In October 2010, I wrote a piece in this newspaper about a lady called Cecilia Ibru, the disgraced former CEO of Oceanic Bank in Nigeria. Prior to August 2009, Mrs. Ibru had been the Chief Executive Officer and Managing Director at Nigeria’s Oceanic Bank International Plc since 1997. Cecilia Ibru, at sixty three years of age, was regarded as the First Lady of banking in Nigeria since she was the first female leader to raise her bank’s equity to N25bn, (approx $203m in 2010), the first female to head the 5th largest bank and the 9th largest company quoted on the Nigerian Stock Exchange and in the year 2000, the first female CEO to post over N1bn profit ($8m in 2010 value terms) in a financial statement.
Her sterling career came to a less than illustrious end in August 2009, when the Nigerian Central Bank Governor Lamido Sanusi fired the CEOs of five of the country’s largest banks, including Mrs Ibru, for massive irregularities in corporate governance and lending. On the 7th of October 2010, a Federal High Court in Lagos sentenced Mrs Ibru to 18 months imprisonment without an option of fine for abuse of office and mismanagement of depositors’ funds. Mrs Ibru was also ordered to forfeit assets worth N191 billion ($1.5bn) comprising of 94 prime properties across the world including the United States of America, Dubai and Nigeria to the Assets Management Corporation of Nigeria.
It’s useful to put context to what was going on in the Nigerian banking sector at the time. In 2005 the Central Bank of Nigeria initiated one of the most ambitious regulatory policies to date: an increase in the capital base of banks from 2 billion Naira (about US$ 12.5 million at the time) to 25 billion Naira (US$156 million) in order to improve their competitiveness in the international market. This led to a consolidation in the banking sector from roughly over 80 banks to just 24 banks. The global financial crisis of 2008 impacted the Nigerian economy hard, as international investors pulled out of the stock exchange to plug in gaps resulting from losses in other developed markets. By pulling out of the markets, local investors in the Nigerian stock market were left holding shares that had significantly lost value due to the fire sale activities of international investors, a fact that exposed the vulnerability of how those local investors bought the shares in the first place: through shaky, unsecured loans from a few unscrupulous banks. Nigeria subsequently suffered from a financial crisis of its own. Governor Lamido Sanusi, in a February 2010 speech at the Convocation Ceremony of the University of Kano, gave a bare knuckled synopsis of what went wrong: “The huge surge in capital availability occurred during the time when corporate governance standards at banks were extremely weak. In fact, failure in corporate governance at banks was indeed a principal factor contributing to the financial crisis. Consolidation created bigger banks but failed to overcome the fundamental weaknesses in corporate governance in many of these banks. It was well known in the industry that since consolidation, some banks were engaging in unethical and potentially fraudulent business practices and the scope and depth of these activities were documented in recent CBN examinations.
Governance malpractice within banks, unchecked at consolidation, became a way of life in large parts of the sector, enriching a few at the expense of many depositors and investors. Corporate governance in many banks failed because boards ignored these practices for reasons including being misled by executive management, participating themselves in obtaining un-secured loans at the expense of depositors and not having the qualifications to enforce good governance on bank management. In addition, the audit process at all banks appeared not to have taken fully into account the rapid deterioration of the economy and hence of the need for aggressive provisioning against risk assets.
As banks grew in size and complexity, bank boards often did not fulfil their function and were lulled into a sense of well-being by the apparent year-over- year growth in assets and profits. In hindsight, boards and executive management in some major banks were not equipped to run their institutions. The bank chairman/CEO often had an overbearing influence on the board, and some boards lacked independence; directors often failed to make meaningful contributions to safeguard the growth and development of the bank and had weak ethical standards; the board committees were also often ineffective or dormant.
CEOs set up Special Purpose Vehicles to lend money to themselves for stock price manipulation or the purchase of estates all over the world. One bank borrowed money and purchased private jets which we later discovered were registered in the name of the CEO’s son. 30% of the share capital of Intercontinental bank was purchased with customer deposits. Afribank used depositors’ funds to purchase 80% of its IPO. It paid N25 per share when the shares were trading at N11 on the NSE and these shares later collapsed to under N3. The CEO of Oceanic bank controlled over 35% of the bank through SPVs borrowing customer deposits. The collapse of the capital market wiped out these customer deposits amounting to hundreds of billions of naira. The Central Bank had a process of capital verification at the beginning of consolidation to avoid bubble capital. For some unexplained reason, this process was stopped. As a result, we have now discovered that in many cases consolidation was a sham and the banks never raised the capital they claimed they did.”
Subsequent Central Bank of Nigeria Governors, following Sanusi’s tough stance, have done a lot to restore the confidence in the banking sector. It is both noteworthy and admirable that Sanusi took a view of full disclosure of massive fraud in the industry rather than endorse the cover up tendencies of his predecessors thereby receiving international acclaim for his willingness to drag Nigeria’s financial industry through the mud in order to restore sanity, stability and much needed confidence.