduced to N3.6b after CBN and NDIC investigation, therefore passing off the balance as good capital. The Citizen International Bank was one of the banks that merged to form Spring Bank.

To unravel the extent of corruption and damage done, an open public panel of enquiry should be set up to look at the Spring Bank case and to also look at the allegations of the different factions, scrutinize the books and investigate the level of CBN involvement. The panel should be constituted with representatives of the organized labour (NLC/TUC), civil society, customers (depositors), shareholders, etc.

Obviously, the Spring Bank experience has shown that no amount of economic permutations can revive our ailing economy including the banking sector, if large-scale investment is not carried out on the society by spending public resources massively on education, health, road, electricity, communication, etc. Public investments should be fundamentally controlled and managed by the working people as against bureaucratic control by few. Big banks and other commanding heights of the economy should be nationalized and placed under democratic control and management of the working class. This would ensure that the resources of society are used for the benefit of all and not in the interest of a few tiny bank chiefs alongside their collaborators in other sectors.