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Sanusi
Lamido Sanusi’s reform strives to cover the gaps left in a similar
exercise carried out between 2004 and 2005, under which banks were
required to embrace consolidation and raise their capital base to a
minimum of N25 billion.

To meet the
condition, there were series of mergers and acquisitions in a scale
considered unprecedented in global banking history. The significant
increase in banks’ fresh capital, boosted by a historic rally in stock
prices, raised banking sector asset as a percentage of the country’s
gross domestic product (GDP) from 30 percent in 2004 to 60.

With such
phenomenal leap in capital and liquidity growth, banks came under
serious pressure to create risk assets amid limited innovation and
products diversification, which worsened the poor risk management as
well as weak corporate governance structures.

This, according to
Uju Ogubunka, a former registrar of the Chartered Institute of Bankers
of Nigeria (CIBN), led to the concentration of assets, particularly
margin lending and trading in petroleum products, with total exposure
to these two sectors put at about N1.6 trillion by December 2008.

Specifically,
issues of inadequate economic and macro-prudential management; poor
corporate governance; lack of disclosure and transparency; poor
regulatory framework, and prudential regulation characterised banking
then.

But, the global
financial and economic crisis around the same period was what worsened
the impact of the decay on the country’s economy.

The injection of
N620 billion into the nine distressed banks last October, was part of
the effort to boost their capital base and provide the capacity for
them to provide normal banking services, while the removal of their
chief executives was to make them accountable for their misdeeds in the
abuse of depositors’ funds.

To enhance
improved supervisory framework, the Central Bank has reactivated the
Financial Services Regulation Coordinating Committee (FSRCC) in line
with the CBN Act of 2007, while prudential guidelines were reviewed to
enhance the capacity to handle risk management, corporate governance,
obligor limits and anti-money laundering, loan loss provisioning as
well as strengthen regulatory/supervisory framework.

Besides, fresh
guidelines on margin lending is expected to guide market operators and
enhance the oversight functions of regulatory agencies as well as limit
the risk inherent in margin lending.

To ensure that
real sector impact positively on the economy, a N500 billion
infrastructure development fund was established last April to provide
long term support to finance the development of critical infrastructure
projects, particularly in the power, agricultural manufacturing sectors.

The recent
establishment of the Asset Management Corporation of Nigeria (AMCON)
will help free the banks of the burden of toxic assets and provide them
a renewed vista to extend credits to the real sector of the economy.

To enable AMCON
meet any shortfall in its activities, the CBN has mobilized the
nation’s 24 banks to allocate 0.3 percent of the value of their balance
sheets into a common pool in the next 10 years.