Leaving the Tarmac by Leaving the Tarmac

Author:Leaving the Tarmac
Language: eng
Format: epub
ISBN: 0000000000000
Published: 2023-06-26T11:33:49+00:00

CHAPTER TEN

Blind Pursuit of Growth

The CBN Act of 2007 gave the Central Bank overall control and administration of the monetary and financial sector policies of the Federal Government in order to ensure monetary and price stability, issue legal tender currency in Nigeria, maintain external reserves to safeguard the international value of the legal tender currency, promote a sound financial system, act as banker and provide economic and financial advice to the Federal Government. The CBN was now empowered with significant independence to pursue its dual mandates of price and financial system stability.

The Nigerian economy seemed to be achieving an apparently sustainable six per cent rate of growth, much of it from the non-oil sectors such as the booming telecommunications industry. As a country we were enjoying the dividends of democracy while at the same time benefiting from rises in the international price of oil. Professor Soludo won The Banker magazine’s African and Global Central Banker of the Year Awards. His consolidation programme was said by the magazine to be ‘the least-cost, industry-wide restructuring of a banking system anywhere in the world, having cost a paltry one per cent of GDP.’

There was only one problem with Soludo’s reforms. He had made the necessary changes to position the sector for increased capacity and economic relevance.

However, not enough time was spent on the prudential implications of these changes. Professor Soludo had engineered a spectacular growth in the capital base of Nigerian banks and now those banks had to generate a return on their capital. Due consideration should have been given to the issue of adequate supervision of these emerging mega-banks. The capacity of the regulators as

well as the capacity of the banks themselves had not been properly considered or adequately catered for, with adverse consequences.

The ‘twenty-five billion naira’ experience seemed to inject an adrenaline rush into the banking system, jump-starting a period of high growth and expansion.

Professor Soludo had said that Nigerian banks who possessed one billion dollars in capital (one hundred and thirty billion naira at that time) would be afforded special privileges such as managing Nigeria’s foreign reserves. Between 2006

and 2007 with the $1 billion goal in mind a number of Nigerian banks again approached the local and international capital markets to increase their capital.

Nigerian banks had become the toast of investors seeking exposure to emerging markets.

The first banks that issued securities, including First Bank, Zenith, Access and GTB, were very well received by the investing public. It was an extremely exciting time for us. We issued Global Depository Receipts (GDRs) as part of a ninety billion naira public offer for subscription. We arranged a very successful international roadshow managed by J.P. Morgan and Renaissance Capital.

International demand for our GDRs exceeded one billion dollars while local demand for our public offer was in excess of a hundred billion naira (more than US$750 million). We generated well over N200 billion in subscriptions. Because of our disciplined approach to capital management, however, we felt that we should not retain more than N130 billion of the total amount subscribed, which took our shareholders, funds to N166 billion.

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