Palgrave Macmillan Studies in Banking and Financial Institutions

Series Editor: Professor Philip Molyneux

The Palgrave Macmillan Studies in Banking and Financial Institutions are inter-national in orientation and include studies of banking within particular countries or regions, and studies of particular themes such as Corporate Banking, Risk Management, Mergers and Acquisition. The books’ focus is on research and prac-tice, and they include up-to-date and innovative studies on contemporary topics in banking that will have global impact and influence.

Titles include:

Elena Beccalli and Federica Poli (editors)BANK RISK, GOVERNANCE AND REGULATIONLENDING, INVESTMENTS AND THE FINANCIAL CRISIS

Domenico Siclari (editor)ITALIAN BANKING AND FINANCIAL LAWSupervisory Authorities and SupervisionIntermediaries and MarketsCrisis Management Procedures, Sanctions, Alternative Dispute Resolution Systems and Tax Rules

Dr. Fayaz Ahmad LoneISLAMIC FINANCEIts Objectives and Achievements

Valerio LemmaTHE SHADOW BANKING SYSTEMCreating Transparency in the Financial Markets

Imad A. MoosaGOOD REGULATION, BAD REGULATION

Elisa MenicucciFAIR VALUE ACCOUNTINGKey Issues arising from the Financial Crisis

Anna OmariniRETAIL BANKINGBusiness Transformation and Competitive Strategies For The Future

Ted Lindblom, Stefan Sjogren and Magnus Willeson (editors)GOVERNANCE, REGULATION AND BANK STABILITY FINANCIAL SYSTEMS, MARKETS AND INSTITUTIONAL CHANGES

Gianluca MattarocciANOMALIES IN THE EUROPEAN REITS MARKETEvidence From Calendar Effects

Joseph Falzon (editor) BANK PERFORMANCE, RISK AND SECURITIZATIONBANK STABILITY, SOVREIGN DEBT AND DERIVATIVES

Josanco Floreani and Maurizio Polato THE ECONOMICS OF THE GLOBAL STOCK EXCHANGE INDUSTRY

Rym Ayadi and Sami Mouley MONETARY POLICIES, BANKING SYSTEMS, REGULATION AND GROWTH IN THE SOUTHERN MEDITERRANEAN

Gabriel Tortella, Ruiz García and Luis José SPANISH MONEY AND BANKINGA History

Caner BakirBANK BEHAVIOR AND RESILIENCE

Jill M. Hendrickson FINANCIAL CRISISThe United States in the Early Twenty-First Century

Dimitris N. Chorafas HOUSEHOLD FINANCEAdrift in a Sea of Red Ink

Mario Anolli, Elena Beccalli and Tommaso Giordani (editors) RETAIL CREDIT RISK MANAGEMENT

Palgrave Macmillan Studies in Banking and Financial InstitutionsSeries Standing Order ISBN 978-1-403-94872-4(outside North America only)

You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above.

Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

Banking Reform in NigeriaThe Aftermath of the 2009 Financial Crisis

Yomi MakanjuolaFreelance Business Consultant, Lagos, Nigeria

© Yomi Makanjuola 2015

All rights reserved. No reproduction, copy or transmission of thispublication may be made without written permission.

No portion of this publication may be reproduced, copied or transmittedsave with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS.

Any person who does any unauthorized act in relation to this publicationmay be liable to criminal prosecution and civil claims for damages.

The author has asserted her right to be identifi ed as the author of this work in accordance with the Copyright, Designs and Patents Act 1988.

First published 2015 byPALGRAVE MACMILLAN

Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke,Hampshire RG21 6XS.

Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010.

Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.

Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries.

This book is printed on paper suitable for recycling and made from fullymanaged and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin.

A catalogue record for this book is available from the British Library.

Library of Congress Cataloging-in-Publication Data

Makanjuola, Yomi, 1958–Banking reform in Nigeria: the aftermath of the 2009 fi nancial crisis / Yomi Makanjuola.pages cm.— (Palgrave Macmillan studies in banking and fi nancial institutions)Summary: “In June 2009, when the Nigerian capital market was in freefall and the banking sector was close to collapse, Sanusi Lamido Sanusi was appointed as Governor of the Central Bank of Nigeria (CBN). What followed was a fi ve-year tenure of crisis management. The sub-prime mortgage crisis in the US and the wider economic and fi nancial crises experienced world-wide provide a backdrop to this vivid account. In Banking Reform In Nigeria, Yomi Makanjuola recounts how emerging and less-developed countries like Nigeria embarked on reforms to rescue their fi nancial systems, achieve fi nancial stability and ward off economic recession, while the world’s attention was focused on unfolding events in the US and G-20 economies. The book highlights Nigeria’s experience in the last decade from the standpoint of the CBN, reviewing events preceding the crisis, the intervention process, the post-intervention fallout and, lastly, lessons learnt from administered reforms.This!book provides an in-depth analysis of the fi nancial events that unfolded in Nigeria throughout the last ten years, and would be an invaluable reference point for academics in African fi nance and to those with in interest in the African and global banking fi elds. “— Provided by publisher.

1. Banks and banking—Nigeria. 2. Banks and banking, Central—Nigeria. 3. Financial crises—Nigeria. 4. Finance—Nigeria. I. Title. HG3431.A6M35 2015332.109669—dc23 2015001770

Typeset by MPS Limited, Chennai, India.

ISBN 978-1-349-69705-2 ISBN 978-1-137-49353-8 (eBook)

Softcover reprint of the hardcover 1st edition 2015 978-1-137-49352-1

DOI 10.1007/978-1-137-49353-8

In Loving Memory of My Late Father

Cornelius Akindele Olatunbosun Makanjuola

This page intentionally left blank

vii

Contents

List of Tables and Figures viii

Acknowledgments x

List of Acronyms xi

Introduction 1

1 High Stakes Intervention 4

2 Prelude to the Financial Crisis in 2009 23

3 Fallout of Intervention I – Maintaining Financial Stability 46

4 Fallout of Intervention II – Civil Matters 64

5 Fallout of Intervention III – Criminal Matters 72

6 Ring-fencing Toxic Assets: Establishment of AMCON 87

7 Resolution of Recapitalisation through Bridge Banks 111

8 Case Study: The Union Bank Recapitalisation Process 132

9 Aftermath of Intervention 151

10 Legacies and Lessons Learnt 166

11 Evolution of the Central Bank of Nigeria 182

12 Central Banking in the 21st Century 200

13 Conclusion 217

Epilogue 220

Endnotes 224

Index 235

viii

List of Tables and Figures

Tables

1.1 CBN/NDIC special audit report (1) 11

1.2 Old and new CEOS of troubled banks (1) 16

1.3 CBN/NDIC special audit report (2) 18

1.4 Old and new CEOS of troubled banks (2) 18

3.1 Cross-border banking in the West African monetary zone 54

5.1 Bank CEOs of intervened banks 75

5.2 EFCC corruption cases 76

6.1 Options for asset management 90

6.2 Centralised AMC model 91

6.3 AMCON-IC terms of reference 97

6.4 AMCON recapitalisation and resolution process 99

6.5 Eligible bank assets (EBA) 100

6.6 AMCON executive management team 101

6.7 Procedural steps – recapitalisation of intervened banks 103

6.8 Acquisition of banking sector EBAs 103

6.9 Total amount injected into 5 banks 105

6.10 Key risks facing AMCON 106

6.11 Overview of the M&A process 108

6.12 Transaction Implementation Agreements (TIAs) 109

7.1 Alternatives to bridge bank 113

7.2 Bridge bank legal documentation 119

7.3 Executive management of bridge banks (2011) 124

8.1 Union Bank subsidiaries and associated companies 139

8.2 Summary assessment of what went wrong 140

8.3 Union Bank rescue and reposition strategy 142

8.4 Near-term and long-term strategy 149

List of Tables and Figures ix

9.1 Timeline of major reforms by the CBN 154

10.1 Unified code of corporate governance 174

12.1 Central bank autonomy criteria 204

12.2 Cukierman index criteria 205

Figures

1.1 Nigerian banking sector as at October 2009 7

6.1 Nigerian banks’ non-performing loans (%) 88

6.2 Shareholders’ funds of affected banks 94

7.1 Summary of the bridge bank implementation process 122

8.1 Union Bank interim management team 139

8.2 Rescue and repositioning strategy 141

8.3 Repositioning the bank for growth 141

8.4 UBN rebranding 146

8.5 Position assessment as at June 30, 2012 147

8.6 Union bank half year 2012 performance 148

9.1 Total assets (December 2011) 155

9.2 Deposits (December 2011) 155

9.3 Branch network (December 2011) 156

9.4 Non-performing ratio (December 2009 versus 2011) 156

9.5 Non-performing ratio (December 2009 versus 2011) 157

9.6 Capital adequacy ratio – 1 (Dec 2009 versus Dec 2011) 157

9.7 Capital adequacy ratio – 2 (Dec 2009 versus Dec 2011) 158

9.8 Liquidity ratio – 1 (December 2009 versus 2011) 158

9.9 Liquidity ratio – 2 (December 2009 versus 2011) 159

9.10 NSE All-Share Index (2002–2014) 160

x

Acknowledgments

I would like to express my gratitude to all those who directly or indirectly made this book possible, particularly the Central Bank of Nigeria and miscellaneous agencies. I acknowledge the contributions of Olaniwun Ajayi LP, diverse authors and Internet sources for providing invaluable reference materials.

My special thanks to my publisher, Palgrave Macmillan, for champi-oning knowledge dissemination globally. Without your prescient and principled endorsement of new authors, this book risked obscurity. The deft professionalism exhibited by Aimee Dibbens, Grace Jackson, Philip Molyneux, Karen Weller, and their colleagues made the editing and design process less arduous than anticipated.

Finally, my appreciation goes to Folake Makanjuola, Funke Alade-Adeyefa and Ran Pagis for their encouragement and support during a demanding but exhilarating intellectual excursion.

xi

List of Acronyms

AGF Attorney General of the Federation

AGM Assistant General Manager

AIG American International Group, Inc

AMCON Asset Management Corporation of Nigeria

AMCON-IC AMCON Implementation Committee

ANC African National Congress

ARM Asset and Resource Management

ASSBIFI Association of Senior Staff of Banks, Insurance and Finance Institutions

BIS Bank of International Settlements

BMPIU Budget Monitoring and Price Intelligence Unit

BNM Bank Negara Malaysia

BoE Bank of England

BOFIA Banks and Other Financial Institutions Act

BOFID Banks and Other Financial Institutions Decree

BoT Board of Trustees

CAC Corporate Affairs Commission

CAR Capital Adequacy Ratio

CBA Central Bank Autonomy

CBN Central Bank of Nigeria

CFPD Consumer and Financial Protection Division

CIBN Chartered Institute of Bankers

CoP Community of Practice

COSO Committee of Sponsoring Organisations

CRDC Corporate Debt Restructuring Committee

CSF Critical Success Factors

DCO Dominion, Colonial and Overseas

DMO Debt Management Office

xii List of Acronyms

EAGLE Efficiency, Accountability, Goal-oriented, Leadership and Effectiveness

EBA Eligible Bank Asset

EDW Expanded Discount Window

e-FASS Electronic Financial Analysis Surveillance System

EFCC Economic and Financial Crimes Commission

EFI Eligible Financial Institution

EGM Extraordinary General Meeting

EITI Extractive Industries Transparency Initiative

EM-LCBI Emerging Markets – Local Currency Bond Index

ETI Ecobank Transnational Inc

EU European Union

EUI Economist Intelligence Unit

FDI Foreign Direct Investment

FMBN Federal Mortgage Bank of Nigeria

FIRS Federal Inland Revenue Service

FSA Financial Supervisory Authority

FSC Financial Stability Committee

FSF Financial Stability Forum

FSRCC Financial Services Regulation Coordinating Committee

FSS Financial System Strategy

FSSC Financial Sector Surveillance Committee

FT Financial Times of London

GBI-EM Government Bond Index – Emerging Markets

GCI Global Competitiveness Index

GDP Gross Domestic Product

GE General Electric

GMT Grilli, Masciandaro and Tabellini

IA Impaired Assets

IBRD International Bank for Reconstruction and Development

ICAAP Internal Capital Adequacy Assessment Process

ICAN Institute of Chartered Accountant of Nigeria

List of Acronyms xiii

ICPC Independent Corrupt Practices and Other Related Offences Commission

IFRS International Financial Reporting Standards

IMF International Monetary Fund

IPO Initial Public Offering

KPI Key Performance Indicator

M&A Mergers and Acquisitions

MPC Monetary Policy Committee

MoA Memorandum of Agreement

MOF Ministry of Finance

MOU Memorandum of Understanding

MPR Monetary Policy Rate

MTE Market-Type Economy

NAICOM National Insurance Commission

NAMA National Asset Management Agency

NASB Nigerian Accounting Standard Board

NAV Negative Asset Value

NDIC Nigeria Deposit Insurance Corporation

NEEDS National Economic Empowerment and Development Strategy

NEXIM Nigerian Export-Import Bank

NIC National Industrial Court

NIDB Nigerian Industrial Development Bank

NIPSS National Institute for Policy and Strategic Studies

NJC National Judicial Commission

NLC Nigeria Labour Union

NNPC Nigerian National Petroleum Corporation

NPL Non-Performing Loan

NSE Nigerian Stock Exchange

NUBAN Nigeria Uniform Bank Account Number

OMO Open Market Operations

OPEC Organisation of the Petroleum Exporting Countries

xiv List of Acronyms

QCP Quality Communication Productions

QE Quantitative Easing

P&A Purchase and Assumption Agreement

PCIDSS Payment Card Industry Data Security Standards

PDP People’s Democratic Party

PENCOM National Pensi on Commission

PSC Presidential Steering Committee

PwC PricewaterhouseCoopers

RBS Royal Bank of Scotland

RCF Resolution Cost Fund

RTC Resolution Trust Corporation

RTGS Real-Time Gross Settlement System

SAN Senior Advocate of Nigeria

SAP Structural Adjustment Programme

SEC Securities and Exchange Commission

SEEDS State Economic Empowerment and Development Strategy

SME Small and Medium-Scale Enterprises

SPV Special Purpose Vehicle

SRO Self-Regulatory Organisation

SSP Shared Services Project

SSS State Security Service

TARP Troubled Assets Relief Program

TIA Transaction Implementation Agreement

TOR Terms of Reference

UB Universal Banking

UBA United Bank for Africa

UBASS Union Bank Association of Senior Staff

WAMZ West African Monetary Zone